Update on Ports: Looking for Private Partners and a New Perspective

A very interesting and comprehensive article appeared in the Galveston County Daily News. The article traces the (short) history of large public-private partnership proposals for ports, beginning with the CenterPoint Properties Trust, (an industrial real estate company), proposal for $3.5 billion offer to take over operations of the Virginia state-run port authority in a 60-year partnership.

With ports being commercial enterprises, involving the private sector in not new nor is some form of public-private partnerships. Some 35 ports are using private sector funding for large projects.

But the unsolicited bid by CenterPoint Properties Trust, a firm mostly owned by the California Public Retirement System, epitomized a growing infatuation among public pension funds and private equity firms with the maritime freight sector. “It caught everyone’s attention,” Galveston port Director Steve Cernak said. Many of the ports need new facilities and Virginia specifically wants to build a $2.4 billion facility on Craney Island. The Virginia Port Authority is entertaining several proposals.

As I have discussed before, this activity is being driven by the expansion of the Panama Canal due to be completed in 2014. “Freight economists across North America have forecast a shift in container traffic from West Coast ports to the Gulf of Mexico and Eastern Seaboard as a result of wider Panama Canal locks.”

The article notes the paradigm shift to give more operational control and interest to the private sector.

My colleague Len Gilroy is cited in the article:

Times are ripe for governments to give more control of seaports, airports and highways to private groups, Gilroy said.

But the trend is going to take some getting used to by U.S. residents, long resistant to turning management of public assets over to private firms, he said.

“It’s a paradigm shift; people didn’t grow up with that experience,” Gilroy said.

But other countries successfully have privatized public assets, he said. Most airports in Europe are products of private investment and management, he said.

But U.S. uneasiness with private investment in transportation sectors — particularly from foreign entities — helped scuttle negotiations between Galveston and Hong Kong-based Hutchison Port Holdings in 2006.

Galveston Port Director Cernak summed it up correctly:

“If you have an obligation to manage and run a port asset for the benefit of the community and you have the ability to use private investment and minimize downside risks while still meeting your mission statement” ,… are obligated to pursue private investment.