Virginia aims for $670 million in new port investment

The Virginia Port Authority plans to extend VIG terminal lease by several decades and the governor wants to use bonding authority to borrow $350 million for other port improvements.    Infrastructure investment plans actively being pursued by state officials would increase the Port of Virginia’s capacity to handle international cargo containers by more than 50 percent, Secretary of Transportation Aubrey Lane said in an interview Thursday.
   Taken together, the upgrades are expected to require $670 million in capital.
   Lane confirmed that the Virginia Port Authority has tentatively agreed to a 35-year extension of its lease for the privately-owned Virginia International Gateway (VIG) marine terminal, which he said will likely be signed in the first quarter of 2016. The lease, which has 15 years remaining, will now run through 2065.
   VIG is owned by Alinda Capital Partners, a Connecticut-based infrastructure investment firm, and Universities Superannuation Scheme Ltd., which has a global infrastructure portfolio and is the largest private sector pension fund in the United Kingdom. It bought the facility from APM Terminals in late 2014. 
   The APM Terminal site in Portsmouth is unique in the United States because it is a privately owned facility, built from scratch by APMT on private land. Container terminals in the United States are typically owned by port authorities, which have increasingly sought multi-decade concessions under which companies are leased land and given exclusive operating rights in exchange for some combination of infrastructure investment, cash, revenue-sharing or other considerations.
   Commissioned in 2007, the semi-automated APMT facility uses remote-controlled, rail-mounted gantry cranes to handle container yard operations. At the time, it was considered the most modern facility in the United States, and to date, only a couple other facilities have the same level of technology to improve efficiency.
   In 2010, APMT leased the Portsmouth marine terminal to the Virginia Port Authority for 20 years in response to lower-than-expected container volumes due to the global recession and maneuvering by port officials to attract most other shipping lines to the rival Norfolk International Terminal at the Port of Virginia. 
   State officials have been keen to rework terms of the VIG lease since Gov. Terry McAuliffe took office in 2014, saying the port authority paid too much ($40 million per year) for the privilege of adding capacity and operational flexibility by having three terminals under single management – especially at a time when the port was losing money.
   The Virginia Port Authority’s operating arm also runs Norfolk International Terminal and Portsmouth Marine Terminal.
   As a condition for the long-term lease, VIG’s owners will finance the $320 million second-phase build-out, doubling capacity to more than 1.2 million TEUs and creating 800 more feet of berth space, Lane said. The investors needed a long-term revenue stream in order to commit to the new investment, he added.
   “We have the ability to purchase the entire facility at fair market value at the end of the lease,” Lane said.
   Lease terms are confidential until the new contract is executed.
   The VIG extension gives the state and port officials time to develop a new container terminal at Craney Island, which requires gradually reclaiming land along the Elizabeth River using dredge disposal material. The concept is for a 5 million-TEU automated terminal with deep berths, super post-Panamax cranes and high-velocity on-dock rail. The facility is estimated to cost $3 billion. Some retaining walls are already in place, but further progress depends in large part on whether Congress appropriates money for the federal share of dredging, as well as new state funding. The master plan currently envisions having the first section of Craney Island in operation by 2030.
   The Virginian-Pilot first reported that the Port of Virginia was in the process of securing a long-term extension of its VIG lease.
   Meanwhile, McAuliffe plans to request $350 million from the legislature to modernize Norfolk International Terminal so it can efficiently handle more cargo, Lane said. The budget request is part of a larger infrastructure package that will be considered by the General Assembly when it convenes in January and will be paid for by issuing state bonds.
   The goal is to automate Norfolk International Terminal in the manner of VIG and reconfigure the current footprint. If approved, some of the improvements could be realized by the end of 2017, with the entire project completed by the end of 2019, Lane said.
   The extra capacity at VIG and NIT should be welcome news for importers and exporters. Conditions have recently improved under the leadership of new port director John Reinhart after two years of explosive volume growth and difficult winter weather led to stretches of severe congestion. Reinhart, who has also returned the port’s finances to the black, instituted a number of emergency and intermediate measures to address crowded container yards and long lines experienced by truckers making pickups and deliveries. Changes included extending weekend hours for terminal gates and construction of a new asphalt pad to store rail-bound containers at VIG and separate them from containers scheduled to be hauled by trucks so as to minimize the amount of restacking by yard cranes.
   The Port of Virginia is close to 100 percent capacity utilization. Volume grew 7.6 percent to 2.4 million TEUs in 2014. The Hampton Roads terminals set a new monthly container record in October with 233,466 TEUs moving across its docks, up 5.6 percent from the same month last year. October marked the eighth consecutive month of TEU volumes exceeding 210,000 units. Through the first 10 months of 2015, TEU volume is up 8.5 percent, or 167,761 units ahead of last year for the same period.
  The spurt in throughput during the past two years was partly the result of cargo diversion by shippers trying to avoid backlogs at West Coast ports that were confronted with a work slowdown as labor talks between dockworkers and management stalled. But many large retailers are now pursuing a dual-gateway strategy to help minimize supply chain disruptions and continue to pump a portion of their Asia cargo through East Coast ports such as Virginia. Port officials also say infrastructure expansion is needed to handle the next-generation of big-box ships that will be able to reach the East Coast when wider locks at the Panama Canal are available next year and that currently serve the East Coast via the Suez Canal.