The first half of 2011 hasn’t been good for the Port of Virginia for reasons largely beyond its control. Although it has the deepest harbor — 50 feet — of any East Coast port, boasts a new double-stack intermodal service to the Midwest and operates the nation’s most efficient and productive container terminal, the Virginia Port Authority’s container volume declined 0.6 percent year-over-year in the first six months of 2011.
The drop in volume brought with it a decline in the VPA’s port fees and financial performance. The VPA and its operating subsidiary, Virginia International Terminals, posted an operating loss of $11.6 million in the first 11 months of the fiscal year that ends in June.
The losses caught the eye of Virginia’s political establishment. Frustrated with the lackluster performance by the East Coast’s third-largest container port, Virginia Gov. Bob McDonnell, a Republican, and Transportation Secretary Sean T. Connaughton on July 22 fired 10 of the 12 members of the VPA’s board who had been appointed by the previous Democratic governor, Tim Kaine.
“We’re the only port on the East Coast that has not recovered to pre-recession levels,” Connaughton said at the time.
McDonnell and Connaughton blamed the port’s poor performance on a VPA board that had appointed to positions within VIT political allies who knew nothing about business, including five lawyers, a physical therapist and a minister.
A new slate of eight directors was sworn in as new members of the VPA, which is headed by a new chairman, Michael J. Quillen, CEO and chairman of Alpha Natural Resources, a major U.S. coal exporter based in Virginia. But the replacement of the board members may be as much a political move as an operational one, because they immediately expressed confidence in VPA Executive Director Jerry Bridges, a seasoned port executive who has strengthened the port’s operational capabilities.
Bridges shrugs off the wholesale replacement of the board members as the governor’s right. “The VPA Board of Commissioners is appointed by the governor, so it is the governor’s prerogative to change it as he sees fit,” he said.
Bridges blamed the decline in port volumes and revenue on “a handful of reasons, most of which have been beyond our control.” They include Chinese bans on imports of a number of U.S. commodities exported in containers through Virginia. The port handled $194 million worth of exports to China last year, making China its largest export market.
China banned imports on hardwood and softwood logs from Virginia and South Carolina because of an insect detected in previous exports. It also extended a ban on dried distillers’ grains, a byproduct of the ethanol-making process that is a high-demand animal feed. And it kept in place the punitive tariffs it imposed last year on imports of frozen U.S. poultry in retaliation for the Obama administration’s 100 percent anti-dumping duties on steel pipe imports from China.
Bridges said another factor in the decline in container volumes is the loss of export grain moving in containers. “Early on, we saw the opportunity on bulk grain transload operations and seized them, which allowed us to become the dominant East Coast player in that business,” he said.
But the business has fallen off because it has shifted back to bulk ships, with a growing trend of that cargo moving through the West Coast because of transload operations set up on the western railroad logistics park sites outside of Chicago.
“Another side effect is the fact that the lines were pre-positioning empties here for the grain business and because the grain business has fallen apart, we’re no longer getting that pre-positioning business,” he said.
But he is optimistic about the long-term outlook. “All that said, we’re working to build on the growth we’ve had so far in 2011 and to address these issues,” he said. “I’m very confident in this port, the people marketing it and that we’ll grow the business. It is going to take time and I don’t know that if in six months we can get back what has been lost in the same amount of time. It would be different if there were multiple factors that were making us non-competitive, but that is not the case here.”