Huge capital spending could upset the port's financial flow forecast
Long Beach forecasts a 3.5 percent increase in operating revenue from a 7 percent increase in TEUs for the fiscal year to July 2011, according to its latest financial update. In a briefing to the port’s harbor commissioners, finance officials say the reason for revenue being lower than volumes is because of the way that discounts are structured – a reference to the incentive program for existing tenants who increase their discretionary cargo volumes.
The loss of California United Terminal, owned by Hyundai Merchant Marine, to Los Angeles next door has hardly affected business, say officials, because other services have more than made up for it. But margins will be “squeezed” as competition hots up for discretionary cargo.
An emission-free cargo movement system (essentially electric gantries of the type proposed by SSA Marine) has been moved down the list of priorities and off the 10-year cash flow forecast because the only demonstration projects being considered are those that mean no cost to the port.
Debt has been restructured and $24 million saved on a net present value basis. The bond market is “extremely volatile” and the next bond issue will be late 2012 at the earliest. The debt service coverage ratio is set at a minimum of two over the next five years – but capital spending of $3.1 billion is planned during that period, (Pier G, Middle Harbor and the main connecting bridge) which could put the coverage under severe strain.
On a cautionary note, the port warns that the infrastructure is aging and will need to be replaced. The biggest expense is replacing the main bridge to the port, which has been budgeted at $950 million, with Long Beach contributing $114 million and the state transportation authority the rest.
New state governor Jerry Brown is causing headaches with his proposal to get rid of some agencies in local governments (as part of his herculean task to bridge California’s $20 billion budget gap), as the port has lent $40 million to one of them. So far, it seems that the money is safe, but that can change.