By BERNIE WEISENFELD
Courier-Post Staff
In its biggest-ever seaport investment, the Delaware River Port Authority this week will take a major stake in a fleet of jet-powered freighters that could boost shipping on the Delaware River.
For the DRPA, there is risk: the ship's design is unproven, and customers must be found. Without those customers, the public agency's initial $7 million investment would be lost.
But there is also the potential payoff of as many as 2,200 local jobs and increased business for the regional port.
The deal is the biggest and most complex for the DRPA since it assumed new powers as an economic development agent for the region. With part of the cash it collects from running four Delaware River bridges ... $104 million this year ... the agency last year began to fund a variety of local projects. Investments so far have ranged from $1.6 million for construction of a North Camden shopping center to a new $800,000 Philadelphia hiring hall for Longshoremen, the dockworkers union.
On Thursday, DRPA officials and Gloucester City-based cargo handler and port powerhouse Thomas Holt will meet at DRPA headquarters in Camden to sign agreements to invest in FastShip Atlantic Inc. The Virginia-based firm is licensed by its parent company to operate a high-speed cargo ship service in the North Atlantic using a patented hull design. None of the high-speed ships has been built yet.
Initially, the port authority ... which will receive 70,000 shares of FastShip preferred stock ... will put up $7 million for FastShip startup costs. Later, it would spend up to $76 million to build a ship berth on the Delaware River.
For that, the 770-foot ships will be expected to bring more cargo and work to Philadelphia's port.
FastShip officials say they can deliver ... if the firm's patented hull and water-jet engines work, as they have on smaller vessels and test models. At 40 knots, the company's ships could cross the Atlantic in days, compared with 7 or 8 days for today's propeller vessels.
Customers the key
The DRPA thinks FastShip is worth the risk.
Under the pending DRPA-FastShip agreement, "no other port on the East Coast can have this service,' said the port agency's treasurer, Martin Dorph.
Key to the project's success: Finding customers to fill the ships with expensive, time-sensitive goods such as cars and electronics gadgets.
If enough customers sign up, said Dorph, "we're in business, and Philadelphia's got it." If not, the DRPA's initial investment would be lost. "The big roll of the dice is the $7 million," said Dorph.
The technology, FastShip says, will do for commercial shipping what the jet airplane has done for air transportation.
Here's a glance at FastShip's potential, according to a DRPA consultant: ‚Within five years of startup, FastShip could annually supply 5 million tons of containerized cargo with eight ships and generate 2,200 jobs in Philadelphia.
That's more than four times the amount of container cargo the port now handles. ‚Handling of the added cargo would produce $496 million in business revenue and $9 million in taxes. ‚Jobs projected for the FastShip service include dock and ship crews, river pilots and rail and truck operators.
Not surprisingly FastShip's top executive thinks even those rosy estimates are conservative.
"What isn't included is all the ancillary effects," says FastShip President Collister "Terry" Johnson.
For example, ship fuel purchases and corporate taxes weren't counted, Johnson said. FastShip expects to buy about $400 million a year in marine diesel fuel by the year 2001, he said.
The estimates also can't include the "magnet effect" of having a unique transport service in the port, Johnson said.
Such "high-value, time-sensitive" cargo as cars, consumer electronics, pharmaceuticals and fashion apparel would be targeted for the service. Though no customers are committed yet, Swedish carmaker Volvo already is interested enough to help finance an $800,000 study of FastShip's hull design.
In Europe, FastShip has discussed building a single North Atlantic marine terminal in the Belgian port of Zeebrugge. The port is building a wharf that could accommodate the terminal, but is hedging its bet on FastShip, said DRPA Vice Chairman Peter Burke, who visited Zeebrugge on a fact-finding trip in April.
The same wharf may be used as a ferry stop, Burke said. "They were going to do the infrastructure improvement, whether it's for FastShip or a ferry service."
But Zeebrugge is enthusiastic about FastShip because the port "ends up being a double winner" ... receiving Volvos from Sweden for the European market and shipping out cars to the U.S., said Burke.
Advantages are twofold
How did FastShip end up in Philadelphia? FastShip's Johnson, former chairman of the Virginia Port Authority, said the company approached other ports, Virginia included.
But Philadelphia seemed most suitable because it has no regular European cargo service now. A coalition of Northern European cargo ship lines has bypassed the city since 1991 as a cost-cutting measure.
By comparison, in Baltimore many European carriers use the port, said spokesman Raymond Feldman.
"And we don't want to do anything that's going to hurt their situation," Feldman said.
For Philadelphia, FastShip represents potential new cargo, not competition for existing ship lines, Johnson said.
It will cost the port authority $7 million and private investors ... including shipper Holt ... another $3 million over the next two years. That would pay for FastShip's pre-construction engineering and marketing efforts.
After two years, the DRPA would also have to build a dock on the Delaware, costing up to $76 million, that only FastShip would use.
But first, FastShip must have lenders to build at least three vessels, which are expected to cost $130 to $150 million each. State and federal government assistance will be sought for the terminal construction. One possible source: the 1991 U.S. "intermodal" transportation act, allocating $155 billion to encourage combined modes of transportation such as ship and rail.
For South Jersey, the biggest potential boon would come in job creation. That's because while the agreements are written broadly enough to place the FastShip dock on either the New Jersey or Philadelphia side of the Delaware, superior rail connections in the city make it the likely site, said Dorph. Indeed, a consultant identified tracts on the Philadelphia Naval Base and the Packer Avenue marine terminal as potential FastShip berth sites.
But for this enterprise to become a reality for either side of the river, FastShip must first overcome the kind of hurdles that face ground-breaking ventures of any kind.
"The real challenge, the real risk here, is that we are offering in essence a new transportation product to the marketplace," said Dorph of the DRPA.
"And although we and the FastShip people believe there are advantages to that product, we don't know if the market will be ready to buy that product."
In part, that's because manufacturers may have to overhaul factory operations to take advantage of the edge FastShip offers, Dorph said.
"In other words, there will be inventory expecting to leave the door on a very rigid schedule," he said. If the products aren't ready to ship, you lose the advantage of fast shipping, he said.
The value of the FastShip concept to customers is twofold, Dorph said. The faster products are delivered to buyers, the less unsold inventory remains. And since most companies borrow to finance inventory, "there is a saving associated with reducing inventory" said Dorph.
Indeed, Volvo transportation president Rune Svensson "was very enthused about getting his inventory to the marketplace" said DRPA vice chairman Burke, who met with the Volvo executive in Sweden in April.
In a May 5 letter to Burke, Svensson stressed the desire for "faster transit times" and called the FastShip project "the most exciting development in ocean transport in the last 30 years."
"Those cars are very expensive, and the more time they spend on the open sea or at dockside, it costs the company money," said Burke. Volvo shipped 80,000 cars to the U.S. last year, he said.
The other advantage is in marketing, especially for carmakers like Volvo, said Dorph.
Instead of settling for a car "with two or three features we don't want" that's also missing some options we do want, buyers will be able to custom-order a car by computer, he said.
"Because of FastShip, they can have that car back in the showroom in the United States within 14 days," Dorph said. "Certainly, you can see the attractiveness of the concept."
As a further "upside," if FastShip's patent-protected service expands to other destinations besides Europe, Philadelphia has the right of first refusal to be the port for that service, said Dorph.
The DRPA gained that concession from FastShip in negotiations, and also succeeded in doubling the lease agreement to 20 years, said Dorph. After four years, FastShip would begin paying rent comparable to other port tenants.
Regional impact
A lesser economic impact would come from the 70,000 shares of FastShip preferred stock the DRPA will receive, said Dorph.
With dividends capped at 5 percent of the total annual dividends FastShip declares, "it might return a reasonable amount on the ($7 million) investment in the company," he said. "It probably never would return an amount comparable to the investment in the ($76 million) facility."
"But there's more here than the financial return. What we're looking at is the economic impact to the region," said Dorph.
No one expects existing trans-Atlantic shipping lines to concede defeat to FastShip. But a viable FastShip line is sure to have an impact on port competition along the East Coast, though it's not assumed price-cutting will be the competitors" strategy.
"The North Atlantic carriers two years ago lost $400 million," said FastShip's Johnson. "Their rates have gone up probably 50 percent, but they're still losing $100 million. Our assumption is they wouldn't want to lose more."
Instead, other ship lines will probably try to develop their own fast-ship technology or improve existing service, said Dorph. For example, to speed delivery, a ship may not call on as many ports.
"If we get something like that, it means FastShip is succeeding," he said.
"I look at it with a lot of interest and a little bit of excitement but not too much worry," said Michael Palmer, regional general manager for the Maersk Line, a European-based cargo ship line.
His company handles shipments of goods for local firms. But now that cargo is routed to other ports.
Palmer, whose office is in Cherry Hill, said he's pleased to see "a new concept coming to the port" but believes FastShip will compete more with air freight than ship lines. "High-value, time-sensitive cargoes are typically air-freighted," he said.
