The economic reality of today presents a challenge that few of us have experienced in our lifetimes. But in challenge is opportunity. It's the opportunity to take a fresh look at how we operate, what is important to our core business, and reestablishing priorities.
It also requires ports to be focused on the financial basics - ensuring customers are current on their accounts, taking advantage of discounts when paying bills, building cash reserves if at all possible and ensuring bond covenants are met.
So what are ports doing these days to survive the economic downturn? To survive, ports need to search for new revenue streams. During normal times, the Port of Stockton handles a significant amount of construction-oriented cargo, such as cement, lumber, plumbing fixtures and pipe. But, as foreclosures soared to unheard of heights and housing construction died, the port's search for replacement cargos and its 2-mile on-dock rail landed windmill parts destined for the Midwest.
As port managers know, exchanging low-revenue cargo for high-revenue cargo can be a silver lining in a dark and cloudy sky. Barite was another new and lucrative cargo at the Port of Stockton.
Grants are another source of funds, but be careful what you apply for. Many of the grant programs require matching funds from port resources, so pick and choose the grants you apply for carefully. The stimulus funds offer a wide variety of grant programs to choose from... but, again, read the fine print. Choose grant programs that fit your port's needs and which blend multioperational objectives.
Issuing bonds can be a more expensive proposition these days. Even public entities are experiencing higher interest rates to satisfy investors. And with limited bond insurers, the rates ratchet even higher. Fortunately, thanks to the ongoing efforts of the American Association of Port Authorities, exemptions to the alternative minimum tax, or AMT, for port bond issuers were preserved in the federal budget, a major step to maintaining interest in port bonds.
Controlling costs is a "must do" these days. My counterparts confirmed the typical steps most ports are taking, which are the same steps as other businesses have implemented. They include hiring freezes, not replacing vacant positions, curtailing or severely cutting travel and conferences, reducing marketing programs and considering less-expensive medical insurance programs or putting a larger portion of the cost on their employees.
Ports need to pay close attention to the payment practices of their customers and tenants. Slower payments may indicate a pending problem.
Deferring maintenance is another means of retaining cash in the short term. A word of caution, though: Be careful what maintenance gets postponed. It may be more costly in the long run.
Many employers hope to avoid taking steps that impact their employees directly, but, as business slows, management may consider withholding pay increases, possible furloughs and the ultimate reluctant decision - layoffs.
Taking proactive steps internally is critical. But it is just as important to ensure that actions taken at the federal level support the maritime industry. To this end, port leaders are urged to contact local, state and federal representatives to ensure that they are supporting the seaport industry.
Ports are not immune to the deteriorating economy, but they are definitely part of the solution. Effective fiscal and operational management is key to emerging from today's tough times. For, as we all know, "Seaports Deliver Prosperity."
