The meltdown of financial markets after the mortgage industry’s crash will herald some novel challenges for the port industry, especially for Gulf and East Coast ports eyeing the Panama Canal’s expansion in 2014. Many of these ports have started capital-improvement programs of building more efficient terminals, buying post-Panamax cranes, strategically placing intermodal railyards amid the new terminals, enhancing road networks, and dredging to that golden 50-foot mark. Many of those ports will be looking to finance their largest capital programs. At the moment, the funds we previously derived from special purpose facility bonds (industrial revenue bonds) and revenue bonds are not available at realistic interest rates.
As 2007 turned into 2008, many port directors facing tight debt service coverage ratio situations and the task of accomplishing billion-dollar capital programs looked to financing through public-private partnerships. I believe a number of ports have found that the rate of return sought by the providers of private-sector financing is, in many cases, prohibitively high and public-private partnerships are not the panacea. This financial environment will greatly influence and change the way a number of expanding ports realize their full potential as new post-Panamax ports, at least in the next year.
Those ports without substantial retained earnings or great liquidity will be forced to seek infrastructure investment from their customers. Several ports have found that major steamship lines are willing investors, especially if the product of their investment is a large terminal that they can operate for 30 to 40 years. I believe the real change we will see in the next 18 to 24 months is a dramatic focusing of scarce resources. It may take 18 months before the bond market recovers and port transportation bonds become a viable investment and vehicle for capital funding. In the interim, I am sure port directors realize that to freeze in place is the worst option. We must continue to strategically build our infrastructure with the greatest emphasis on “strategically.”
Ports will not deplete their retained earnings, and most do not boast full coffers. We will look to the federal government for a transportation infrastructure stimulus package. The ports benefiting most will be those that have prepared the most critical projects to be “shovel ready” as soon as funds are available.