HJR 72: Joint Subcommittee Studying Public-Private Partnerships Regarding Seaports in Virginia

August 26, 2008

The first meeting of the Joint Subcommittee Studying Public-Private Partnerships Regarding Seaports in Virginia was held in Richmond. Delegate Purkey was elected chair and Senator Wagner was elected vice-chair.

Presentations

Jerry A. Bridges, Executive Director, Virginia Port Authority
The Port of Virginia, the third largest port on the East Coast and the fifth largest port in the United States in 2007, is an economic engine for the Commonwealth, with 343,000 port and port-related jobs statewide, $41 billion in business revenues, and $1.2 billion in state and local taxes. Mr. Bridges described the growth plans (e.g., Craney Island Marine Terminal, estimated to bring to the Hampton Roads region 54,000 new jobs, $1.7 billion in wages, and $155 million in annual state and local tax revenue), which amount to a $3 billion commitment, to accommodate projected cargo demand. He identified financing options available to the Port of Virginia to remain competitive and listed factors that contribute to the East Coast competitive environment in which it operates.

Joseph A. Dorto, President & CEO, Virginia International Terminals, Inc. (VIT)
Mr. Dorto delivered an overview of port operations. Mr. Dorto explained that VIT is a nonstock, nonprofit company created in 1983 by the Virginia Port Authority to operate the State's ports. VIT receives no state general fund dollars, terminal revenue funds the entire operations of VIT and the Virginia Port Authority. Transportation Trust Fund money received by the Virginia Port Authority can only be used for maintenance and capital improvements. In addition, Mr. Dorto stated that VIT has 448 full time employees and hires approximately 800 longshoremen per day. VIT's fiscal year budget for 2009 is $239,969,000 gross income and VIT's fiscal year budget for 2009 is $59,293,000 net income.

VIT has negotiated 10-year agreements with all but one of its customers, and these agreements ensure the steady flow of cargo through the Virginia Port Authority ports for the next 10 years, allowing the Virginia Port Authority/VIT to better plan their improvements and expenditures in the future. Moreover, VIT/Virginia Port Authority has been successful in attracting major distribution centers to the Hampton Roads area in the past five years. VIT has a good balance of import/export containers (49%/51%, respectively, for 2007), which enables truck and rail to have two-way moves and balance their equipment. Mr. Dorto told the joint subcommittee that $465 million has been reinvested into the ports' infrastructure and has paid the cost of operations for the Virginia Ports Authority. Mr. Dorto’s presentation can be found at http://dls.state.va.us/GROUPS/ports/MEETINGS/082608/operations.pdf.

Pierce R. Homer, Virginia Secretary of Transportation
Secretary Homer explained that the Port of Virginia has the ability to be competitive with other ports. He explained that the Port of Virginia "will be competitive well into the future because of external factors" such as:

• The completion of the Panama Canal expansion by 2015.
• Deep natural channels that accommodate the largest cargo ships.
• Existing freight rail network along with significant rail improvements by the federal and state government, Norfolk Southern, and CSX.

However, Secretary Homer noted that securing capital funding for a port expansion in Virginia Port Authority's 2040 plan and road and rail improvements consistent with the Commonwealth Transportation Board's long-range plan are constraints on the Port of Virginia's future competitiveness.

Secretary Homer also discussed how cargo truck traffic will increase as business grows and how road and rail networks will support or constrain growth (i.e., road connections to the Port of Virginia are strained, but rail is a competitive advantage for the Port of Virginia). Secretary Homer then explained that the Port of Virginia could maintain its competitiveness through operational improvements (e.g., dwell time reductions for containers), expansions at APM and Craney Island, and expanded road and rail networks. Specifically, Secretary Homer suggested that for the future competitiveness of the Port of Virginia, the critical highway corridors and rail networks are necessary. He also warned that the slowing economy will reduce public funding for port-related infrastructure. Secretary Homer's presentation can be found at http://dls.state.va.us/GROUPS/ports/MEETINGS/082608/competitiveness.pdf.

Dr. Roy Pearson, Professor Emeritus, Mason School of Business, The College of William & Mary
Dr. Pearson discussed how the Virginia Port Authority operations added value for Virginia businesses, governments, and households in fiscal year 2006. Dr. Pearson first explained the components impacting his findings (i.e., impact components): direct impact, indirect impact, induced impact, and total impact. Direct impact is the production and sale of goods or services being analyzed; indirect impacts are purchases from other businesses to carry out the direct activities; induced impact are earnings created by direct and indirect impacts that are spent by households, businesses, and state and local governments; and total impact is the sum of the three types of impacts. The impacts were modeled using IMPLAN Professional 200, which is based on government data about national, state and local production of goods and services and market transactions and other specific state and local information from surveys and other sources. Dr. Pearson then remarked that the Virginia Port Authority's full contribution to Virginia's economy includes contributions flowing from exports produced in Virginia and imports used in Virginia.

Dr. Pearson stated that Virginia Port Authority-related port operations impacts (which include the Virginia Port Authority, Virginia International Terminal, port service companies, and companies transporting goods to and from the terminals) included $4.46 billion in revenue/sales, $1.6 billion in employee compensation, and 35,665 employees. Total Virginia economic impacts of the Virginia Port Authority include $41.07 billion in revenue/sales, $13.52 billion in employee compensation, and 343,000 employees. With regard to exports, of $14.7 billion in exports handled, $8.1 billion was made in Virginia. Virginia Port Authority Virginia-made export impacts included $16.28 billion in revenue sales, $4.29 in employee compensation, and 93,520 employees. By contrast, with regard to imports, of $21.5 billion in imports handled, $8.5 billion stayed in Virginia. Impacts of Virginia use of Virginia Port Authority imports include $20.31 billion in revenue/sales, $7.59 billion in employee compensation, and 213,816 employees. Dr. Pearson's presentation can be found at http://dls.state.va.us/GROUPS/ports/MEETINGS/082608/VPA.pdf.

Mr. Chick Rosemond, Vice-President of Sales & Marketing, Wyatt Transfer Inc.
Mr. Rosemond expressed concerns of truck drivers who are independent-operators and deliver cargo to/from the ports. He noted, however, the good relationship with such truck drivers and the Virginia Port Authority, which is due in part to the monthly meetings in which Mr. Bridges, Executive Director of the Virginia Port Authority, meets with such truck drivers.

David Mills, Senior Vice President and Corporate Secretary, "K" Line America, Inc.
Nobuo Ishida, Senior Vice President "K" Line America, Inc.
Mr. Mills discussed "K" Line America, Inc.'s history, corporate principles, and financial highlights (e.g., $13.3 billion in revenues; $1.3 billion in operating income). He discussed the international operations of "K" Line America, Inc., such as its containership, dry bulk carrier, car carrier, logistics, short sea and coastal shipping, energy transportation, and tanker and heavy lift businesses. Mr. Mills shared why "K" Line America, Inc. decided to relocate from New York, New York and headquarter in Richmond, Virginia. A low cost of living, enjoyable climate, and a well-educated, quality workforce were found in Richmond, Virginia. Also, locating in Virginia allowed "K" Line America, Inc., as an ocean carrier, to enjoy:

• A strategic location within the Mid-Atlantic Coast.
• A superior inland rail network.
• Favorable relationships with labor.
• State economic development efforts.
• A deep harbor.
• Close proximity to open ocean.
• No ice free or air draft from bridges.

Mr. Mills discussed factors affecting port competition (e.g., good infrastructure to deliver goods to customers, high productivity for vessels, and fast rail connections to/from inland destinations) and means to enhance a port's competitiveness (e.g., recruit exporters and manufacturers, invest in Virginia's infrastructure). The presentation can be found at http://dls.state.va.us/GROUPS/ports/MEETINGS/082608/KLinePPT.pdf.

September 24, 2008

On September 24, 2008, the joint subcommittee studying public-private partnerships regarding seaports in Virginia held its second meeting at 1:00 pm at Old Dominion University in Norfolk, Virginia.

Presentations

Edward L. Brown, Sr., International Vice President of Port of Hampton Roads, International Longshoremen's Association
Mr. Brown first delivered a presentation to the joint subcommittee. He began describing the membership and charitable activities of the International Longshoremen's Association in Hampton Roads. By detailing his many experiences working at the ports over the past decades, Mr. Brown explained why he prefers the current operations of the ports. In addition, Mr. Brown suggested that the current operations of the ports in Virginia have contributed to increased economic growth and attractiveness in the Hampton Roads region. Furthermore, longshoremen have received extensive training in containerization and incomes due to the current operations of the ports, according to Mr. Brown.

Captain Patrick B. Trapp, Commander of Coast Guard Sector Hampton Roads
United States Coast Guard
Captain Trapp delivered a presentation in which he discussed the Coast Guard's relationship to Virginia's seaports. In doing so, Captain Trapp first stated the mission statement of the Coast Guard with respect to the Sector Hampton Roads area. In addition, he explained that the Commander, Sector Hampton Roads serves, concurrently and ex-officio, as the Captain of the Port; Officer in Charge, Marine Inspection; Federal On-Scene Coordinator; Federal Maritime Security Coordinator; and Search and Rescue Mission Coordinator. After explaining the duties associated with the aforementioned titles, Captain Trapp shared some local port security challenges facing the Coast Guard, e.g., nearby chemical and power plants, nearby major fuel pipelines. Finally, Captain Trapp discussed the new regulations relating to the Transportation Worker Identification Credentials and the mandates and composition of the Area Maritime Security Committee.

Dr. Wayne K. Talley, Executive Director, International Maritime Ports and Logistics Management Institute, Old Dominion University
Dr. Talley delivered a presentation entitled "Global Port Governance, Privatization and Operation." After delivering opening remarks about Old Dominion University's business programs that relate to port management, Dr. Talley described four types of ports: "the service port; (2) the tool port; (3) the landlord port; and (4) the private port."

Dr. Talley reported that service ports have decreased in number as privatization of port operations has increased. Privatization is a process in which governments seek "to increase the efficiency of port operations" through asset and service privatization. Note that asset privatization, according to Dr. Talley, is "the transfer of assets from a public port to the private sector (e.g., to a private port terminal operator)" and service privatization is "the transfer of a public port service (but not public port assets) to the private sector its provision."

After explaining port privatization in the United Kingdom, Dr. Talley detailed the process by which port privatization has occurred. He also shared examples of the works of and speculative interests in private port terminal operators.

Other Comments

Jerry A. Bridges, Executive Director, Virginia Port Authority, Joseph A. Dorto, President & CEO, Virginia International Terminals, Inc., and Barbara Reese, Deputy Secretary, Office of the Secretary of Transportation all offered statements in response to the presentations made and the discussions that took place. In particular, Ms. Reese discussed the Public-Private Transportation Act with members of the joint subcommittee.

Next Meeting

The next meeting is scheduled for October 22.

Chairman:
The Hon. Harry Purkey

For information, contact:
Kevin Stokes, DLS Staff

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