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The Port
by David Stanowski
24 March 2010

Introduction:
A very strong case can be made that the most critical issue in this year's election is the same as it should have been in the last 20 elections: the Port!

Without the Port, the City of Galveston would not exist! The Port created a great city, and its decline sapped the local economy of much of its vitality. The health of the Port, and the performance of the City's economy are directly linked. This fact can not be over stated.

The performance of the City's most valuable asset has been anemic for many years. If the Port could be revitalized, it would give the local economy a major boost.

The Founding Fathers did not establish this city to build beach houses and condos; they had something much more profitable in mind! If no natural "deep-water" harbor had existed, no port would have been established, and there would have been little or no reason for 19th-Century Texans to inhabit this large sandbar.

The History of the Galveston Wharves

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Recent Results:

In 1940, the City of Galveston bought the Port from its private owners. The City's stewardship and management of its most valuable asset was examined between 1984, the year of its all-time high in cargo handled, and 2006. During this period, the Port had a cumulative LOSS of $4,503,706! 

If the Wharves Board's annual valuation of the Port was available in the form of cash, so it could be invested each year in a 1-year TBill; during this 23-year period, it would have earned $54,209,748 in interest!

In other words, if the Wharves Board had been able to take the total asset value of the Port each year, from 1984 to 2006, turn it into cash, and invested it in a risk-free 1-year TBill; the total earnings to the residents of the City would have been $54,209,748! However, when their assets were operated as a port, the Port LOST $4,503,076! This means that the City received $58,712,826 less from the Port than if the value of its assets were invested in TBills!

This study hardly serves as a thorough strategic analysis of the Port of Galveston, and does not prove that a private-sector port owner could have actually made $54,209,748 by operating the Port, but the comparison to investing in TBills should be sufficient evidence to suggest that the City is probably not maximizing the return from its most valuable asset!


Cargo:
During this period, the amount of ocean-going cargo handled around the world grew tremendously, but cargo handling in Galveston was in decline. In fact, the amount of cargo handled peaked in 1984!

Port of Galveston Total Tons Handled
 
Looking at how Galveston compares to other U.S. ports shows that 2006 rankings put it at number 54 in the nation, and number 8 in the State of Texas! It is clear that Galveston is never going to surpass Houston to be number one in the state, again; but a move into the second or third slot would increase cargo handled by about eight times its current level! The port that used to be number one on the Gulf, west of New Orleans, now ranks behind Houston, Beaumont, Corpus Christi, Texas City, Freeport, Port Arthur and Port Lavaca, just in its own state!

Texas Ports Total Tons Handled
Houston 222,146,750
Beaumont 79,485,704
Corpus Christi 77,557478
Texas City 48,875,403
Freeport 32,146,579
Port Arthur 28,402,512
Port Lavaca 10,808,318
Galveston 9,357,250
Brownsville 5,308,706
Victoria 3,555,869
Source: U.S. Army Corps of Engineers,
Waterborne Commerce Statistics Center
American Association of Port Authorities


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Cruising:

Since 2000, the Port has focused on building its cruise business, which should help boost profitability, but without a major push to get the cargo business growing, can it generate a decent return on the City's most valuable asset?

The Port of Houston recently spent $81 million to build the Bayport Cruise Terminal which is now a serious threat to Galveston's cruise business. Galveston has a contract with Carnival the lasts through 2013, but with the amount of money that has been invested in Bayport, they will be forced to do "whatever it takes" to get cruise ships in there; including enticing business away from this City.

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Pier 21:

Several years ago, George Mitchell acquired a lease to the property in and around Pier 21, and began development. In the last few years, Mr. Mitchell has tried to increase his investment on this footprint, but the Wharves Board has created serious "obstacles" to this process. Where is our political leadership on this matter? With all the talk about needed development, why has the unelected board of this Agency been allowed to do this?



Conclusion:
It is difficult to know exactly why the Port has not met its earning potential over these 23 years without doing a much more extensive study. It most likely has to do with the management strategy employed, a lack of capital to invest in port facilities, and the fact that it is being operated by an Agency of city government that may have a confused mission.

Government entities can not bring the same entrepreneurial approach to running a business that the private sector does, so they can not hope to maximize the return to their shareholders; which in this case is the taxpayers of Galveston.

Regardless of any deficiencies in management and/or mission confusion, the primary problem with the Port is probably the lack of capital to build the necessary facilities to dramatically boost revenues and profits. The City and the Wharves Board have either chosen not to, or have been unable to issue bonds to fund the maintenance and the needed expansion. For this reason, the solution appears to be to sell the Port to an owner that has the capital to allow it to meet its full potential.

However, the Port MUST be sold to someone who will operate it as a port. A healthy port will be an economic engine that can create high-paying jobs. Any attempts to sell off pieces of the Port for use as marinas, condos, restaurants, retail centers, or other such enterprises will cripple the Port even further, and will not create permanent high-paying jobs.

The Port of Texas City is privately owned and it employs 5,000 people and pays $919 million each year in salaries!

Port of Texas City Offers Interesting History

Many cities, and states are learning that it makes financial sense to sell or lease airports, tollways, toll bridges, and other pieces of their infrastructures to private companies. For example, a private company has offered the State of Pennsylvania $12.8 billion for a 75-year lease on the Pennsylvania Turnpike. There could be potential advantages to leasing the Port, rather than selling it, but some method of private management and investment is essential!

A booming, privately owned port could revitalize the local economy, AND actually pay a significant amount of property taxes to the City! Throughout most of the period studied, the Port only paid the City $160,000 in lieu of property taxes each year. In the last few years, this payment was raised to $180,000.

In 2001, the Port of Vancouver admitted that it was not achieving its maximum potential through government ownership by the Provence of British Columbia. Their 2001 Annual Report (BCR Marine) stated:

"The upcoming year will be one of great challenge and change at the BCR Group. In early spring 2002, the Company decided to offer BCR Marine for sale. While Marine is a strong business unit, it needs growth capital to move forward and the BCR Group cannot provide the funding."

P&O Ports bought BCR's container terminal in 2003 for $68 million. This private company has now become Ports America, and continues to acquire port properties around the world. 

Privatization is Giving the Edge to Indian Ports

Apparently, the City Council was aware of the under performance of the Port when it attempted to set up a merger with the Port of Houston in 2000. When the merger was put to a vote of the residents, it was defeated. It is certainly possible that the merger was not the right deal for the City, but it is time to re-open this discussion, and find a deal that will help the City to maximize the return on the Port.

Galveston Rejects Houston Port Merger

Port Deal is Rejected as History Weighs In

Does anyone need more evidence that it is time to move ahead with selling or leasing the Port? 

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The Challenge:

It is now time for each candidate to step forward with their bold vision of how to revitalize the Port. Do you agree that it should be sold or offered to private interests through a long-term lease? If not, why do you think that the Wharves Board will dramatically change course after decades on the present path? What will cause it to do so? In short; what is your plan to turn the Port around?

The GOGP will be happy to publish your responses, but we hope that you will also share them in meetings with the voters, during the campaign, in guest columns, and that members of the media will ask you to articulate your visions for them.







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