Cargo Business Newswire

Wednesday, May 28, 2014

Virginia Port Authority profits hurt by rail incentive deal

A major reason the Virginia Port Authority is losing money is because of a deal made in spring 2012 by port operator Virginia International Terminals, which had offered discounts to ocean carriers as an incentive to drive more rail cargo through the port.

The incentives were paid in addition to long-term contracts that provided "tiered" discounts for rail containers once certain benchmarks were met.

"The incentive was costing the port money with each box that went out on rail," said Scott Bergeron, former vice chairman of the VPA.

Last year, the port posted record volumes and projected a modest profit after five consecutive years of losses. This seemed to validate the VPA's rejection of privatization of its terminals. It stayed with VIT as its port operator, but regained tighter control by turning it into a limited liability company.

Then in late February, John Reinhart, the new CEO and executive director, revealed that the port had lost $15.7 million through the first seven months of its July-to-June fiscal year.

Bergeron asserts the rail incentives – granted during the state's review of the port privatization proposals – were part of a "triple whammy" that hit the port.

The discounts "contributed to higher cargo volumes, which were effectively being subsidized," Bergeron said. Two other factors boosted incoming cargo: the rebounding economy and gridlock in New York, which led to diverting cargo to Hampton Roads. Together, these trends accelerated the port's losses, putting it into a financial tailspin, he said.

Another key factor in the port's financial loss is the VPA's 20-year lease of APM Terminals' Portsmouth facility. Rent payments currently around $50 million a year could grow to over $100 million a year by 2030, when the lease is up, according to a June 2013 report.

For more of the Virginia-Pilot story: hamptonroads.com