Maersk tears apart American port operator

During a public hearing in the American state of Virginia, APM Terminals jumped on the present state-controlled operator of the Port of Virginia; the control of which the Maersk Group has offered billions in order to take over. A final decision is soon to come.

In an unambiguously and remarkably hefty defence of its offer to take over the operations of the sixth largest container port in the US, APM Terminals USA Vice President, John Crowley slammed the current state-controlled operator of the Port of Virginia according to material published by the Maersk Group Tuesday.

Read the speech here

John Crowley spoke in front of politicians and representatives of authorities in the Virginia Senate Subcommittees for Transportation, Economic Development and Natural Resources. Especially the part concerning the performance level of the current port operator, Virginia International Terminal (VIT), highlighted by APM Terminals as extraordinarily important in the published material, is one long tearing apart of the state-controlled operator who itself has made an offer on the operation of the port.

In the spring of 2012, APM Terminals handed in an unsolicited offer on the operation of the Port of Virginia. An offer which according to the Maersk Group will have a value of USD 3.9 billion for the contract duration of 48 years. Since then, the offer has been challenged by competing offers from the current operator, VIT, and a consortium led by Deutsche Bank. A few days ago, the equity fund, Carlyle Group, withdrew its offer.

"The Port of Virginia has enjoyed certain natural benefits that held competitors at bay for decades. But those natural benefits are swiftly being threatened and eroded by significant capital improvements at competing ports that are taking business away from Virginia”, John Crowley said, following up by highlighting the big investments being made in New York, Savannah, Charleston and Baltimore:

“The capital improvements being made at competing ports are serious challenges and cannot be masked over by reports that fail to tell the full story of today’s operations at VIT and the Port of Virginia”, John Crowley underlined while dismissing the recently published figures from the ports as an expression of growth.

“VIT recently reported an 8% increase in volume for the first 3 quarters of 2012 over 2011, and we congratulate them for that short-term news. But volume at the Port remains 2% below 2008 levels. In fact, according to an October 10 report issued by the Hampton Roads Transportation Planning Organization, activity at the Port of Virginia decreased by 16% during the height of the recession”.

According to Maersk, Virginia is at a crossroads demanding immediate action.

“The truth is that cargo volumes at the Port of Virginia remain behind - not ahead - of past performance and clearly behind volumes at competing ports. The only way for the Port of Virginia to grow is to invest now in major capacity improvements necessary to meet future growth demands. These investments can’t be delayed while we mistakenly wait for a more convenient or comfortable time to address the hard facts about business at the Port of Virginia. The investment necessary for these improvements must be made now. Not later. And no one better than you understands that neither the State nor the Port of Virginia has the money necessary to meet these immediately required capital investment needs”, John Crowley said.

“As shown on the slide attached to my remarks, that leaves us with a true bottomline picture of VIT’s financial performance: an operating loss of $29 million for fiscal year 2012. And while revenues are expected to increase to $100 million in fiscal year 2013, an operating loss of $25 million is anticipated. VIT is not returning any money to the Commonwealth. Any claim to the contrary is false”, said John Crowley who called on the decision-makers to ask critical questions and demand clear answers when looking through the offer from VIT.

It remains unclear when the Virginia politicians will reach their decision concerning the Port of Virginia which is regarded as perhaps the most important growth catalyst concerning employment and the number of companies linked to the port in Virginia and the region. According to several American media, the deadline for further offers is placed in December while the final decision may be taken during the spring of 2013.

During Monday’s hearing, Sean T. Connaughton, Virginia’s Secretary of Transportation, said that the operations of the state-owned port facilities are not financially sound and that the state subsidises the port authorities with USD 60-70 million per year.

In a response to the attack from APM Terminals, Charlotte Herndon, Chairman of the Board of VIT, who was also present at the hearing, pointed out that since 1983, Virginia's port has moved from being number 30 to number 6 in the US. Furthermore she said that in 2011, the company transferred USD 88.5 million to the state. According to Charlotte Herndon, the amount transferred to the State since 1983 totals USD 820 million.

Maersk prepared to pay USD 1.3 billion in cash for Virginia Port 

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