Commissioners Carl W. Bentzel and Louis E. Sola urged Congressional leaders to help alleviate and bridge the financial gaps that could jeopardize continued healthy operation of US’s marine terminal industry and maritime transportation system.
The system of leasing marine terminals at U.S. ports is predicated on projected cargo volumes, and projections indicate that sustained demand reductions will make it financially difficult for terminals to sustain lease payments. However, the continued operation of US ports and terminals during this time is critical.
In their letter, the Commissioners also praised the essential work of marine terminal operators and longshore labor during this ongoing COVID-19 crisis. As the Commissioners indicated in their letter:
The absence of the marine terminal operations trade, and the longshore workers working there, would effectively end the trade in goods and supplies necessary to combat COVID-19 at present, and in the future, to help restore economic prosperity
The text of the letter writes that the FMC recently authorized Fact-Finding Investigation 29 to facilitate supply chain stakeholders’ discussions to identify commercial solutions to certain unresolved supply chain issues that interfere with the smooth operation of the US international supply chain.
The Commissioners have specific concerns about the abilities of the US marine terminal operators to continue operating considering their lease and other contractual commitments to local port authorities. According to PIERS data, imports from Asia declined 17.5% over this past year and reports indicate that hundreds of container vessel voyages (blanked sailings) are scheduled to be cancelled.
Analysts also believe that the container shipping industry could see losses of over 20%, approaching $23 billion in losses this year because of disruptions to the supply chain.
Port property is some of the most expensive per acre in the US and lease rates are supported by cargo volume, which is facing unprecedented headwinds due to disruptions in international trade caused by the COVID-19 outbreak.
Most ports in the United States are “landlord ports” wherein a governing agency (typically a port authority) controls and leases port lands to commercial marine terminal operators under long-term agreements that are typically 30 or more years in duration
Moreover, they add that the marine terminal operators provide the infrastructure, cargo handling equipment and labor for the import and export of ocean cargo on the terminals. The lease rates are usually set based on a number of factors but often correlate to cargo volume.
If cargo volumes drop below the “breakpoint” of fixed rent, marine terminal operators are likely to incur substantial losses, which accelerate as the decrease in cargo volume becomes more severe or persists over long periods of time.
It is our understanding that marine terminal operators have tried to engage with their port authority landlords to discuss the financial impacts of drastic reductions of cargo on lease economics. To date, however, little progress has been made to help adjust lease payments considering market conditions
Concluding the letter, the Commissioners emphasize that this problem requires a coordinated solution from the federal government and local port authorities that provides relief to marine terminal operators so that they can continue to provide the movement of cargo vital to our economy.
