The Virginia Commonwealth Transportation Board (CTB) recently approved a contract that will move Hampton Boulevard under the rail line that now crosses it.  The $20 million contract is small relative to some others in the state, but is one that the Port Authority has been pushing for for over 15 years.  

Once completed, the improved traffic pattern will allow the port to build longer trains carrying imported cargo containers without disrupting traffic on Hampton Blvd.  The port estimates that this could allow them to utilize rail for an additional 20% of the product that comes through the port.  Currently, that 20% leaves the port via truck and contributes to pollution, congestion and disgruntled neighbors.  The more product that can leave via rail, the better for Hampton Roads.

Now that Hampton Boulevard is being addressed, the State is considering an additional $17.8 million investment to double the on-dock rail capacity at Norfolk International Terminals.  These are all great projects for the port and will further enhance its competitive position over other East Coast ports.

The Navy this week announced that it has decided to home port a carrier at Naval Station Mayport in Florida.  Currently, the entire carrier fleet is stationed at Naval facilities in Hampton Roads.  The Navy’s motivation behind the move is to diversify the fleet and prevent a Pearl Harbour type incident from diminishing our retaliatory abilities.

The decision was met with significant opposition from Virginia lawmakers who vow to continue the fight to keep the carrier fleet in Virginia.  They claim that this is a politically motivated last minute effort by the Bush administration to push this through before they leave the office.  Consequently, they have begun to pressure the incoming Obama administration to reconsider the decision.  As you would expect, Florida lawmakers support the decision and call it critical to the security of America.

To compound the issue, the decision comes at a time when the Naval has its own budgetary issues to contend with and moving a carrier isn’t cheap.  In the five years that it will take to complete the move, the Navy would have to spend over $550 million to prepare the Mayport facility and channel for a ship of this size.  In addition, it will remove 11,000 jobs and $600 million in annual income from the Hampton Roads economy.

If the safety of the fleet is truly the primary concern, I would think the $550 million could buy some significant surface to air defenses for the Hampton Roads area.  Plus, any spending on protecting the fleet in its current location could be allocated across the entire fleet, not just one carrier.

The Link: LINK

The Story: An informal survey conducted by the Virginia-Pilot newspaper indicated that CenterPoint may already have enough City Council support for its industrial park along Holland Road.  While the project isn’t officially to be voted on until January 2, six of the eight council members had positive things to say about the project.

The Analysis: The big issue with this project has never been about the current or future zoning of the CenterPoint land.  It has been, and continues to be, about who is going to fund the necessary improvements to Holland Road.  There is also a lingering question of how much those improvements will cost.  CenterPoint claims +/- $53 million.  The States numbers come in closer to $94 million.  In either case, CenterPoint has proposed to pay just $3.96 million of the total.

I think it is important for Suffolk to seriously examine if this is the best use of taxpayer dollars.  Everyone agrees the project is a good one.  CenterPoint is a top notch developer and has done a great job of designing the project.  However, the taxpayer costs seem very high and the anticipated returns low.

The article indicates that Suffolk anticipates approximately $3 million in tax revenue from the project.  If we pick a road cost somewhere in the middle of CenterPoint’s numbers and the States (say $73.5 million), that works out to a return on cost of just over 4.3%.  Granted, that’s better than a Treasury bill right now and there would be other future improvements along Holland Road that would boost the tax rolls further.  As a reference, that would mean that the State would effectively invest $12 PSF into the CenterPoint project ($73.5 million less CP’s contribution divided by 5.8 mSF).  But, with cash as a finite resource, are there better options for Suffolk and the State to spend that money that would have a higher return?

What about funding the Nansemond Parkway widening?  Using rough numbers for the total build out of Northgate and the cost to widen Nansemond, that project would yield a return on cost of approximately 8.7%. (+/- 2.5 mSF of product, $0.51 PSF for taxes, $15 million for road improvements)  That’s just one project and I am sure there are many more out there that are just as viable.

Is it an status play to say you have a 5.8 million SF industrial park in your City, or is it a prudent use of taxpayer funds?

Last week, Maersk shipping lines announced that they will be leaving the Port of Charleston by the end of 2010.  It’s not that Maersk didn’t want to be in Charleston.  On the contrary, they worked to find solutions where they could stay.  However, in the end, it was a matter of operating costs.  Maersk, operating its own dedicated terminal, must use union labor.  The company has asked for permission to relocate its operations to the common yard.  Unfortunately, the ILA did not provide the necessary consent.  Maybe they thought Maersk was bluffing.  Maybe they just didn’t think it through.  However, now Maersk is leaving and come 2010, those ILA jobs will be lost.

On the plus side, Maersk will relocate the services that previously called upon Charleston.  It’s a good bet that a fair amount of that traffic will go to Virginia, where Maersk recently built a $500 million automated terminal.

GlobeSt.Com today had an interested article on China’s role in the demand for industrial space in the US.  The gist of the article is that China’s economy and production is slowing to the point where it might have an effect on the US industrial market.  The author points out that many of the industrial REITs have made big bets in port markets and those bets may not do as well as previously expected.  One of the important things to note is that we are talking about a shift from 35% growth to 23% growth.  By any measure, that is still tremendous growth and a trend worth paying attention to.

However, the growth is projected to slow and the author is correct that this slow down may have an effect on demand.  However, it just goes to further emphasize the importance of picking the right locations.  When the demand does decrease, it will certainly not decrease proportionally across all port markets.  Some will be much harder hit than others.  As an example, just look at Maersk’s recent decision to leave Charleston in 2010.  Bad news for Charleston, but great news for other markets which will benefit from Maersk redirecting that traffic.  Norfolk and Savannah should both profit from the decision.

Again, making wise investment decisions is the key here.  Any box in any port industrial market won’t get the job done anymore.