With the new commissioner, Cam Parry, talking about seeking foreign investment to fund a container dock on the North Spit this is a good time to examine whether such an investment will ever pay off.

Two independent studies, “Feasibility Analysis For a Modern Marine Cargo Facility in the Port of Coos Bay, Oregon “, May 2003,
Prepared by PB Ports and Marine, Inc and “Evaluation of Marine Cargo Opportunities for the Port of Coos Bay, Oregon”, Final Report, April 2002, BST Associates, Bothell, WA, each funded by the Port, say no.

According to the first report, “…A positive financial return is dependent on at least 425,000 tons of general cargo, or a combination of 200,000 tons of general cargo and 900,000 tons of bulk cargo.” These volume requirements are “…several times higher than the copper concentrate volumes that previously moved through Coos Bay and equivalent to the nickel ore volumes at their peak in 1996 and 1997.”

Based on this analysis and actual performance at the benchmark terminals, it is evident that very high cargo volumes would be required for the Coos Bay terminal to break even. General cargo volumes of at least 425,000 tons per year would be needed to repay capital cost with no interest and 785,000 tons would be required to achieve a return at the State of Oregon’s 6% tax-exempt cost of money. These volume levels are as much as 2.5 times greater than at the Portland and Vancouver benchmark terminals, which are located in a large metropolitan market. General cargo volumes closer to those at the benchmark terminals or the minimum operator volume of 200,000 tons would generate a negative financial return.

The 2003 report’s pessimistic conclusions are based, in part, upon the market potential analysis provided in the 2002 report and market conditions will have changed in nine years, however “… tonnage potential for a new marine terminal appears to be well below the levels required to break even on the terminal investment and possibly below the level required for an operator to be economically viable”.

Other barriers include no access to a “Class 1” railroad necessary for high volume transport; fierce competition from established ports; lack of experienced management; and high winds on the North Spit. Imagine cargo dangling from cranes swaying in 30MPH wind. (During an SDAT meeting, Jeff Bishop, executive director at the Port, explained that much of the upper bay had been developed, in part, because employees had trouble working in the winds on the lower bay).

One conclusion is clear-under any circumstances, investment in a new public general cargo terminal involves a very high business risk. The factors that contribute to this are many, including the absence of a clearly defined market; the low capacity utilization and declining volume trends at other, better-positioned terminals; the intense rivalry and price competition among competing terminals; the footloose nature of steamship customers and short-term nature of terminal operator contracts in the market; and the Port’s lack of experience in the business.

Not only must the terminal operate at minimum volumes to repay facility development costs, it must also operate at a level that is viable for the terminal operator as well. Indications are that the facility would only operate near or below these thresholds, leaving no margin for either the Port or its operator to withstand declining volume trends business fluctuations, or adverse competitive actions. While the Port may choose as a ‘ matter of policy to assume a loss on the terminal development cost, the terminal operator could cease operations leaving the Port with the choice of running the terminal itself or idling the facility.

So what do the Port commissioners know that the public doesn’t know that makes them continue to pitch a container dock? What would convince anyone after reading these reports a container dock makes sense? The public would appreciate being kept in the loop. Please, inquiring minds want to know.