Port of New Orleans

Port of New Orleans

The Port of New Orleans

PROJECT DESCRIPTION

Establish strategy and implementation plan for acquisition of New Orleans Public Belt Railroad.

 

BACKGROUND

In 1905, the City of New Orleans established the New Orleans Public Belt Railroad (NOPB) to give all railroads entering the city fair and equal access to the Port. The NOPB succeeded—developing the Huey P Long Bridge over the Mississippi River and the 26-mile river-front belt that now moves 170,000 railcars per year between six Class I railroads, local industry, and North America’s sixth-largest port.

The City saw an opportunity to monetize this asset by privatizing; they retained a Big 3 accounting firm to value the NOPB, who after many months arrived at a value of $60 million. The Port, concerned that privatization would risk industry and port growth, sought a strategy to intervene.  Meanwhile, five short line holding companies made generous offers to the City, contingent upon reviewing the financial and operating data.

 

SRF APPROACH

The Port of New Orleans (Port NOLA) retained SRF to value the NOPB. In just twelve weeks, SRF sorted vast operational and financial data to determine trends for each business segment, growth opportunities, revenues, expenses, and free-cash-flow projections. In recognizing the real constraints of labor contracts, commercial contracts, and capital investment requirements, SRF calculated the NOPB’s value as $10 to 13 million — IF a buyer’s cost of capital was between three and four percent, which was Port NOLA’s bond interest rate at the time. With private sector capital cost, however, the NOPB had negative value.

The large accounting firm made a string of classic errors in valuing railroads – assuming continued public subsidy for maintenance, focusing on EBITDA and ignoring capital maintenance impacts on free cash flow, ignoring the elasticity of certain rate structures, not knowing the terms of Class I switching agreements, and assuming non-operating income would convey with an operating concession.

SRF presented its findings to the Port executive team, then the Mayor’s office, then individually to Port Commissioners. All agreed there was only one path forward. The City “paused” its RFP process and struck a deal with the Port now widely celebrated, swapping some historic wharves for the NOPB. The City grows its French Quarter district and improves community river access — the Port grows its business with the railroad. Everyone wins.

In just six months SRF delivered the “New Orleans Public Belt Transition Plan – Business and Opportunities Analysis” on February 1st – the same day the City and NOPB’s deal officially closed.

 

RESULTS

  • Plan ensures return on investment will  enhance Port cash flow and  credit rating, while delivering positive returns for investors, the community, and the environment.
  • Port executives dramatically improved their ability to manage port and rail overhead and gross margins due to SRF’s expertise in data analysis.
  • Revitalized partnership between City and Port with a detailed joint development strategy that benefits both entities over the short and long term.

 

Hancock County Port and Harbor Commission

Hancock County Port and Harbor Commission

Hancock County Port and Harbor Commission

PROJECT DESCRIPTION

Evaluate financial feasibility for proposed $120 million capital project

 

BACKGROUND

Hancock County Port and Harbor Commission (HCPHC) in Mississippi had spent hundreds of thousands of dollars for route mapping, alternative analysis, and federal environmental review for a $120 million capital project for the Port Bienville Railroad when the new Executive Director recognized that for all the detailed engineering and environmental work, no one had confirmed the project’s fundamental economics. In January 2017, HCPHC retained SRF to evaluate financial feasibility.  In April 2017 SRF presented its findings to the Commission.

 

SRF APPROACH

SRF reported on the financial health of the organization – the business park, the port, the terminal railroad, and the airport. SRF showed the division of revenue and expense by operating unit, identified sensitivity of the whole organization’s free cash flow to key customers, and provided a valuation of the existing railroad operation. This analysis provided essential context for the proposed $120 million capital project. SRF’s exercise of “backing into” traffic volumes, rates, and customer types required to support such a project revealed the project’s intrinsic risks.

Presenting the data, SRF explained that a $30 million public subsidy, a $450 tariff, and a loan guarantee adequate to support a $90 million RRIF loan would require a 30-year commitment by a bankable tenant committing to 15,000 railcars per year, a volume three times the entire current traffic. Any combination of long- and short-term debt, tariff, and public subsidy was now understood clearly, and in context. In the end, HCPHC would need to attract and close a “grand slam” business prospect to even contemplate such a project. Possible, yes, but planning based on a grand slam is not a game-winning strategy.

Break-even and payback-period analysis brings financial sensibility to site selection; SRF starts all feasibility studies with commercial ends in mind.

 

RESULTS

  • HCPHC was able to halt further investment in the capital project based on a new understanding of the inherent risks and fiscal requirements.
  • SRF was placed on retainer to provide advisory and technical support to the Port Bienville Railroad, which we are now doing with rail tariff and service pricing, evaluating rail needs of industrial park development prospects, planning a locomotive procurement RFP, and financial modeling of potential new railroad operations.
Washington State DOT

Washington State DOT

Washington State DOT

PROJECT DESCRIPTION

Advise state DOT on rail line acquisition

 

BACKGROUND

Federal, state, and local governments are increasingly recognizing the value of public investment in rail transportation. Unlike highway expansion, private-sector enterprises have an important role leveraging public investments in rail. Strategic Rail Finance provided experienced policy advice to bridge the gap in understanding.

The Washington State Department of Transportation (WSDOT) and the state legislature needed specialized industry knowledge to understand the industry economics of rail before appropriating funds to this $25.0 million public investment.

 

SRF APPROACH

Strategic Rail Finance transformed the private railroad company’s complex management and accounting records into sets of useful data and analytical tools. This process enabled the WSDOT to assess and understand all aspects of the rail operation.

 

RESULTS

  • Innovative point-to-point traffic flow charts to inform track investment and abandonment decisions
  • Detailed line-segment revenue and operating expense charts to supplement overall presentation of private rail company
  • Confirmation of rail operator’s professional and responsible stewardship of this portion of the state’s transportation infrastructure
  • Specific recommendations for proactive collaboration of public and private sector entities to grow the railroad, improve the community, and expand the region’s economy.
Port of Muskogee

Port of Muskogee

Port of Muskogee

PROJECT DESCRIPTION

Consult port authority on rail line construction project

 

BACKGROUND

The Port of Muskogee wanted to evaluate adding a second rail line to serve its tenants. Strategic Rail Finance was engaged to pinpoint:
1) the economic opportunities for each shipper,
2) the contractual, regulatory, and political challenges,
3) the physical and financial requirements of constructing a second rail line.

In spite of considerable rail experience gained from its years of overseeing rail service, port management recognized the need for a reasonably priced, yet in-depth study of this multi-faceted situation.

 

SRF APPROACH

Strategic Rail Finance’s consulting team members, Tom Erickson, formerly of Conrail, and Johnnie Johnson, formerly of BNSF, provided their insight into the contractual, physical, and practical elements to be addressed. Conducting efficient, thorough conversations with each port shipper, SRF gained a full understanding of the individual shippers’ logistics challenges and opportunities and quickly concluded on the overall economic ramifications of dual rail line service.

 

RESULTS

  • Enhanced shipper satisfaction with port management
  • Clarified all shippers’ needs and opportunities
  • Conducted a pragmatic analysis at a fraction of typical consulting firm rates
  • Illuminated a thorny issue in one month, enabling client to focus on other projects