MEMO – PORT OF RICHMOND FINANCIAL CONDITION AND OUTLOOK To: Shasa Curl and Lizeht Zepeda, City of Richmond From: Bill Lee, Land Econ Group RE: Overview of the Port of Richmond’s Financial Condition and Outlook Date: September 1, 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 March 9, 2023. ROLE OF THE PORT The US Department of Transportation Bureau of Transportation Statistics (BTS) provides a report to Congress on activities at the major ports in the country. Based upon the 2019 report, which is based upon 2018 statistics, the Port of Richmond ranked 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. Our updated research into the same BTS source published in January of 2023 indicated that the Port of Richmond is no longer in the top 25 in any of the three measures. Therefore, similar but more recent data is not available for the Port of Richmond.
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 flat to recently growing revenue and significantly declining expenses. From FY 2017 through FY 2021, Port revenue remained is the vicinity of $10.5 million but expenses declined precipitously from $11.1 million in FY 2016 to $6.3 million in FY 2021. During the past two fiscal years, revenue has climbed to $11.2 million in FY 2022 and an estimated $11.7 million in 2023 as newer and more aggressively negotiated leases began to show their results. In FY 2022 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 surpluses from Port operations for the past three fiscal years averaged $5.6 million per year (Table 1), and much of this surplus was transferred to the General Fund. Table 1: Port of Richmond Revenue and Expenses Trend by Fiscal Year 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 2023 is estimated to be less than the $6.4 million achieved in FY 2022 because the large one-time credit adjustment will not be repeated. However, the surplus will still be substantial and is estimated to be $5.9 to $6.0 million. 2017 2018 2019 2020 2021 2022 2023*RevenueRental 6,932,845 Service Charges 2,649,167 2,852,569 2,905,128 2,761,584 2,800,099 626,982 2,988,808 Lease Income 7,533,185 7,691,234 7,682,406 7,689,168 7,809,710 2,920,787 7,889,683 Interest Income 11,344 52,987 154,332 57,222 3,719 663,112 353,960 SettlementsOther 425 36,443 41,695 3,309 94,215 50,039 496,250 Total Operating Revenue10,194,121 10,633,233 10,783,561 10,511,283 10,707,743 11,193,765 11,728,701 ExpensesSalaries and Benefits895,338 591,049 721,313 485,030 449,534 (1,015,124) 376,873 General & Administrative2,077,409 1,994,000 2,052,829 2,387,570 1,636,961 1,622,021 1,670,791 Maintenance 454,317 1,559,527 407,532 14,082 294,062 541,167 199,349 Depreciation 4,077,251 3,775,336 3,573,847 3,570,911 3,544,329 3,529,821 3,517,321 Interest Expense 2,586,938 2,329,249 2,050,789 1,275,087 330,437 168,873 (4,787) Other 10,851 8,392 21,451 12,093 - (83,201) 15,903 Total Operating Expenses10,102,104 10,257,553 8,827,761 7,744,773 6,255,323 4,763,557 5,775,450 Surplus or Deficit 92,017$ 375,680$ 1,955,800$ 2,766,510$ 4,452,420$ 6,430,208$ 5,953,251$ * Preliminary estimates
Source: City of Richmond Finance Department
5 Figure 6: Port Operating Revenue and Expenses by Fiscal Year 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 few years, the Chinese may be exporting low cost and competitive quality electric vehicles to the US, as they are already penetrating the Australian market. 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. Encouraged by State policies, the City leadership has expressed interest in hosting a manufacturing facility for floating wind turbines intended for wind farms off the California coast. However, a more detailed examination of its costs, risks and opportunity costs should be undertaken before such a project proceeds even if there are State and/or Federal subsidies available. $-
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FY 2016FY 2017FY 2018FY 2019FY 2020FY 2021FY 2022FY 2023* RevenueExpenses
6 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.