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Port Privatization Trend Growing

More ports looking to public-private partnerships to fund improvements and expansion

Shirley Ybarra
April 23, 2009

Efficient trade depends on the capacity of our nation's transportation infrastructure, making ongoing infrastructure maintenance and modernization projects crucial to the long-term success of the economy. With the economy in recession and the nearly every state facing budget deficits, legislators and local officials are being forced to consider better ways to pay for infrastructure improvements.

 

Like America's highways and railroads, ports are an integral part of the nation's transportation system. Today, many ports must update their facilities to accommodate for changing vessel sizes, fluctuating trends in world trade, and escalating global port security standards. According to the American Association of Port Authorities (AAPA), United States ports invested more than $31.2 billion to improve their facilities between 1946 and 2006, nearly a quarter of which was invested after 2001. Between 2007 and 2011, 35 of the 85 ports surveyed by the AAPA are committed to investing approximately $9.4 billion in infrastructure improvements.

 

Unlike highways and the highway trust fund, ports do not have a dedicated source of federal funds. Historically, ports have relied on the revenues generated from operations, bonds supported by those revenues and a few government grants to keep their facilities up to date.  Some state and local governments appropriate money from their budgets to support port improvements.  Generally, however, ports are left to fund themselves.

 

Recently, more and more ports have been turning to third-party investors to finance infrastructure modernization projects through public-private partnerships (PPPs). This change is due to both a lack of overall funding available given the demand for facility improvements  and a growing number of private investors who see great potential for future returns on their investments in the nation's ports. As managing partner of the private infrastructure investment firm Highstar Capital, Christopher Lee puts it: "Ports are going to be one of the first lines of the economy to turn when the environment improves. We want to be ahead of the competition."

 

In my previous commentary, I noted that the Virginia Port Authority received an unsolicited public-private partnership proposal from the investment firm, CenterPoint Properties Trust. Although the proposal was initially met with skepticism from legislators and members of the media, it is now posted on the Port Authority's website and is undergoing review for approval according to the process prescribed by Virginia's Public Private Partnership Act of 1995.

 

This time-tested process has previously been used to bring successful PPPs to fruition in Virginia, such as the High-Occupancy Toll (HOT) lanes now under construction on the Beltway in Northern Virginia and the completed Pocahontas Parkway. Competing proposals for operating Virginia's ports are due in July, and as I previously advised, authorities in the Commonwealth of Virginia should carefully consider the PPP proposals, given Virginia's past success with public-private partnership infrastructure projects.

 

And the trend is continuing. In recent weeks, public-private partnership proposals for ports have appeared in two other states, Maryland and Alabama.

 

Maryland

 

On April 15, 2009, the Maryland Port Authority (MPA) issued a request for a private investor to lease and operate the Port of Baltimore's Seagirt Marine Terminal. The MPA would like to partner with a private investor to fund a new 50-foot berth and increase the capacity of Seagirt Marine Terminal's waterborne containers.

 

According to the terms of the proposed deal, the MPA would lease the 200-acre Seagirt Marine Terminal exclusively to the private investor. The private investor would be required to invest in a new berth, cranes and other necessary infrastructure, while providing a revenue stream to the MPA and meeting a minimum annual cargo guarantee. The government would continue to own the port, but would award the private investor with the port's business that is currently under contract with the MPA/Maryland International Terminals. The full request is available here. The MPA hopes to close a deal on the public-private partnership in 2010.

 

Alabama

 

The Alabama State Port Authority recently solicited a request for a private partner to invest in the development and operation of the 74-acre Garrows Bend Intermodal Container Traffic Facility (ICTF) in Mobile, Alabama. The ICTF would handle both domestic and international traffic for multiple rail carriers and steamship lines and would finance its own operations. According to the ASPA, the facility would benefit the local economy by creating jobs, improving the ASPA's competitive position, and reducing highway congestion in the region.

 

According to Jimmy Lyons, director and CEO of the ASPA, "This is the first step in the process by the Port Authority to initiate efforts to identify a private sector partner for development of the intermodal facility and is a continuation of the Choctaw Point project that started in early 2000. From the beginning, we have envisioned this project as a true public private partnership." Potential private investors must submit a formal expression of interest by May 22, 2009 (more information is available here).

 

Public-private partnerships are becoming increasingly popular because port authorities can no longer rely on just their own revenues and the limited amount of funding available from state and local governments to fill in funding gaps, and because private investors are confident that ports will be at the forefront of the economy when global economic conditions begin to improve.

 

One of the forces driving investor confidence in ports is the opening of the expanded Panama Canal, which is scheduled for 2014 or 2015. Once the Panama Canal is expanded, mega-ships, which cannot fit through the Canal in its current condition, will be able to reduce their transit times by cutting through the canal en route from China to East and Gulf Coast ports in the United States. Private investors that put their money down now are likely to receive generous returns from the lucrative container trade from China, which will be able to arrive on the East Coast faster through the Panama Canal than it could moving inland by cargo or rail from West Coast ports in the U.S.

 

Public-private partnerships are a natural extension of the business model for ports, and we are sure to see more port authorities following the examples of Virginia, Maryland, and Alabama in the future.  This is because, unlike traditional highway transportation departments, port authorities have always had to compete with other ports to maintain a customer base. Port authorities that capitalize on the port's natural ability to operate in a business climate by seeking capital from public-private partnerships will be well positioned when the expanded Panama Canal ushers in a new and improved world of shipping.

Shirley Ybarra is a senior transportation policy analyst at Reason Foundation.


Shirley Ybarra is Senior Transportation Policy Analyst


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