Monday, May 4, 2020

Federal Maritime Commissioners Call for Help for Maritime Freight Terminal Operators

Leases Slanted Toward Port Authorities May Prove Catastrophic as Cargo Levels Drop
Shipping News Feature

US – With just about every industry in every country suffering from the toxic effects of stopping the virus spreading, businesses everywhere have to re-evaluate their approach and try to mitigate the financial impacts. To this end Federal Maritime Commissioners Carl W. Bentzel and Louis E. Sola wrote on Friday to the Chairmen and Ranking Members of the House Committee on Transportation and Infrastructure and the Senate Committee on Commerce, Science, and Transportation, urging the Congressional leaders to assist the country's maritime related service companies.

The bipartisan FMC letter identifies the serious economic threat to marine freight and passenger terminals brought by the Covid-19 virus due to the way their income and outgoing costs are arrived at. The terminals, which provide the full panoply of essential supply chain services including infrastructure, cargo handling equipment and labour, handle the vast majority of imported and exported goods.

The Commissioners point out terminal lease rates are usually set based on a number of factors but often correlate to cargo volume. In many of the largest ports, the leases are structured to include a fixed component based on minimum cargo volume expected at the terminal and a variable rate for any additional cargo that allows the port authority to share in revenue if cargo volume exceeds historical norms.

If however the cargo volumes drop below this minimum rent threshold the costs for the operator may be substantially above earnings, with the situation exacerbated as time passes. The authors say that it is their understanding that when the terminal operators have tried to engage with their port authority landlords to discuss the financial impacts of drastic reductions of cargo on lease economics, so far ‘little progress has been made to help adjust lease payments considering market conditions’.

The letter goes on to state that shipping industry losses in 2020 could reach $23 billion and with port authority leases to terminal operators generally long term affairs of around 30 years, and the essential nature of the entire supply chain of paramount importance, coordinated federal action is called for to assess and alleviate the situation.

The letter can be read in its entirety HERE.

Photo: Image courtesy of Port of Oakland.