LBCT sold

The sale of LBCT was a requirement imposed by the US to approve China’s COSCO SHIPPING Holdings’ purchase of Orient Overseas (International) Limited (OOIL) assets last year. OOIL subsidiary OOCL has now entered into a Sale and Purchase Agreement to sell 100% of its subsidiary LBCT LLC to a consortium led by Macquarie Infrastructure Partners (MIP) for US$1.78 billion. That consortium is called “Olivia Holdings” and is a majority-owned portfolio company of Macquarie Infrastructure Partners IV, which is managed by Macquarie Infrastructure and Real Assets (MIRA).

The deal is still subject to several approvals, including from the US Departments of Homeland Security and Justice, and or the US Committee on Foreign Investment. The City of Long Beach must also approval the deal, plus shareholder approvals from OOIL and COSCO Shipping.

“We are pleased to acquire LBCT, a premier terminal in the largest port complex in North America, which serves as a gateway for trans-Pacific trade," said Karl Kuchel, Chief Executive Officer of MIP. "This transaction marks another key milestone in our relationship with OOIL and we greatly appreciate their significant long-term customer commitment to LBCT. We look forward to partnering with the Port of Long Beach and the LBCT management team to ensure that LBCT delivers high-quality service to OOCL and our other customers going forward. We are also committed to completing the current expansion of LBCT by 2022, which will significantly increase the capacity of the terminal."

If the deal goes through, which is expected, Macquire will have secured one of the best container terminals in the US. LBCT is the cleanest and most highly automated terminal in the country, featuring ASCs and AGVs in the yard. It has some 48,000 track feet of on-dock rail and 2,250 reefer plugs. It is also the largest terminal by volume in the San Pedro Port complex with a capacity at full build out of over 3.3M TEU.

On the financial side OOIL reported the audited net book value of LBCT’s assets on 31 December 2018 as US$345M. The terminal booked a profit of US$17.5M in 2017 and US$85.8M in 2018.

While it has excellent blue chip specifications, LBCT also operates in a highly competitive and fragmented market. There are currently 12 container terminals vying for business, and the alliances carriers are in today leave a lot of uncertainty about the future of all these facilities.

When it committed to building LBCT, OOCL was in the Grand Alliance with Hapag-Lloyd, MISC and NYK, and its plan was to consolidate Grand Alliance volume at LBCT. Today OOCL is in the Ocean Alliance with CMA-CGM, COSCO and Evergreen, and these carriers have several services calling at Pacific Container Terminal in Long Beach (in which CMA-CGM and COSCO both have a stake), plus Evergreen’s Everport facility, Eagle Marine and WBCT in Los Angeles.

It is widely believed that consolidation on the landside is inevitable in Los Angeles and Long Beach, but how that might affect LBCT is not known. As part of the sale agreement OOCL has agreed to enter into a 20-year “Terminal Services Agreement” that includes an annual minimum number of vessel lifts for an agreed vessel and rail tariff, but the exact volume commitment is confidential. In competing for other business, the level of automation at LBCT should deliver a significant cost advantage in the west coast environment, where labour costs are among the highest in the world.