6a
PORT OF SEATTLE
MEMORANDUM
COMMISSION AGENDA Item No. 6a
ACTION ITEM Date of Meeting August 9, 2011
CORRECTED COPY August 5, 2011
DATE: August 3, 2011
TO: Tay Yoshitani, Chief Executive Officer
FROM: Michael Burke, Director, Seaport Leasing and Asset Management
SUBJECT: Fifth Amendment to Terminal 18 Lease, Second Amendment to Terminal
18 Crane Agreement, and First Amendment to Supplemental Crane
Agreement in connection with SSA Containers, Inc., and SSA Terminals,
LLC, Terminal 18 Lease.
ACTION REQUESTED:
Request Commission authorization for the Chief Executive Officer to execute the
following amendments substantially as drafted: (1) Fifth Amendment to the Terminal 18
lease between the Port of Seattle, SSA Containers, Inc., and SSA Terminals, LLC; (2)
Second Amendment to the Terminal 18 Crane Agreement between the Port of Seattle, SSA
Containers, Inc., and SSA Terminals, LLC; and (3) First Amendment to Supplemental
Crane Agreement between the Port of Seattle, The Bank of New York Mellon, as the Bond
Trustee, and the National Public Finance Guarantee Corp., as the Bond Insurer.
SYNOPSIS:
The Port is proposing two amendments to the leases in effect between the Port and SSA
Containers, Inc. ("SSA") and SSA Terminals, LLC ("SSAT") ("SSA" together with
"SSAT," hereinafter called "SSAT") at Terminal 18 (T-18), and First Amendment to
Supplemental Crane Agreement between the Port of Seattle, The Bank of New York
Mellon, as Trustee, and the National Public Finance Guarantee Corp., as the Bond
Insurer. The two amendments with SSAT reflect the changing nature of the container
business, especially the upsizing of vessels calling at T-18. In the highly competitive
terminal business, these amendments will also create an incentive to retain and increase
container volume at T-18 by waiving the intermodal lift fee for five years. The Port also
benefits from these amendments by not being required to purchase new, or replace
existing, Port-owned cranes with our limited capital.
The Port will waive intermodal lift revenue for five years with these amendments.
Intermodal fees for 2011 are forecasted to be $330,000. The proposed Terminal 18 lease
amendment and crane amendment do not require any funding and are essentially revenue
neutral. However, these proposed amendments include waivers of fees/rents owed to the
COMMISSION AGENDA
Tay Yoshitani, Chief Executive Officer
August 3, 2011
Page 2 of 12
Port. The estimated $5,314,000 net present value loss of revenue to the Port from waiver
of intermodal fees and reduction in guaranteed minimum crane rent is balanced out by the
long-term benefit of not having to replace cranes at Terminal 18, which has an estimated
net present value loss of $5,546,000.
Subject to Port Commission approval, the Port of Seattle and SSAT have agreed to two
proposed amendments to the Terminal 18 Lease and the Terminal 18 Crane Agreement.
In concurrence with amending the Terminal 18 Crane Agreement, the Port is required to
amend the Supplemental Crane Agreement.
The proposed amendments with SSAT serve three purposes:
Provide additional tools to retain current and recruit new container business.
By waiving the on-dock lift fee and some volume guarantees, the Port is
supporting efforts to recruit new business to Terminal 18. In addition, these
amendments facilitate getting larger, more efficient, container cranes to Terminal
18 to enable that facility to efficiently handle the larger ships that the current
customers of that terminal plan to bring to the Pacific Northwest in the near
future. The industry trend is clearly to upsize the vessels in the transpacific trade,
and the Port needs to be able to handle ships in the 10,000 to 12,000 twenty-footequivalent-unit
(TEU) size. These larger cranes will help retain the current
customers of the Port and make the Port more competitive for additional business.
Relieve the Port of current obligations for crane purchase, including costs for
latent design flaws. Under the current lease terms, the Port is obligated to
replace existing container cranes around 2017/2018 or provide additional ones at
the customer's request due to high volumes. This is a significant financial
obligation for the Port and allows the Port to use its own funds for other highpriority
projects without diverting scarce capital resources. In exchange for the
consideration listed above, SSAT waives the crane requirement and agrees to
purchase cranes necessary for its operations. As owners of the cranes, SSAT will
be able to respond to market forces more quickly and be responsible for repair of
any design flaws that may become apparent. This is also consistent with the long-
term trend of the Port's getting out of the crane business and terminal operators
purchasing their own cranes.
Resolve questions regarding interest accrued from a proposed cash deposit
for lease security. SSAT p rovided a cash deposit in lieu of bonds for most of its
lease security requirement at Terminal 18. The proposed amendment clarifies that
interest accrued from this deposit will be held in trust by the Bank of New York
Mellon ( "Bond Trustee") for the benefit of SSAT and will be used to meet future
surety requirements needed for the lease deposit as the rent increases.
COMMISSION AGENDA
Tay Yoshitani, Chief Executive Officer
August 3, 2011
Page 3 of 12
BACKGROUND:
In the late 1990s, the Port expanded Terminal 18 by over 90 acres and made other
improvements. The expansion was funded in part by project-specific bonds guaranteed
by terminal revenues, and SSAT agreed with the alternative financing model. The bonds
are insured by the National Public Finance Guarantee Corporation ("Bond Insurer"),
formerly known as MBIA Insurance Corporation. Because of this arrangement, any
amendments to certain documents, including the lease and the crane agreement, cannot
take effect without the Bond Insurer's consent.
Under the structure required by the bond financing on the Terminal 18 project, the Port
leased Terminal 18 to the Bond Trustee, currently the Bank of New York Mellon,
formerly Chase Manhattan Bank, ("Bond Trustee") under a base lease agreement. The
Bond Trustee subleased the terminal back to the Port under a leaseback agreement and
the Port sub-subleased the terminal to SSAT under the Terminal 18 lease. This structure
allows the Port the option (not the obligation) to cure a default, should one occur, and
retain control of the facility.
As noted above, although purchasing cranes has previously been a positive financial
investment for the Port, cranes are becoming obsolete faster because of upsizing of
container ships. Cranes require a significant upfront cash investment and the shorter life
spans make recovering that investment more difficult. For these and other reasons, ports
on the west coast have not been investing in cranes in recent years. SSAT already has the
right, through the Crane Agreement, to bring their own cranes onto the Terminal, as long
as the cranes do not overload the capacity of the dock. SSAT has ordered six new cranes
for Terminal 18. This makes it unlikely SSAT will use any Port cranes beyond any
minimum guarantee, and that makes it unlikely the Port will adequately recover its
investment in any newly purchased cranes. See Attachment A, which shows the usage
pattern of Port-owned cranes and the impact of tenant-owned cranes on the same
terminal.
The newer generation of container vessels, with 12,000 TEU capacity and greater, need
cranes that can reach farther and higher than the Port's largest cranes can handle. With
larger capacity cranes, Terminal 18 will have a market advantage for bringing in
additional volume from the carriers such as Maersk, CMA-CGM and MSC, who have
made significant commitments to these larger vessels.
As allowed in the existing agreements, SSAT is bringing on six new container cranes to
Terminal 18 with this expanded capacity. The first of these cranes is expected to arrive
in Seattle by the end of the year. SSAT believes the addition of these new cranes is
necessary to meet the operational demands of the current customer mix at Terminal 18.
SSAT believes it can purchase cranes more cost-effectively than using cranes purchased
by the Port. The approximate cost of the kind of cranes that SSAT is purchasing is in the
COMMISSION AGENDA
Tay Yoshitani, Chief Executive Officer
August 3, 2011
Page 4 of 12
range of $9 to 10 million per crane. SSAT should be able to purchase the cranes at a
lower cost and faster than the Port because of its market leverage and because it does not
need to factor in overhead required to manage a public bid contract. Port staff estimates
these savings are at least 10% of the initial cost of the crane. SSAT has responsibility for
maintenance and operational costs for cranes whether it or the Port owns the cranes, but,
as the owner of the cranes, SSAT also bears the risk of latent design defect costs, such as
those the Port has incurred with Port cranes at Terminal 46.
By purchasing its own cranes, SSAT relieves the Port of a major financial obligation and
allows the Port to use its funds for other high-priority projects without diverting scarce
capital resources. With SSAT bringing their own cranes to the terminal, future use of
Port-owned cranes is expected to be at the minimum guarantee levels of the lease, not
generating enough return to justify the cost to purchase new cranes.
The waiving of the Port's share of the on-dock intermodal lift fee, currently at $11.60 per
lift, will help draw additional business to the Port. This proposed lease amendment will
waive the fee for five years and will be applicable to any volume beyond a tenant's
minimum guarantee. SSAT does not have a minimum guarantee at Terminal 18.
Waiving SSAT's crane-rent-minimum guarantee if annual volumes fall below 250,000
lifts at Terminal 18 helps protect SSAT if business leaves the terminal and helps SSAT
justify the risk of purchasing cranes. If volumes fell to this level, SSAT would still pay
crane rent for the volume handled by Port-owned cranes on the terminal, but they would
not be billed for any shortfall between actual usage and the minimum annual guarantee.
It is also likely that when volume levels are below 250,000 lifts per year, there would be
no intermodal usage.
Because of the alternative financing used to fund the Terminal 18 expansion, SSAT has
had difficulty obtaining a lease bond or letter of credit that complies with the enhanced
requirements in the lease. The current lease does not specify which party would get any
interest accumulated from a cash deposit. The proposed lease amendment clarifies that
the interest or earnings from SSAT's cash deposits would accrue to SSAT's benefit and
be held by the Bond Trustee to be applied toward future increases in the lease security
requirement.
Due to the Most Favored Nations clause in the Terminal 5 lease, the Port must offer
Eagle Marine Services Ltd. ("Eagle Marine") a similar incentive on intermodal lift fees,
after Eagle Marine meets its minimum guarantee, currently at 51,266 lifts per year. This
incentive would only be for the same five-year period and only to the extent that SSAT
uses the Terminal 18 on-dock facility and therefore benefits from the waiver of the
intermodal fee in a given year. The Terminal 5 lease would need to be modified based on
the outcome of negotiations with Eagle Marine and would also include consideration that
matches the cost of the loss of revenue to the Port as SSAT has done at Terminal 18.
However, Commission approval of the proposed amendments with SSAT will set part of
COMMISSION AGENDA
Tay Yoshitani, Chief Executive Officer
August 3, 2011
Page 5 of 12
this incentive in place with Terminal 5 as well. Since Terminal 30 and Terminal 46 do
not have an on-dock intermodal loading yard, the Port has no obligation to offer a similar
incentive to those terminal operators.
The proposed Fifth Amendment to Terminal 18 Lease and Second Amendment to Crane
Agreement will not take effect until it has been reviewed and approved by the Credit
Facility Issuer, the Bond Insurer, as required by the Terminal 18 Lease. The proposed First
Amendment to the Supplemental Crane Agreement will require Bond Trustee and Bond
Insurer approval.
MAJOR ELEMENTS OF THE PROPOSED AMENDMENTS:
The major elements of the proposed amendments are as follows:
1) Fifth Amendment to the Terminal 18 Lease
a. Modify Section 4.2, Basic Land Improvements Rent; Intermodal Yard (IY)
Facilities Rent and IY Facility Charges, subsection (g), of the Terminal 18 lease
where the Port will forgo its portion of the Intermodal Yard Facility Charges for a
period of five (5) years, effective January 1, 2011.
b. Modify Section 4.7, Security of Rent Payments, of the Terminal 18 Lease to allow
the Port to provide accumulated interest income, if any, in the event SSAT
provides a cash security deposit in place of a letter of credit or a surety bond.
2) Second Amendment to the Terminal 18 Crane Agreement
a. Modify Section 5 of the Crane Agreement to relieve the Port of the future capital
commitments of replacing Port-owned cranes on Terminal 18. Currently, the Port
is potentially obligated to provide additional cranes at Terminal 18 if crane use
equals or exceeds 2,000 hours per crane per year and to provide three functional
cranes of similar capacity to the MHI cranes on site.
b. Modify Section 6 of the Crane Agreement to provide for adjustments relating to
crane minimum hours, where SSAT is relieved of the crane minimum annual
guarantee rental charge if the Terminal 18 container volumes fall below 250,000
lifts per calendar year.
c. This Second Amendment also maintains the requirement of the first amendment
for SSAT to bring three new cranes to Terminal 18, replacing the Port's 50-foot
gauge IHI cranes.
d. SSAT also has the option to bring three additional cranes (Phase II cranes) to the
terminal. If SSAT brings Phase II cranes onto the terminal, then the Port's three
COMMISSION AGENDA
Tay Yoshitani, Chief Executive Officer
August 3, 2011
Page 6 of 12
100-gauge MHI cranes will have no minimum annual guarantee beyond 2015. In
addition, SSAT can request the Port to remove the MHI cranes from the terminal
within 24 months of installation of the additional three Phase II cranes, but not
before December 31, 2018.
3) First Amendment to Terminal 18 Supplemental Crane Agreement
a. Modify Section 2.1 with respect to the replacement and removal of cranes and by
adding subsection "a" noting the parties agree to the terms in the Crane
Agreement as amended by the Second Amendment.
Copies of the proposed amendments are attached to this Commission memo.
FINANCIAL IMPLICATIONS:
Source of Funds
The proposed Terminal 18 lease amendment and crane amendment do not require any
funding and are essentially revenue neutral. However, these proposed amendments
include waivers of fees/rents owed to the Port.
The estimated $5,314,000 net present value loss of revenue to the Port from waiver of
intermodal fees and reduction in guaranteed minimum crane rent is balanced out by the
long-term benefit of not having to replace cranes at Terminal 18, which has an estimated
net present value loss of $5,546,000.
COMMISSION AGENDA
Tay Yoshitani, Chief Executive Officer
August 3, 2011
Page 7 of 12
Financial Analysis Summary
CIP Category N/A
Project Type N/A
Risk adjusted 7.5% (for guaranteed minimum crane rent)
Discount rate
Key risk factors Amendment to the Terminal 18 lease is subject to approval by the Bond Insurer,
per the terms of the special facility financing for the Terminal 18 expansion.
The proposed intermodal fee waiver and modification to minimum annual crane
rent may not provide enough incentive in the current economic climate to retain
current customers or significantly increase cargo volumes at Terminal 18.
Intermodal usage levels will vary based on annual cargo volumes and the needs
of specific shipping customers calling at Terminal 18. Accordingly, the estimated
reduction in revenue from intermodal fees is uncertain. The cumulative revenue
reduction from the waiver of intermodal fees over the 5-year period could range
from zero to $6,500,000 for Terminal 18 and zero to $3,100,000 for Terminal 5
depending on the number of trains each intermodal facility generates per week.
The useful life of the existing Port-owned MHI cranes is assumed to be 20 years,
which means they should remain operationally viable until 2017/2018. However,
there is a risk of early obsolescence if ship sizes calling at Terminal 18 increase
and the MHI cranes are unable to service the height or breadth of containers
carried on the larger vessels.
Even if the MHI cranes remain operationally viable until 2017/2018, if SSA
installs the second set of (3) cranes (Phase II cranes) at Terminal 18, under the
terms of the proposed amendment to the Crane Agreement, the guaranteed annual
minimum crane rent on the MHI cranes would end on 12/31/2015.
Project cost for N/A
analysis
Business Unit (BU) Container Operations
COMMISSION AGENDA
Tay Yoshitani, Chief Executive Officer
August 3, 2011
Page 8 of 12
Effect on business Comparison of Effect on Business Performance for Action Alternatives:
performance Financial analysis performed for the alternatives below included assumptions on
crane usage and intermodal usage, as well as annual rate increases for intermodal fees
and estimated annual increases in the tariff crane rate per hour. The estimated cash
flows from the various alternatives have been discounted to current dollar
equivalents, and are presented at net present value (NPV).
Usage levels for Port-owned cranes will vary depending on TEU volumes and the
availability of tenant-owned cranes on the same terminal. Guaranteed minimum
crane rent is limited to 1,250 crane hours/per crane/per year. Usage of Portowned
cranes above the guaranteed minimum level is at the tenant's discretion
and is unlikely if the tenant has their own cranes on site.
Intermodal usage levels will vary based on annual cargo volumes and the needs
of specific shipping customers calling at Terminal 18. There is no minimum
annual usage guarantee for intermodal fees at Terminal 18.
The financial return on investment in new Port-owned cranes for Terminal 18 is not
viable for several reasons.
When a terminal has a combination of Port-owned and tenant-owned cranes
available for use, usage of the Port-owned cranes is not likely to exceed the
annual guaranteed minimum - as occurred in 2007/2008 when SSA had (4)
tenant-owned cranes in use on Terminal 18.
The current SSA agreements allow SSA to purchase and install their own cranes
on the terminal. SSA currently has one SSA-owned crane on Terminal 18 and
has purchased six more cranes with the intention of installing them on Terminal
18 within the next year.
The expected return on investment to the Port for new cranes at Terminal 18 is
unfavorable. In both near term and longer term forecasting, the NPV is negative
for investing in new Port-owned cranes at Terminal 18 due to the combination of
Port-owned and SSA-owned cranes on the terminal. The unfavorable return is
the result of the significant increase in the purchase price of cranes (~$10.0
million each), while minimum annual guaranteed crane usage has remained fixed
at 1,250 crane hours per crane/per year.
A summary of the key components of the Commission Memo alternatives is shown
below and is discounted to reflect Net Present Value in today's dollars.
Estimated NPV of Alternatives (in $000's) Alternative 1 Alternative 2 ** Alternative 3
Description of alternative Do not amend agreements. Do not amend agreements. Amend agreements. Port no
Port buys cranes when MHI Port buys (3) additional longer obligated to replace
cranes need to be replaced. cranes now. MHI cranes.
Investment in New Port-owned Cranes ($5,546) ($8,009)
Reduction in Minimum Guaranteed Crane Rent ($3,096)
Estimated Reduction in Intermodal Fee Revenue ($2,217)
NPV - Cummulative Impact ($5,546) ($8,009) ($5,314)
Not Recommended Not Recommended Recommended Action
Note **: Alternative 2 may not be allowed under the terms of the current agreements.
COMMISSION AGENDA
Tay Yoshitani, Chief Executive Officer
August 3, 2011
Page 9 of 12
Effect on business Waiver of Crane Rent Minimum Annual Guarantee on MHI cranes if SSA installs
performance (3) Phase II cranes
Under the proposed amendment to the Terminal 18 Crane Agreement, if SSAT installs
Phase II cranes at Terminal 18 (for a total of six new SSA-owned cranes), the minimum
annual guarantee on Port-owned MHI cranes would end on 12/31/2015.
SSAT can request the Port to remove the MHI cranes from the terminal after installation
of the Phase II cranes; however the minimum annual guaranteed crane rent would still
be payable through 2015. If SSA does request the MHI cranes be removed from the
terminal, that removal would not occur before 12/31/2018, and SSA would pay full
tariff for any Port-owned crane hours used after the annual minimum guarantee ends on
12/31/2015. If SSA does not request the Port-owned MHI cranes be removed from the
terminal, SSA would again pay full tariff for any Port-owned crane hours used after
12/31/2015.
Currently the useful life of the existing Port-owned MHI cranes is assumed to be 20
years, with a remaining expected useful life for the existing MHI cranes until
2017/2018. The potential reduction in revenue from the waiver of minimum annual
guaranteed crane rent effective 12/31/2015 is shown below.
Potential Reduced Revenue (in $000's) NPV 2016 2017 2018 TOTAL
Minimum Annual Guaranteed Crane Rent ($3,096) ($1,970) ($2,019) ($690) ($4,679)
Effect on business Intermodal Fee Waiver
performance The Terminal 18 lease does not have a minimum annual guarantee for the intermodal
facility usage of Terminal 18 on-dock intermodal is discretionary. The Terminal 18
intermodal facility was not used in years 2002 2008. The intermodal facility was
placed back in service by the tenant in 2009, and is currently handling an average of 2
trains per week, each requiring an average of 290 intermodal lifts. The estimated
reduction in revenue from the proposed 5-yr waiver of intermodal fees is shown below.
TERMINAL 18
Most Likely Estimate of Terminal 18 Future Intermodal Usage
Potential Reduced Revenue (in $000's) NPV 2011 2012 2013 2014 2015 TOTAL
Estimated Intermodal Fees Waived ($2,217) ($350) ($360) ($556) ($573) ($787) ($2,627)
Estimated Number of Trains per week 2 trains 2 trains 3 trains 3 trains 4 trains
Intermodal usage during the proposed 5 -y ea r fee waiver period could be higher or lower
than the estimate shown above. Revenue impact at various intermodal usage levels is
shown below.
TERMINAL 18
Intermodal Revenue at various usage levels
Potential Reduced Revenue (in $000's) NPV 2011 2012 2013 2014 2015 TOTAL
No intermodal usage $0
Current Usage (2 trains per week) ($1,608) ($350) ($360) ($371) ($382) ($394) ($1,857)
Potential Growth (4 trains per week) ($3,216) ($700) ($720) ($742) ($764) ($787) ($3,713)
Maximum Capacity (7 trains per week) ($5,629) ($1,224) ($1,260) ($1,298) ($1,337) ($1,378) ($6,498)
COMMISSION AGENDA
Tay Yoshitani, Chief Executive Officer
August 3, 2011
Page 10 of 12
Terminal 18 previously received a waiver of intermodal fees under the 2009/2010
Customer Support Plan. Actual intermodal usage and intermodal fees waived under that
12-month program are also show below.
Historical T-18 Intermodal Usage 2009 2010 TOTAL
Actual Intermodal Lifts 11,405 34,450 45,855
Intermodal Fee - per lift $11.04 $11.31
Actual Reduction in Intermodal Revenue (in $000's) 2009 2010 TOTAL
T-18 Intermodal Revenue - before fee waiver $126 $390 $516
less IY Fee Waiver (2009/2010 Customer Support Plan) ($42) ($330) ($372)
T-18 Intermodal Revenue - after fee waiver $84 $60 $144
Under the proposed amendments, Terminal 5 would be eligible to receive a waiver of
intermodal fees in the same 5-yea r period, due to the Most Favored Nations clause in
the Terminal 5 lease. Terminal 5 has a minimum annual intermodal usage re quirement
of 51,266 paid lifts per year. The estimated intermodal fee waiver shown below is
based on estimated usage in excess of the minimum guaranteed usage, and would be
limited to the intermodal fee waiver benefit actually received by Terminal 18 in a ny
given year.
TERMINAL 5
Most Likely Estimate of Terminal 5 Future Intermodal Usage
Potential Reduced Revenue (in $000's) NPV 2011 2012 2013 2014 2015 TOTAL
Estimated Intermodal Fees Waived ($1,184) ($260) ($266) ($273) ($280) ($287) ($1,366)
Estimated Number of Trains per week 5 trains 5 trains 5 trains 5 trains 5 trains
Effect on business Waiver of Crane Rent Minimum Annual Guarantee if terminal volume is lower
performance than 250,000 lifts in a given year
Under the proposedamendment to the Terminal 18 Crane Agreement, SSAT would be
relieved of the m inimum annual guarantee crane rent requirement if the Terminal 18
container volumes f ell below 250,000 lifts per calendar year. The likelihood of terminal
volumes falling below the lift breakpoint is considered relatively low risk. Container
volumes have been well in excess of 300,000 lifts per year since the facility opened in
2002, even with the reduction in container volume in 2008/2009. See Attachment B,
which shows annual lift volumes on Terminal 18 since 2002, relative to the proposed
breakpoint of 250,000 lifts per year.
If volumes should fall below 250,000 lifts in a given year , SSAT would still pay crane
rent for actual hours of Port- owned cranes used, but would not be billed for any shortfall
between actual usage and the minimum annual guarante ed crane hours for that year .
The annual minimum crane rent subject to waiver is shown below.
Crane Rent Subject to Waiver
Potential Reduced Revenue (in $000's) 2011 2012 2013 2014 2015 2016 2017 2018
Minimum Annual Crane Rent $1,742 $1,785 $1,831 $1,876 $1,922 $1,970 $2,019 $690
IRR/NPV N/A
COMMISSION AGENDA
Tay Yoshitani, Chief Executive Officer
August 3, 2011
Page 11 of 12
ALTERNATIVES CONSIDERED AND THEIR IMPLICATIONS:
No Action Alternative: Do not amend the agreements with SSAT. SSAT currently
has the right to purchase and install SSAT-owned cranes on Terminal 18. If
additional SSAT-owned cranes are added to the terminal, usage of Port-owned cranes
is likely to decrease to the minimum annual guaranteed level as occurred in 2007
and 2008 when SSA had four (4) SSAT-owned cranes operating on Terminal 18. The
Port would continue to collect minimum annual guaranteed crane rent through the
remaining useful life of the three (3) Port-owned MHI cranes (estimated to occur
around 2017/2018). In addition, the Port would continue to collect intermodal fees to
the extent that SSAT chooses to use the Terminal 18 intermodal facility. There is no
minimum annual usage requirement for intermodal fees in the Terminal 18 lease.
If SSAT does not install additional tenant-owned cranes on the terminal, the Port will
likely have to provide additional container cranes for the terminal, as well as invest in
the replacing of existing cranes. The Port may not receive the cash flow from crane
rent to justify the investment in new cranes but is still contractually required to
purchase new cranes. Additionally, the Port may have to make this investment at a
time when its capital capacity is limited. This is not the recommended alternative.
Port Purchase of New Cranes: The alternat ive of purchasing additional Port-owned
cranes now is not clearly allowed by the current provisions of the crane agreement.
With SSAT preference to use its own cranes, any new Port-owned cranes, or any
replacement of existing Port-owned cranes, will probably generate only minimum
revenue and not provide an adequate return on investment to the Port. Port purchase
of cranes will also use a significant amount of our limited capital capacity. This is
not the recommended alternative.
Recommended Action: Amend the Terminal 18 Lease, Crane, and Supplemental
Crane agreements as proposed. This action protects the Port's capital capacity from
being used on additional cranes without a sufficient revenue guarantee. The proposed
amendments help create more incentive for additional cargo to the Port and resolve
the conflict of who gets the benefit of interest earned on a cash deposit for lease
security. This is the recommended alternative.
OTHER DOCUMENTS ASSOCIATED WITH THIS REQUEST:
Attachments A Terminal 18: Average Crane Activity for Port-owned Cranes by
year
Attachment B Terminal 18: Annual Lifts Compared to Proposed Lift Breakpoint
Fifth Amendment to Terminal 18 Lease Draft
Second Amendment to Terminal 18 Crane Agreement Draft
First Amendment to Supplemental Crane Agreement Draft
COMMISSION AGENDA
Tay Yoshitani, Chief Executive Officer
August 3, 2011
Page 12 of 12
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS:
July 26, 2011 Commission briefing on the Fifth Amendment to the Terminal 18
Lease; Second Amendment to the Terminal 18 Crane Agreement with SSAT; and
First Amendment to the Supplemental Crane Agreement between the Port and the
Trustee.
April 14, 2009 Authorization to execute lease amendments to SSA Terminal 18
lease to incorporate the Customer Support Package and the Port's Clean Air Program.
April 14, 2009 Authorization to execute a Second Amendment to the Base Lease, a
Second Amendment to Leaseback, and a Second Amendment to the Subordination,
Non-Disturbance and Novation Agreement in connection to the Terminal 18 lease.
April 11, 2006 Authorization to execute lease amendments with SSAT at Terminal
18.
February 14, 2006 Authorization to execute Second Amendment to Terminal 18
lease with SSAT.
December 13, 2005 Authorization to execute Second Amendment to the Terminal
18 Lease and First Amendment to the Crane Agreement between the Port of Seattle
and SSAT at Terminal 18.
May 27, 2003 Authorization to enter into a Memorandum of Understanding and
subsequent lease amendment with SSAT to revise priorities and lease commitments
for apron and pavement improvements at Terminal 18.
March 26, 2002 Authorization to execute documents in the amount of $244,490.48
reimbursing SSAT for costs incurred in the transfer of crane maintenance
responsibilities.
June 27, 2000 Authorization to execute (1) First Amendment to SSAT and SSA at
Terminal 18; (2) First Amendment to Base Lease; and (3) First Amendment to
Leaseback.
October 21, 1999 Authorization to execute agreements with SSAT and SSA, or
both, for the following: (1) Providing for handling of tax matters at Terminal 18 and,
(2) providing for procedures and agreements between the Port and SSA, SSAT, or
both, in the event of an ownership change involving SSAT or SSAT.
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