Astute financial planning during a window of low interest rates has allowed the Alameda Corridor Transportation Authority to take control of its debt situation.
The operator of the 20-mile rail express corridor that links the ports of Los Angeles and Long Beach with the transcontinental rail network now can use sustained growth in cargo volume at the ports to maintain long-term stability.
Under the terms of their agreement with ACTA, the ports must cover any shortfalls the authority faces in payments on its debt of $1.8 billion. Because of a 25 percent decline in cargo volume during the economic recession, each port paid $2.95 million in 2010, and the same amount again in 2011, to cover ACTA shortfalls.
John Doherty, ACTA’s CEO, said the authority won’t require any more money from the ports at least for the next several years, or possibly never again, if cargo volumes grow at a moderate pace.
ACTA posted record revenue of $97.3 million in 2012, up 4.4 percent from 2011. The number of loaded containers handled at the ports grew just 0.3 percent, however, and the number of containers passing through the corridor actually declined about 2 percent, Doherty said.
The authority was able to post record revenue largely because of an increase in the Alameda Corridor use fee based on the annual fluctuation in the national Consumer Price Index.
A use fee is assessed on all cargo passing through the corridor, with loaded containers generating most of the revenue. The use fee increased 2.8 percent last year to $22.25 per 20-foot container unit.
In other moves, ACTA responded to the low interest rate environment by refinancing about $300 million of its debt. And the authority negotiated an arrangement with the Federal Rail Administration to sell about $83 million in bonds to the agency and use the money to retire bonds that carried a higher interest rate.
These financial moves contributed to ACTA’s financial performance. “We did what we could on the financing side,” Doherty said.
It appears the authority won’t experience any shortfalls, at least through 2015. The long-term stability of ACTA’s debt-retirement program, however, depends upon a return to normal growth at the ports. “As the ports go, so goes ACTA,” Doherty said.
In the early years after its opening in 2002, the Alameda Corridor benefited from exceptionally strong growth at the ports of Los Angeles and Long Beach. Before the recession of 2008-09, cargo volume growth was averaging 11 percent a year. This was above what ACTA had anticipated, and it appeared for a while that the authority might be able to pay off its debt early.
Economists now believe the days of double-digit growth in the trans-Pacific trade are gone for good. Their assessment is that the outsourcing of manufacturing to China that had driven this growth has played out. Now U.S. imports are growing from other emerging economies such as Vietnam and Mexico, and there is a return of some manufacturing to the U.S.
Doherty said growth of 3 to 4 percent a year should be sufficient to cover debt obligations. Achieving that growth over the next few years will depend mostly upon what happens in the economies of the U.S. and its trading partners. The U.S. economy is recovering, and economists believe growth of 2 to 3 percent in the gross domestic product is possible this year.
The health of Europe will be a big factor. Last year, U.S. exports dropped off as Europe fell into recession. China’s exports to Europe were hurt even more, and that had a direct impact on export shipments from Los Angeles-Long Beach to China. As factories there cut production, their requirements for raw materials, scrap paper and other commodities shipped through the port complex declined.
Loaded export containers are important to the Alameda Corridor. Doherty said the corridor captures about 47 percent of the export containers that move through Los Angeles-Long Beach.
The growth in transloading in Southern California also has hurt ACTA’s revenue. A number of importers truck marine containers from the ports to distribution warehouses where the merchandise is loaded into domestic containers and trailers for shipment to the eastern half of the country.
If those marine containers were to move intact over the Alameda Corridor, they would generate revenue for ACTA. However, ACTA doesn’t benefit from transloading. Today, about 40 percent of the containers that move by rail from Southern California are transloaded first, up from 33 percent 10 years ago.