New Yorker April Opinion

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Public-private partnerships (PPP) are back in the news. In March, at a time when reports of slower trade growth continued to mount, reports of two fresh US port privatisations (one agreed upon, one at the proposal stage) emerged.

The Port of Oakland announced a 50-year concession deal for five berths in its Outer Harbor, with a company owned jointly by Ports America (an entity controlled by funds packaged by Highstar Capital) and Mediterranean Shipping Company (MSC).

Shortly after the announcement of the Oakland deal, the Port of Virginia (a State entity, operating four terminals) received an unsolicited proposal for a 60-year concession, from CenterPoint Properties, an industrial real estate company with a growing footprint in the business of intermodal distribution centers.

CenterPoint is tied to California Public Employees Retirement System (CALPERS), a huge pension fund - the quintessential "institutional investor". The process in Virginia, where competing proposals will now be solicited, will likely require a timeframe of 12-18 months.

OK, so two deals might not constitute a real trend, and surely both were in the works long before the Obama Stimulus Bill. But, Governmental entities, like commercial businesses, must think creatively when times are tough. Simultaneously, investors such as CALPERS have money that they need to invest. Maritime transactions, with long tenors spanning multiple economic cycles, can still offer the stability that such pension funds crave. In the hands of a creative banker with a keen sense of how to structure an early "flip" (hopefully into the teeth of a rising market), even private equity funds will take a hard look at port deals.

Budgets of all levels of governmental entities (including cities like Oakland and states like Virginia) are being stretched by economic forces way beyond shipping, making this a fertile time for ports shifting their business models for established cargo businesses away from operation to landlord roles.

The Oakland MSC tie-in, and the Virginia distribution center expertise, both offer hints that private sector comparative advantages will provide the rationale to take another look at PPP opportunities.