West Sacramento will turn its port over to a private operator in July as a last resort to save the 50-year-old facility, which has been bleeding money for years.
The city plans to lease the port for five years to its current manager, SSA Pacific of Seattle. Announced earlier this month, the deal turns the Port of West Sacramento and the city into a landlord, getting them out from under maintenance and operations expenses.
The lease is expected to produce at least $650,000 a year for the city. SSA also has agreed to relieve the city of $850,000 in debt it owes the company.
"This agreement was the last chance for the port," Mayor Christopher Cabaldon said Thursday.
The Port of West Sacramento has lost $6 million over the last five years alone, and narrowly dodged bankruptcy before the city of West Sacramento took over operations in 2006 from a regional commission that included Sacramento and Sacramento County.
Cabaldon called the SSA agreement, with its rent and debt relief components, "an essential feature. It allows fiscal stability in the next couple of years."
The deal also gives the port guaranteed monthly revenue, a way out of debt and time for the city to focus on developing the land around the facility.
"Largely, this was a cost/risk containment strategy to stop the hemorrhaging of the port, which wasn't sustainable," Cabaldon said.
Long-term, however, the port's future remains uncertain. Its annual debt service stands at more than $2.7 million, and despite the investment of millions of government dollars in new infrastructure, its cargo base has shrunk to almost just one product: rice.
Jock O'Connell, a Sacramento-based international trade economist, said it's easy to see why West Sacramento chose to turn the port over to SSA, which will operate and maintain the facility until 2018, with options for as many as 15 more years.
"The deal is a good deal for the city and the port itself," O'Connell said. "The city earlier conceded that the business model wasn't sustainable."
The benefits for SSA Pacific, he said, are less clear, and O'Connell said he was "surprised" that the company would take on the port.
"I'm not sure what their rationale is," he said. "The city has offloaded a lot of responsibility. It's a much more risky proposition for SSA."
SSA officials in Seattle were unavailable for comment last week. But in a statement issued by the city announcing the deal, Mark Knudsen, an SSA president, said the new lease will allow SSA to "further expand our role, attract new investment, and increase business through the Port."
Cabaldon said SSA knows the port and local market and is under no illusions about running the inland facility.
"SSA knows our port very well as a management agent," the mayor said. "SSA has its own business model that doesn't depend on big hopes coming through."
The company's parent, SSA Marine, is an industry behemoth with shipping and rail operations across the country and around the world.
The port's problems are long-standing and have come from all sides, as illustrated in the Port of West Sacramento Business Plan. Released in March, the document is a frank 54-page assessment of the maritime facility's woes and presents a way forward.
Over the past 15 years, revenue has plummeted from a historic level of about $10 million a year to about $1.8 million today, with cargo dwindling by about two-thirds.
Wheat, logs and wood chips once mainstays of the port have all disappeared from the waters of West Sacramento.
Cement was expected to give the port a big boost and cement firms Pan Pacific and Cemex have invested heavily into facilities at the port, according to the port's business plan. But the region's housing bust and recession put those hopes on hold. Cement imports stopped in 2010, the business plan says.
Even as the economy recovers, the Port of West Sacramento is the distinct underdog in a competition with the much larger facilities in Stockton and Oakland. Its 30-foot Deep Water Ship Channel is not nearly deep enough to attract the ships that its rivals can serve.
A project to deepen the channel is on "indefinite hold," said port officials in the business plan.
Port officials in the plan said the channel "has been, and will continue to be, the greatest challenge to the Port's competitiveness."
Though Cabaldon said the port and SSA "strongly desire" an improved deep water route, "we can't employ that kind of magical thinking," he said. "We have to deal with the port that we have."
Today, the Port of West Sacramento is essentially a rice-only port.
It handles more than 80 percent of the California bagged and bulk rice export market a full 96 percent of the port's total tonnage.
"It's hard to see where there will be any dramatic upsurge in traffic," O'Connell said. He did cite one potential growth opportunity: Construction of a planned Kings arena in downtown Sacramento could result in an "upsurge in traffic," he said.
But it will be many months before materials for an arena will be needed.
In the meantime, the Port of Stockton, a bigger facility that got bigger when it inherited the former naval base at Rough and Ready Island, continues to chip away at West Sacramento's rice shipping business.
Call The Bee's Darrell Smith, (916) 321-1040.