MEMO – PORT OF RICHMOND FINANCIAL CONDITION AND OUTLOOK To: Shasa Curl, City of Richmond From: Bill Lee, Land Econ Group RE: Overview of the Port of Richmond’s Financial Condition and Outlook Date: March 7, 2023 __________________________________________________________________________________ INTRODUCTION The City of Richmond requested that the Land Econ Group (LEG) provide a brief overview of the financial condition and outlook for the Port of Richmond. With this memo, the LEG provides the requested overview. This memo is an update of a similar memo submitted on October 26, 2022. ROLE OF THE PORT The US Department of Transportation Bureau of Transportation Statistics provides a report to Congress on activities at the major ports in the country. Based upon the latest available 2019 report, which is based upon 2018 statistics, the Port of Richmond ranks as one of the top 25 US ports in one of three measures. The three measures are: • Overall cargo tonnage, • Container cargo as defined by 20-foot equivalent units (TEUs), and • Dry bulk cargo tonnage. Richmond ranked within the top 25 only in overall cargo tonnage; earning a ranking of 24th for 2018 (Figure 1). The Ports of Houston and New Orleans/South Louisiana dominated overall cargo tonnage. The Port of South Louisiana handles by far the largest volume of dry bulk cargo because of its location at the mouth of the Mississippi River. The Ports of Long Beach and Los Angeles handled more containers as compared to other ports by a large margin.
2 Figure 1: Total Cargo Tonnage Handled by Top 25 US Ports Within Northern California, the Port of Oakland dominates the container business. The Port of Richmond complements Oakland by concentrating on liquid bulk cargo and automobiles from “roll-on and roll-off” ships. It does not compete in the container business. Richmond has served the Chevron refinery for many decades. Chevron imports crude oil and exports refined petroleum products like gasoline, diesel, jet fuel, fuel oil and lubricating oils. The import and temporary storage of Honda and Subaru automobiles represents Richmond’s largest source of revenue. The Port of Benicia competes for the automobile business because it has substantially more land, but its longer distance from the Golden Gate places it at a transit time and therefore cost disadvantage. As illustrated in Figures 2 through 5, Richmond’s overall tonnage ranged between 25 and 29 million short tons during the 2015 to 2018 period. Petroleum products, as measured by weight, dominated its cargo volume. Two-thirds of its volume was international cargo with only one-third being domestic. Of the international trade, nearly three quarters was imports versus one-quarter exports.
28.5 24.7
27.8 27.3
0 5
10 15
20 25
30 2015 2016 2017 2018
Figure 2: Total Throughput Millions of Short Tons
8.9 18.4
Figure 4: Cargo Mix 2018 in Short Tons
Domestic International
Figure 3: Commodities Profile 2018
Crude Petroleum Fuel Oil Gasoline
Residual Fuel Oil Coal & Lignite All Others
13.5 4.9
Figure 5: Mix of International Cargo 2018 Short Tons
Imports Exports
PORT REVENUE AND EXPENSES Over the past seven years, the financial profile of the Port can be summarized by fairly flat revenue and significantly declining expenses. From FY 2016 through FY 2021, Port revenue has remained is the vicinity of $10.5 million but expenses have declined precipitously from $11.1 million in FY 2016 to $6.3 million in FY 2021. During this past fiscal year, revenue increase to $11.2 million as newer and more aggressively negotiated leases began to show their results while expenses fell to $4.8 million primarily due to a one-time credit adjustment of over one million dollars to salaries and benefits resulting from over retention of pension liabilities and other post employment benefits. The surplus from Port operations for FY 2021-22 was slightly in excess of $6.4 million (Table 1), and much of this surplus is transferred to the General Fund. Table 1: Port of Richmond Revenue and Expenses Trend by Fiscal Year The adopted budget for FY 2023 is very similar to the actual performance achieved in FY 2020 with revenues at $10.3 million, expenses at $7.8 million for an operating surplus of $2.5 million. As detailed in Table 2, the major revenue items are the automobile leases to Honda and Subaru and lease revenue generated by the Pt. Potrero Marina Terminal. The largest expense items include depreciation and general and administrative costs. For a City Department that generates over $11 million in annual revenue, staff costs are less than five percent of revenue. The surplus for FY 2022-23 will almost certainly be less than the $6.4 million achieved this past year because the large one-time credit adjustment will not be repeated. 2016 2017 2018 2019 2020 2021 2022
Revenue
Rental 6,932,845
Service Charges 2,631,766 2,649,167 2,852,569 2,905,128 2,761,584 2,800,099 626,982 Lease Income 7,421,299 7,533,185 7,691,234 7,682,406 7,689,168 7,809,710 2,920,787 Interest Income 12,947 11,344 52,987 154,332 57,222 3,719 663,112 Settlements 501,000
Other 27,354 425 36,443 41,695 3,309 94,215 50,039 Total Operating Revenue10,594,366 10,194,121 10,633,233 10,783,561 10,511,283 10,707,743 11,193,765 Expenses
Salaries and Benefits 694,471 895,338 591,049 721,313 485,030 449,534 (1,015,124) General & Administrative2,278,144 2,077,409 1,994,000 2,052,829 2,387,570 1,636,961 1,622,021 Maintenance 1,778,312 454,317 1,559,527 407,532 14,082 294,062 541,167 Depreciation 3,510,058 4,077,251 3,775,336 3,573,847 3,570,911 3,544,329 3,529,821 Interest Expense 2,868,084 2,586,938 2,329,249 2,050,789 1,275,087 330,437 168,873 Other 3,928 10,851 8,392 21,451 12,093 - (83,201) Total Operating Expenses11,132,997 10,102,104 10,257,553 8,827,761 7,744,773 6,255,323 4,763,557 Surplus or Deficit (538,631.00) 92,017.00 375,680.00 1,955,800.00 2,766,510.00 4,452,420.00 6,430,208.00 Source: City of Richmond Finance Department
5 Figure 6: Port Operating Revenue and Expenses by Fiscal Year Table 2: Port of Richmond Detailed Adopted Budget for FY 2022-23
$-
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
FY 2016FY 2017FY 2018FY 2019FY 2020FY 2021FY 2022
RevenueExpenses
Revenue FY 22-23Expenses FY 22-23
Honda Storage Rental $50,000 Honda Revenue Share $250,000 Subaru Storage Rental $128,000 Subaru Revenue Share $250,000 Honda Lease Revenue $4,700,000 Legal Services $60,000
Subaru Lease Revenue $2,900,000 Director/Staff Travel Expenses $100 AAK Rental Income $466,406 Publications & Dues $18,021 Dock Wharage Fees $235,669 Fees and Permits $5,000
Terminal 3 Partners $440,012 Office Supplies $5,200
Nematode Holdings $81,798 Equipment Rental $7,000
Pt. Potrero Marina & Others $1,326,574 Telephone Services & Booster WiFi $16,000 Utilities Cost Recovery $20,000 Wireless Alarm System $6,000 Contract Services - Railroad Monitoring$16,000
Total Revenue $10,348,459 Port Insurance $40,000
General Liability Ins (Allocated) $26,728
Staff Costs (Allocated) $449,435
Debt Service Principal Payment $4,270,000
Debt Service Interest Payment $416,500
Bond Administration Fee $4,200
Professional Services - Consulting $370,000
Utilities - Water, PG&E & EBMUD $345,600
Public Works Misc Services $25,000
Contract Maintenance Services $750,000
Maintenance & Upgrades $500,000
Operating Surplus $2,517,675 Total Expenses $7,830,784 Source: City of Richmond
6 PORT FUTURE OUTLOOK The Port’s revenue versus expense outlook remains positive in the short to intermediate term. The Port concluded several new lease agreements that typically include upward adjustments due to inflation. Alcatraz Tours has expanded to lease both sides of Basin 4 of the Point Potrero Marine Terminal, and the Port has secured three times the previous rent. On the expense side, staff cost and general & administrative expenses appear to be well controlled. Over the longer timeframe, the Port of Richmond faces some challenges and enjoys some opportunities. The future of the Port is very much tied to the petroleum and automobile industries. They are industries in transition as battery electric vehicles replace gasoline and diesel-powered cars and trucks, and as lower cost producers replace higher cost ones. What the Japanese did to the US and European auto industries starting some 40 years ago, the South Koreans are now doing to the Japanese and the second line European and US auto manufactures. In another ten to 20 years, the Chinese may be exporting low cost and competitive quality electric vehicles to the US. The Port should use these transitions in the auto industry as an opportunity and strive to accommodate additional automobile lines. Facing limited land area, the economics of parking decks may be explored with the private sector investment in return for lower lease payments. The Port of Richmond has enjoyed a long-standing relationship with the Chevron refinery and research facility. As the automobile industry moves away from gasoline and diesel, induced by government policy at many levels, the Chevron refinery may face an existential threat. In the intermediate term the refinery could focus more on jet fuel and LNG; however, the Port of Richmond needs to think strategically about the financial implications of a much smaller petroleum industry in 15 to 20 years.