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STAYING AFLOAT IN CHOPPY WATERS March 2009 John Stokes Highstar Capital - Partner. THE TRANSPORTATION INDUSTRY IS IN TURMOIL. DECLINE IN IMPORT CONTAINER VOLUMES Port of Long Beach down 23.3% in January 2009 vs. January 2008 1 Port of Los Angeles down 7.6% in January 2009 vs. January 2008 2 - PowerPoint PPT Presentation
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STAYING AFLOAT IN CHOPPY WATERSMarch 2009John StokesHighstar Capital - Partner
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THE TRANSPORTATION INDUSTRY IS IN TURMOIL
DECLINE IN IMPORT CONTAINER VOLUMES Port of Long Beach down 23.3% in January 2009 vs. January 20081
Port of Los Angeles down 7.6% in January 2009 vs. January 20082
Port of Savannah down 18.1% in January 2009 vs. January 20083
SHIFTING SHIPPING PATTERNS All-water services to East Coast What will happen to Transpacific trade?
STRESS ALL ALONG THE LOGISTICS CHAIN Intermodal rail volumes are down 13% year-to-date through March 13, 20094
THE BOTTOM LINE IS UNCERTAINTYNOBODY KNOWS WHERE WE ARE HEADED
1 Port of Long Beach. www.polb.com/economics/port_stats/teus_year_to_date.asp2 Port of Los Angeles. www.portoflosangeles.org/maritime/stats.asp3 Port of Savannah. www.gaports.com/salesandmarketingbusinessdevelopment/GPAbythenumbers/tabid/435/default.aspx4 Rick Patterson. UBS Rail Weekly. March 13, 2009.
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HOW IS PORTS AMERICA GROUP DEALING WITH IT?
REDUCING COSTS (THE OBVIOUS) Limited range to control Terminal infrastructure costs are fixed
THE REAL KEY WILL BE INCREASING VOLUME Only reliable way to reduce unit cost
HAVE TO GAIN MARKET SHARE FROM COMPETITORS Other Operators Other Ports Other Shipping Lines
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BASIS FOR COMPETITION IS IMPORTANT
LOW PRICE IS IMPORTANT The parameter most often measured Cost of stevedoring and terminal services is minimal as compared to the value of the box
HIGH VALUE TO THE CUSTOMER IS MORE IMPORTANT But, it may be harder to produce And, may even be harder to measure
CUSTOMERS PAY FOR VALUE, NOT PRICE
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KEYS TO SURVIVAL
UNDERSTANDING WHAT IS VALUABLE TO YOUR CUSTOMER
FIGURING OUT HOW TO PRODUCE THAT PRODUCT OR SERVICE WHICH IS MOST VALUABLE TO YOUR CUSTOMER
HAVING THE MEANS TO EXECUTE SUCCESSFULLY
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WHAT IS A PRIVATE EQUITY INVESTOR?
NOT A PARENT COMPANY
NOT A LENDER
NOT A MANAGEMENT TEAM
PRIVATE EQUITY IS INVESTOR CAPITAL
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TYPES OF PRIVATE EQUITY FUNDS
LEVERAGE BUYOUT (“LBO”) FUNDS Invest in diverse business sectors Short hold periods (3-5 years) Active Board Members (Set the Strategy) Capital gains driven
INFRASTRUCTURE FUNDS (PENSION FUNDS) Invest in infrastructure assets and businesses Longer hold periods (sometimes indefinite) Monitor from board level (rely on management to run business) Cash flow (dividends) driven
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HIGHSTAR CAPITAL IS A HYBRID
LBO STYLE INVESTOR Generally hold for 3-7 years
INFRASTRUCTURE SPACE Operating businesses and assets
DIRECTLY ENGAGED WITH MANAGEMENT Managers and operators create value
LONG TERM FOCUSED Short-term gains last for the short-term New investors pay for long term potential
CAPITAL GAINS DRIVEN Generally do not take current dividends Value is created by long term potential of the business
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INFRASTRUCTURE INVESTMENTS
ELECTRIC POWER GENERATION
WASTE-TO-ENERGY
SOLID WASTE DISPOSAL
NAUTURAL GAS PIPELINES
WATER AND WASTEWATER UTILITIES
AIRPORTS
MARINE TERMINALS
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OWNERSHIP OBJECTIVES
TRANSFORM THE BUSINESS
DEVELOP A STRONG, LONG TERM BUSINESS PLAN
BUILD BEST IN CLASS MANAGEMENT TEAM
INVEST IN GROWTH
OPTIMIZE CAPITAL STRUCTURE
STRONG, DEMONSTRABLE RESULTS
CAPITAL GAINS COME FROM FUTURE VALUE
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HOW DOES PRIVATE EQUITY SEE THE TERMINAL BUSINESS?
HIGH VOLATILITY SINCE 2007 Shift from congestion to over-capacity Shifting Imports vs. Exports Shifting volume East Coast vs. West Coast Increasing environmental pressures Increasing cost pressures
THE VOLATILITY WILL ONLY INCREASE Panama Canal Expansion Loss of some carrier lines (customers) Changing views toward captive (carrier-line) terminals Changing views toward public independent terminals
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CAPITAL REQUIREMENTS WILL INCREASE DRAMATICALLY
IN THE TERMINAL Stronger quays Larger and more productive cranes More sophisticated and effective IT
IN THE PORT Deeper channels Rail access
SURROUNDING INFRASTRUCTURE Highway access Rail clearing Distribution centers
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THE SCENARIO FOR THE FUTURE
LIMITED GROWTH IN VOLUME
GREATER VOLATILITY
HIGHER CAPITAL DEMANDS
RESTRICTED ACCESS TO CAPITAL
INTENSE COMPETITION
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HIGHSTAR’S APPROACH
DIVERSE GEOGRAPHIC FOOTPRINT Reduces exposure to shifting shipping patterns Reduces exposure to natural disasters Reduces exposure to political uncertainties
REDUCE VOLATILITY IN REVENUES AND CASH FLOW
WIDE CUSTOMER CONTACT
INITIALLY ACCOMPLISHED THROUGH ACQUISITION
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PORTS AMERICA MAP
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IMPROVE OPERATING EFFICIENCY
BEST IN CLASS MANAGEMENT TEAM
TRIMMED OVERHEAD COSTS
AGGRESSIVE BEST PRACTICES PROGRAM SHARED ACROSS TERMINALS
OPTIMIZING CAPITAL STRUCTURE
GOAL IS LOWEST POSSIBLE COST WITHOUT SACRIFICING CUSTOMER SERVICE
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CUSTOMER FOCUS
COMMERCIAL FUNCTION IN SENIOR MANAGEMENT
KNOW WHAT IS VALUABLE TO EACH CUSTOMER
CREATE PRODUCTS AND SERVICES TAILORED TO SPECIFIC CUSTOMER NEEDS
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GAIN MARKET SHARE
FURTHER EXPAND GEOGRAPHIC FOOTPRINT Oakland, California Bayonne, New Jersey Puerta Mexico (Toluca, Mexico)
EXPAND SERVICES Do more for the same customers Open windows to new customers Help our partners gain customers
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PARTNERING WILL BE KEY
CAPITAL WILL BE TIGHT FOR EVERYBODY
PROJECTS WILL BE BIGGER AND MORE EXPENSIVE
THE COST OF FAILURE WILL BE HIGHER, BOTH IN TERMS OF DOLLARS AND SURVIVAL
MULTIPLE PARTNERS WILL BE NEEDED TO IMPROVE THE PROBABILITY OF SUCCESS
INTERESTS NEED TO BE ALIGNED
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PICKING THE RIGHT PARTNERS
KNOW YOUR OWN OBJECTIVES
KNOW YOUR OWN STRENGTHS AND WEAKNESSES
LOOK FOR PARTNERS WITH COMPATIBLE (NOT NECESSARILY IDENTICAL) OBJECTIVES
LOOK FOR PARTNERS WITH COMPLEMTARY STRENGTHS AND WEAKNESSES
IT MAY TAKE MORE THAN ONE PARTNER TO FILL OUT THE TEAM
BUT, AVOID EXESSIVE COMPLEXITY
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PORT OF OAKLAND OUTER HARBOR TERMINAL CONCESSION
PORT OF OAKLAND Seeking reliable cash flow stream, increase throughput, and expand IPI cargo Has terminal available for long-term concessionaire
MSC In search of long-term West Coast port for cargo Can provide cargo (including IPI) to bring to port
RAIL ROADS In order to make investment, rail needed assurance that container throughput would increase Rails need to invest in clearing for rail in order to double stack on certain routes
PORTS AMERICA GROUP AND HIGHSTAR Brought together all constituents into a partnership Efficient, multi-customer, facility operator Capital to invest in infrastructure
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JAXPORT – GM SUV VOLUMES
GENERAL MOTORS Closed Janesville, WI plant and moved production to Arlington, TX Approximately 30,000 SUVs for export to Europe and Middle East required a port of
disembarkment
CSX Provide rail access from Texas through Florida panhandle Estimated revenues of almost $6.0 million per year
JAXPORT Added jobs to terminal facility and local community Earned approximately $0.3 million in dockage, wharfage and security revenues for JAXPORT
AMPORTS Had relationship, and capacity at current terminal in Jacksonville Consolidator of relationships and solutions provider
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SUMMARY
THE WATERS HAVE ONLY BEGUN TO BECOME CHOPPY
SURVIVAL WILL REQUIRE FOCUS ON CUSTOMERS
THE ONLY NEW MARKETS WILL BE THOSE THAT YOU STEAL FROM OTHERS
TEAMING WITH THE RIGHT PARTNERS CAN IMPROVE THE PROBABILITY OF SUCCESS