Portland privatizes terminal with ICTSI deal

Portland privatizes terminal with ICTSI deal    The Port of Portland Commission is to vote Wednesday on whether to lease 192 acres of its Terminal 6 to global terminal operator International Container Terminal Services Inc.
   The 25-year lease would see the port's container and breakbulk activities privatized for the first time. The port has handled stevedoring.
   Manila-based ICTSI operates 18 terminals in 13 countries, with its flagship facility in the Port of Manila. American Shipper profiled ICTSI in its June 2009 issue. The terminal would be its first in the United States and second in North America. In December, the operator won a concession to operate a terminal in Mexico's largest port, Manzanillo.
   ICTSI said in an e-mail to American Shipper that it wouldn't comment on the potential lease until the commission votes Wednesday. Port of Portland officials, however, said the lease would allow ICTSI to leverage its partnerships with carriers into volume for the port.
   'We have done a good job of operating the container facility to serve the local market,' port spokesman Josh Thomas told American Shipper. 'However, in a relatively small consumer market, we have struggled to sustain regular carrier service that shippers in our region require. ICTSI brings a wealth of terminal operations experience and strong carrier relationships gained from its global reach. This experience and these relationships will enhance Portland's ability to sustain and grow the business. ICTSI's large base of operations and financial strength also allows it to access capital markets that are not available to the port.'
   Thomas said the port was in an unusual situation in that it was the last major U.S. West Coast port to handle terminal operations.
   'Carrier and terminal operating companies routinely operate at U.S. container ports under long-term leases,' he said. 'In fact, Portland was the last remaining West Coast public port authority operating a container terminal. The majority of U.S. ports operate using this model. Transitioning from operator to landlord allows the port to shift much of the capital risk of operating the container business to a private party who brings significant additional global marketing reach to Portland. Growing ocean shipping services stands to benefit Oregon shippers over time. The deal will stabilize the port's revenue and improve its capability to plan and make investments in long-term, job-generating activities.'
   Portland previously conducted a competitive bid process that identified a set of global players that could be successful operating T-6. However, the port concluded in late 2008 that deteriorating market conditions made it a poor time to transition to a private operator.
   'ICTSI was an active participant during the prior concession process that was suspended in late 2008, and they continued to have an interest in the North American market, albeit under a framework very different from a long-term facility concession,' Thomas said. 'In this respect, the port and ICTSI had a mutual interest in exploring opportunities.'
   The lease would see the port lease 192 acres of the 386-acre T-6, including containers and breakbulk, but not autos. The facilities would remain in public ownership, with the port continuing to provide security and maintenance services. The port would maintain ownership of the terminal’s four quay cranes, but ICTSI would be responsible for securing yard equipment.
   Perhaps most significantly, ICTSI has agreed to make Portland their only U.S. West Coast operation.
   'This lease agreement represents a new operating model for Terminal 6 that best positions the port's container and breakbulk steel business for long-term growth,' Thomas said. 'Four years in the making, it is an important strategic objective for the port. We believe leasing the facility is our best opportunity to grow volumes and jobs. ICTSI has agreed to make the Portland operation their exclusive terminal facility on the U.S. West Coast. This assures that Portland's growth is their top priority in the U.S.'
   According to a fact sheet about the lease the port provided to American Shipper, 'ICTSI will pay $8 million at closing in addition to an annual rent payment of $4.5 million, subject to any increases in the consumer price index. As terminal volumes increase over time, ICTSI will pay the port additional incremental revenue per container moved.'
   Portland has struggled to secure consistent services in the last decade, mostly due to the stiff competition it faces from larger ports in the Pacific Northwest, like Seattle, Tacoma and Vancouver. The fact that the port sits 100 miles inland on the Willamette River is also a hurdle for marketing officials to overcome. In March 2009, it lost a key link to Asia when 'K' Line dropped the port from its Asia/North America/Europe NOWCO-A pendulum.
   The port handled 174,000 TEUs in 2009, down 29 percent from 2008, and barely half of its record volume (339,000 TEUs in 2003). In the first three months of 2010, while container volume was strengthening for all but a handful of ports, volume in Portland continued to weaken by nearly 20 percent, to 39,000 TEUs. The terminal has annual capacity for 400,000 TEUs.
   Portland took hits across all its cargo sectors in 2009: car volume fell 41 percent to 240,000 units; grain volume fell 3 percent to 4.3 million tons; mineral bulk tonnage fell 43 percent to 3.1 million tons; and breakbulk volume fell 60 percent to 393,000 tons.
   According to American Shipper affiliate ComPair Data, three international container services call at Portland from the 11 international regions tracked by ComPair Data — one each to Asia, Europe, and Oceania. They are:
   ' Hanjin Shipping and COSCO's PNN transpacific service, which has a rotation of Ningbo, Shanghai, Busan, Seattle, Portland, Seattle, Vancouver, Busan, Gwangyang, and Ningbo. The service is operated with five vessels averaging 5,282 TEUs, with Hanjin providing three and COSCO two. CKYH Alliance partners 'K' Line and Yang Ming take slots on the service.
   ' Hapag-Lloyd's MPS service between the U.S. West Coast and Mediterranean. The service is operated with five Hapag-Lloyd vessels averaging 2,316 TEUs with a rotation of Cagliari, Livorno, Genoa, Marseilles-Fos, Barcelona, Valencia, Cartagena, Manzanillo, Los Angeles, Oakland, Vancouver, Portland, Oakland, Los Angeles, Manzanillo, Caucedo, Valencia and Cagliari.
   ' Swire Shipping's ANZ-WCNA service, using four multipurpose vessels with an average capacity of 1,800 TEUs. Rotation is Port Kembla, Tauranga, Long Beach, Kalama, Portland, Vancouver (U.S.), Vancouver, Port Mellon, Chemainus, Long Beach, Brisbane, Melbourne and Port Kembla.
   U.S. Jones Act carrier Matson also operates a domestic service to Hawaii from Portland. The Hawaii Service 1 has a rotation of Portland, Seattle, Oakland, Honolulu, and Portland.
   Portland would seem to fit the ICTSI model well. The operator has focused on underperforming terminals in growth markets (though Portland can hardly be called an emerging market).
   'We look at medium-size ports — preferably import/export berths, not transshipment — in countries that have potential for quick growth,' Edgardo Abesamis, ICTSI's vice president of operations, told American Shipper in April 2009. 'We don't have large capital to invest, so we look at ports where we can raise the capital.
   'We like to run our own terminals. We look for local partners, but we like to be the terminal operators, not just a passive investor. We like to think we bring in a certain element — the ability to work in a relatively underdeveloped facility.'
   As Port of Portland Executive Director Bill Wyatt told the Portland Oregonian, ICTSI 'are not in the largest harbors in the world, but they are successful at taking niche operations and growing them.”
   ICTSI made $175 million in operating profit in 2009, an 11 percent decline on 2008. According to maritime consultant Dynamar, it's the 10th-largest container terminal operator in the world. ' Eric Johnson