The Port of Galveston wants to get back into the container business. Twelve years after leasing its container port to neighboring Houston, the Texas port is looking for a private investor to take over its existing facilities and build a new container terminal on Galveston Island, at the entrance of the Houston Ship Channel.
While container carriers for years bypassed Galveston for larger Gulf ports, officials now believe they can cash in on the boom in container traffic they see shifting away from the West Coast through the Panama Canal after the canal’s third set of locks opens in 2014.
Galveston, which has a thriving cruise, breakbulk and roll-on, roll-off business, has hired the Bank of Montreal’s BMO Capital Markets to act as the port’s adviser and seek out potential investors from among global terminal operators, carriers and infrastructure funds.
The port wants to keep the cruise business for itself and attract a private operator to invest as much as $500 million in its breakbulk, dry bulk and roll-on, roll-off facilities and to build a two-berth container terminal on the port’s west end.
Galveston does not currently have an operating container terminal. After leasing its Pier 10 terminal to Houston in 1998 for overflow containerized cargoes, the Gulf’s largest container port returned control of the terminal to Galveston in 2006 when the two ports agreed to develop a joint-venture container terminal on nearby Pelican Island. That plan never took hold.
Galveston’s existing facilities on Galveston Island cover about 850 acres, of which the cruise terminal and related facilities occupy 25 acres. Under the plan it is contemplating, Galveston would continue to operate the cruise terminal, which would leave some 825 acres with 2 1/2 miles of frontage on the Galveston Harbor Channel available for private investment.
The port also has another 1 ½ miles of waterfront available across the channel. The port is dredging the channel to 45 feet from 40 feet. The port has permits in place to fill in waterfront slips to make more waterfront available for development.
“The idea is to bring this port to productive life for the community and the region,” said Steve Cernak, Galveston’s port director. “Containers would certainly be part of the equation.”
Jeffrey Holt, managing director of BMO Markets, said, “It’s an opportunity for an investor to take over a lot of the business risk of the port and a lot of the upside.”
He noted the port would have to pay off its existing debt of $65 million to $70 million, “so the question is how much an investor would be willing to invest over and above that over the next five years or so to prepare for the expansion of the Panama Canal.”
Investor response since word of Galveston’s plans hit the market has been “stunning,” Holt said.
Galveston has two sites for a potential container terminal, one at the port’s existing facility on Galveston Island, and the other on Pelican Island, on the north side of the Galveston Harbor Channel across from the port, which is part of the city of Galveston and connected to it by a causeway.
The site on Galveston Island adjacent to the existing port facilities already has established connections to the mainland. “If you look at all the road and rail configurations from here, all the pieces are there to have the connectivity for speedy movement of cargo,” Cernak said.
The port has two Class I railroads, BNSF Railway and Union Pacific, that bypass the railyard in Houston. It also has a four-lane state highway that provides truck access to Interstate 45.
Environmental concerns are forcing Houston, about 50 miles northeast of Galveston, to look at potential sites along the coast for expansion, one of which is the Pelican Island site on Galveston Bay at the entrance to the Houston Ship Channel. Pelican Island, however, does not have rail or highway access, which would have to be developed.
“We view Pelican Island as a 10- to 15-year window into the future,” Cernak said. “Both ports have clearly recognized that because of the other infrastructure assets that are already in place.”
The ports have hired design and engineering firm AECOM, which is doing a preliminary evaluation of the site. “That’s a separate track and is under consideration,” Cernak said.
The more immediate candidate for container development is the site on Galveston Island, which already has road and rail access that could be “tweaked” to provide any additional access needed.
“We see it as an ideal site for short-term development,” Cernak said.
But to attract a private investor that would build a new container terminal, Galveston will have to convince it that the site is attractive enough to lure cargo that could go through any one of the many other container developments springing up on the Gulf Coast. In Texas alone, Houston is expanding its 2-year-old Bayport terminal, Freeport is looking at building a container terminal, and Corpus Christi is designing a new multipurpose terminal that would handle containers.
Elsewhere, New Orleans is expanding its Napoleon Avenue Terminal, Mobile has a new APM terminal, and Tampa is expanding its Hooker’s Point Terminal.
“I think there’s going to be plenty of demand to go around,” said Erik Zampol, vice president of BMO Capital Markets. He cited projections that the opening of the new locks at the Panama Canal will result in 3 million TEUs a year moving away from the West Coast to East and Gulf Coast ports.
“That’s basically the equivalent of six new container terminals at 500,000 TEUs a terminal,” Zampol said. “We think the Gulf will be the primary beneficiary and the rest would go around the corner to ports in the Southeast.”
Contact Peter T. Leach at firstname.lastname@example.org.