Although one terminal operator leaves, there’s development elsewhere in the Port of Oakland.
It’s a busy time at the Port of Oakland.
In January, Outer Harbor Terminal LLC (OHT), operator of its second largest container terminal, announced it would shut down operations at the end of March, just six years into a 50-year concession.
At the same time, redevelopment of the former Oakland Army Base by both the port and city of Oakland is breathing new life into the waterfront.
The base was closed in 1993 via the Base Realignment and Closure (BRAC) Commission. In 2003-06, 185 acres of land (and 56 acres of submerged land) was transferred to the port authority and 228 acres to the city, both of which are redeveloping their properties separately.
OHT was a joint venture of Ports America and Terminal Investment Ltd. Group, an affiliate of the world’s second largest container-shipping company, Mediterranean Shipping Co. A few weeks after announcing its decision to close, it filed for protection under Chapter 11 of the Federal Bankruptcy Code.
The terminal encompassed berths 20-26 at the Port of Oakland, and handled about 448,000 TEUs or about 20 percent of the port’s 2.28 million TEUs of volume in 2015.
The decision to abandon Oakland is a big reversal for Ports America and TIL. When they won the concession in 2009 they projected that Oakland would become an increasingly important national gateway for imports as the population in Southern California grows and a greater share of Los Angeles and Long Beach capacity caters to those consumers.
Ports America said it now is focusing on West Coast investments and expansion in Los Angeles, Long Beach, the Pacific Northwest and western Canada.
To be sure, OHT’s departure is a blow to one of the nation’s largest ports—the Association of American Port Authorities ranked it as the sixth largest terminal in 2014 after Los Angeles, Long Beach, New York/New Jersey, the Northwest Seaport Alliance (which is the combined entity formed by the ports of Tacoma and Seattle), and Savannah.
Port of Oakland Executive Director Chris Lytle made it a priority to find new terminals for carriers that call the port and the shippers whose cargo they carry.
By early February he said “there is now a home for all the cargo that would be leaving Ports America.”
“Right now, the most important thing for us at the port is to insure an orderly efficient transition of this business out of Outer Harbor Terminal to the new terminals,” Lytle said. “We don’t want any stumbling, any hiccups, we want that to go smoothly.”
In a bit of irony, it was OHT that hosted the highly publicized visit on New Year’s Eve of the CMA CGM Benjamin Franklin, the largest container ship ever to dock in the United States. It was a demonstration that the port could handle ships as big as 18,000 TEUs.
Oakland’s container volume in 2015 was down 4.9 percent, as volumes were hurt at the beginning of the year by the port congestion up and down the West Coast that accompanied the fractious 2014-15 labor negotiations between the International Longshore and Warehouse Union and its employers.
Lytle rejected the idea that worker slowdowns or other labor issues caused the operators of OHT to decide to end operations at the port.
He also noted in his “State of the Port” address in January that about 400 new longshoremen—casuals and registered employees—joined the port’s workforce in the prior year.
Oakland, he said, is the “export gateway” for agricultural products from California and other parts of the country, but that U.S. sales abroad have been hurt by the global economic slowdown and strong U.S. dollar.
Oakland’s imports were up in about eight out of the last 10 months of 2015, Lytle said. The port is eager to find a carrier willing to make Oakland, rather than Long Beach or Los Angeles, a first inbound port of call to give local companies a faster transit-time option.
In early February, Port of Oakland commissioners approved a temporary program to provide an incentive to the three remaining terminal operators to open their facilities in the evenings and weekends. They are TraPac Terminal; SSA Terminals, which operates the largest terminal in the port, the Oakland International Container Terminal (OICT); and Everport Terminal Services, which operates the Ben E. Nutter Terminal.
The port authority said the $1.5 million for the terminals would be used to partially fund truck gates during off-peak hours to handle the sudden influx of traffic.
The program will go on for 12 weeks, and there will be no fee charged by the port to truckers or cargo owners for the extended hours. OICT had already committed to extended hours and other terminals were expected to take advantage of the program.
Port staff told the commissioners they believe providing financial assistance for extended gates will help “kick start” routine implementation of extended gates.
In exchange for receiving funds to help subsidize evening and weekend gates, terminals must agree to get drayage trucks in and out of the facilities within 75 minutes.
The port will monitor truck traffic using an innovative system created by Leidos that uses Bluetooth signals from cell phones to monitor where trucks are around the port.
Lytle says the system has great potential for monitoring truck queue times in the port and helping the port reduce congestion.
Last year, the four container terminals in Oakland, including OHT, proposed creating a permanent program called “OakPass” that would be similar to PierPass in the ports of Los Angeles and Long Beach, where shippers moving cargo in and out of terminals during peak hours fund extended hours.
The Federal Maritime Commission asked for additional information on OakPass after shipper groups like the National Industrial Transportation League and Agriculture Transportation Coalition raised questions about its need and the requirement to charge fees to fund extended hours.
With all the uncertainty at the port resulting from OHT’s decision to end operations, John Cushing, president of OakPass and PierPass, said “at this time, OakPass is on hold.”
There are several other elements of the port’s “continuity plan” to keep trade flowing smoothly and preventing vessel diversions.
OICT will transport a number of import containers out of its facility every night. They’ll be available at a nearby location for immediate pick-up by truckers in an operation that is similar to SSA’s Shippers Transport Express operation in Southern California.
Oakland said it will also open a container depot in the Central Valley for OICT customers. This will enable cargo owners—including Central Valley growers—to pick up or drop off containers without long drives to the port.
“This is not the end of the world and actually we see it long term as a very positive thing,” Lytle said of the departure by Ports America and TIL.
He said the port has excess capacity and the three remaining facilities will be able to move more cargo through their existing footprints.
There is also the possibility the port will potentially be able to diversify, handling other types of freight, such as roll-on/roll-off or project cargoes, at the Outer Harbor Terminal.
The credit agency Fitch Ratings said the port accounted for $37.9 million, or 32 percent, of Oakland’s maritime revenues.
“The port estimates the first full-year financial impact at $10 million to $15 million, net of certain anticipated offsets such as cargo reallocations to other terminals, to improve annually thereafter as the port recovers over a five- to six-year estimated time horizon,” Fitch said.
Fitch said measures to prevent OHT from breaking its lease were “atypically weak,” because OHT had made a big upfront payment of $60 million to obtain the concession.
While losing a third of its marine terminal revenue is a major financial hit, Fitch pointed to a number of mitigating factors:
• It estimated only 15 percent of the port’s cargo is discretionary. A large portion of cargo is made up of exports from California’s Central Valley. “As a result, the port anticipates the lion’s share of cargo will stay in Oakland.” There would be “secondary positive effects on those terminals’ financial positions and port operations, which are not currently running at full capacity.”
• The seaport only provides about half the port’s revenues, with the rest coming from Oakland Airport and commercial real estate activity such as Jack London Square in downtown Oakland.
• Port officials are negotiating with TraPac, which operates the terminal adjacent to OHT to lease two of the seven berths OHT is leaving, and reportedly the company may invest $30 million to $50 million to make it better.
Ed Ferris, president of ILWU Local 10, said he was “extremely disappointed by Ports America’s decision. I think they were very unprofessional and discourteous to all the parties that are involved. Now everybody’s scrambling to try to keep the cargo in Oakland.
“They claimed that they were losing money and it was a business decision. I understand that you have to make unpleasant business decisions at times, but they could have given advance notice to calm some of the industry’s fears,” he said.
While the additional cargo at other terminals and long hours will provide jobs, Ferris estimated there were about 100 longshoremen who had steady work at OHT that will now have to go to the hiring hall to get work on a daily basis.
“It’s going to impact their lives and they were blindsided by it,” he said.
Lytle was more optimistic — “All the cargo there is now going to other terminals. So the loss of jobs for longshoremen, I would have to say, would be very small.”
When OHT won the concession in 2009, officials expected it to invest $2.5 billion for capital improvements over the life the concession.
Ferris complained that the terminals didn’t deliver on those promises, adding “it’s going to take a lot of work to get it fixed up for the next operator.”
Army Base Redevelopment. In November, Port of Oakland commissioners authorized exclusive negotiations between the port and CenterPoint Properties, and gave them six months to reach agreement on developing a “Seaport Logistic Complex” at the former Army base. In early February, Lytle said the talks were progressing.
The logistics complex would encompass 20 acres of port property and include transload and cross-dock facilities where importers could swiftly transfer containerized cargo arriving in ocean containers into 53-foot domestic intermodal containers.
CenterPoint is a major developer of transportation-related real estate projects that is owned by the California Public Employees Retirement System (CalPERS).
The site is located across from a 13-track rail yard that the port has nearly completed. It includes about 41,000 linear feet of track, eight support or storage yard tracks with about 29,000 feet of track, and 12,000 linear feet of manifest track.
The goal is for the port to accept unit trains with 100 railcars, because transloaders can get much better rates from railroads if they can utilize unit trains.
Construction is also expected to begin mid-year on a 370,000-square-foot Cool Port Logistics facility that will be able to receive 36 refrigerated boxcars per day laden with chilled beef, pork, poultry and other perishables from the U.S. interior.
The cargo will be loaded into shipping containers for export, and because the transload facilities are within the port and don’t have to travel over highways, they can be loaded to a heavier weight.
The project is a joint venture of Lineage Logistics, a cold storage company with more than 600 million cubic feet of space in 100 facilities around the country, and Driesbach, a regional company in the refrigerated warehouse and 3PL businesses.
Lytle said the project will “cement Oakland as the premiere location for perishable distribution.”
Cityside. Oakland Global, the city’s side of the former Army base, has a number of planned projects including additional railyards, a recycling facility, a bulk terminal and warehouse, and distribution space.
California Capital and Investment Group, which is developing Oakland Global, is partnering with Prologis to build out the warehousing and distribution space.
Prologis envisions a three-building project with around 675,000 square feet of space. The company says it hopes to begin construction on the first phase this spring.
Scott Lamson, president of Prologis’s northwest region, said the project would include warehouse and “rapid deployment centers” (RDCs) designed for quick turnaround of products.
Lamson noted that warehouse space in Oakland is more expensive than in the Central Valley. The RDCs are likely to be used for products that come off ships and get immediately transloaded, or that move from another location and need to be repackaged and distributed to end-users in the Bay area. These might include goods sold by e-commerce companies or companies that want to offer customers just-in-time or one-hour deliveries, as well as food and beverage supplies for restaurants.
Meanwhile, the city is embroiled in a major controversy over its plan to build a bulk terminal on the Army base for commodities such as borax, soda ash, potash, salt and coal.
Opponents of coal exports have vowed to prevent the movement of coal through the city’s waterfront.
The Oakland Bulk and Oversize Terminal would be located adjacent to the Bay Bridge that connects Oakland to San Francisco.
Jerry Bridges, president and chief executive officer of Terminal Logistic Solutions, the company that would operate the bulk terminal, said it would have annual capacity to handle 6.5 million to 9 million tons. Bridges is the former executive director of both the Port of Oakland and the Virginia Port Authority, through which about a third of U.S. coal exports flow.
Hundreds packed a six-and-a-half-hour Oakland City Council meeting on Sept. 21. Many expressed opposition to the terminal handling coal because of its contribution to global warming, and concerns about the impact of coal dust and increased train traffic on the health of local residents. Oakland Mayor Libby Schaaf opposes the terminal handling coal. Others supported the project because they believe it will create sorely needed jobs for city residents.
On Feb. 16 the council was scheduled to award a contract to Environmental Science Associates to review the testimony and the proposed terminal.
Bridges said TLS has no current plans to handle breakbulk commodities.
Bulk products at the terminal would be stored in covered domes prior to being loaded onto ships.
The number of commodities the terminal handles will depend on factors such as volume commitments and the size of vessels.
The terminal’s footprint would allow it to erect nine different domes, each of which will be able to store about 60,000 tons of a commodity.
“We figure on that footprint we should be able to easily handle five different commodities, but, of course, we can handle more because we can store a different commodity in every dome that we put up,” Bridges explained.
“We will build to capesize capacity,” he said. A capesize dry-bulk ship is one that is too large to pass through the Suez or Panama Canal and must sail around the Cape of Good Hope or Cape Horn.
Given the existing water depth, Bridges said the terminal could serve a 130,000-deadweight-ton ship.
He said the terminal would not need to dredge to handle that size ship. Instead, ships would tie up at “dolphin” structures offshore and be loaded near the ship channel. “Vertical infrastructure,” including the domes and loading equipment at the terminal, will cost about $250 million.
Coal would be handled in covered hopper cars, as many water-sensitive products are today. The company is working with EcoFab, a manufacturer of these railcar covers.
Bridges said there is a premium to using covered railcars and a covered terminal to handle bulk products, but added the expense was warranted to improve environmental sustainability, minimize health risks to the surrounding community and protect the quality of the products that move through the terminal.
The terminal may command a premium price, because products will be protected and the terminal’s loading equipment will be able to load upwards of 7,000 tons per hour, which is double the rate of other terminals, he said.
Bridges said there’s demand for coal, and under the terms of its agreement, TIL has the right to carry the product.
“We’re not insensitive to the community concerns and the community demands. But at some point reasonability has to prevail,” he said.
He said coal represents about “half the volume of bulk commodities that are shipped off the West Coast… So we can’t turn our back on that big a percentage of the market if we’re going to open up a bulk terminal.”