Thursday, December 30, 2010

Wishing our Readers a Happy and Prosperous New Year!

2010 was a good year for Philips Publishing Group, and our flagship Pacific Maritime Magazine, and I write today to thank all of you whose support helped us achieve this success.

The maritime industry is a wonderful place to work, mostly because of the special character of those who work in it.

Whether born into the industry as my brother Chris and I were, or otherwise drawn to it, most of us are involved in it because we were called to it. As a result, the relationships we make are all the more satisfying because they are made in the furtherance of shared goals and values.

My father, Dick Philips, founded Pacific Maritime Magazine in 1983 with the mission of not only reporting on the Pacific Coast maritime community, but also advocating on behalf of that community. When my brother Chris and I founded Philips Publishing Group in 2000, we based our company on the core values our father instilled in us: ethical, truthful and complete reporting of the issues and championing of the causes that benefit the maritime community and the shippers, customers and others we serve.

Entering our 29th year of publication, Pacific Maritime Magazine continues as the voice of that advocacy.

We look forward to continuing to promote the maritime industry through Pacific Maritime Magazine, through our professional conferences and through the civic involvement of Philips Publishing Group staff.

And, we look forward to working with all of you who also advocate on behalf of our industry; educating the regulators, legislators, policymakers, environmental special interests, and the general business public about the economic value our industry represents and the social and cultural importance of the maritime and commercial fishing industries to the North American West Coast.

We wish you and your family a Happy and Prosperous New Year and look forward to seeing you next year on the waterfront.

Peter Philips
Philips Publishing Group

Forum Selection Clauses in Maritime Contracts

By Marilyn Raia

The parties to a maritime contract have various options when trying to resolve a dispute. [See “Resolving Maritime Disputes”, Pacific Maritime Magazine, January 2010] They also have the option of agreeing on the geographic location for dispute resolution even if that location has no relationship to the dispute. The clause in a maritime contract designating the place for dispute resolution is called a “forum selection clause”. A forum selection clause might designate a particular country, state or court as the forum. It might also refer to the designated forum in more general terms such as the origin port or the destination port.

The parties to a maritime contract are not required to specify a forum for dispute resolution. If they do not specify a place, a court will consider alternatives including the place where the contract was made, or where the breaching party is located, or where the contract was to be performed. This article focuses on forum selection clauses in different types of maritime contracts.

Towage Contracts
The US Supreme Court first addressed forum selection clauses in international towage contracts in M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972). That case involved a towage contract between an American corporation, Zapata, and a German towing company, Unterweser. The towage contract provided: “any dispute arising must be treated before the London Court of Justice”. The towed vessel, Zapata’s drilling rig, suffered damage during the tow. Despite the forum selection clause in the towage contract, Zapata sued Unterweser in federal court in Florida. The district court held the forum selection clause to be unenforceable as against public policy, reasoning parties to a contract could not agree ahead of time to “oust the jurisdiction of the courts”. The court of appeals agreed with the district court. The US Supreme Court disagreed with both. It held the forum selection clause to be prima facie valid because it was freely bargained for. The US Supreme Court also recognized the party objecting to the forum selection clause had the burden of proving it unreasonable under the circumstances. That meant the objecting party had to show that trial in the contracted forum would be so “gravely difficult and inconvenient” as to deprive that party of its “day in court”. Even though the selected forum might be inconvenient for the parties, the inconvenience did not make the forum selection clause unenforceable because the possibility of inconvenience was known and contemplated at the time the parties agreed to it.

Since Bremen, forum selection clauses in other types of maritime contracts have been held enforceable.

Passenger Tickets
Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991) involved a ticket purchased in Washington for a California-Mexico cruise. The ticket provided that all disputes “shall be litigated, if at all, in and before a Court located in the State of Florida, USA to the exclusion of the Courts of any other state or country”.

Shute was injured during the cruise and sued Carnival in the federal court in Washington for negligence. The district court held the forum selection clause enforceable. The court of appeals disagreed, relying on the criteria in the Bremen decision and holding the clause was not freely bargained for. The US Supreme Court held the forum selection clause in the printed ticket enforceable. It reasoned the ticket was a routine form contract and the provision requiring litigation in Florida was reasonable under the circumstances. The circumstances included 1) Carnival’s interest in limiting the places it could be sued; 2) the minimization of confusion over the proper place for litigation; and 3) the reduction in fare reflecting the savings incurred by Carnival when limiting the places it could be sued. The US Supreme Court rejected the notion Carnival selected Florida as the forum for litigation to discourage passengers from pursuing their claims.

Bills of Lading
Bills of lading serve three purposes: a receipt for cargo; a document of title; and a contract of carriage. When serving as a contract of carriage to or from the United States in foreign trade, they are mandatorily subject to the United States Carriage of Goods by Sea Act, 46 U.S.C. 30701 et seq., [COGSA] which prohibits provisions in bills of lading that lessen the carrier’s liability below the standards set forth in COGSA.

Carriers routinely place forum selection clauses in the fine print on the reverse side of their bills of lading. Commonly selected forums include the United States District Court for the Southern District of New York and the High Courts of Japan or Korea. Until the US Supreme Court decided Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528 (1995), forum selection clauses in bills of lading were routinely held void on the ground they lessened the carrier’s liability below COGSA’s standards. The courts reasoned cargo owners would be discouraged from suing if required to sue in a distant forum, resulting in lower settlements for cargo claims to the carrier’s advantage.

Sky Reefer involved a bill of lading clause requiring cargo owners to arbitrate cargo damage disputes in Japan. The US Supreme Court held the clause enforceable finding it did not necessarily impermissibly lessen the carrier’s liability under COGSA. The court also noted the clause required only arbitration, which allowed the district court to retain jurisdiction to make sure the parties’ substantive interests were protected. Since Sky Reefer, courts have often extended its reasoning to uphold bill of lading clauses requiring litigation in a foreign country over which the district court would not be able to retain jurisdiction.

Employment Contracts
Forum selection clauses in maritime employment contracts also have been held enforceable. In Calix-Chacon v. Global International Marine, Inc., 493 F.3d 507 (5th Cir. 2007), a US company hired a Honduran seaman to work aboard its vessel. The employment contract provided that any claims would be brought exclusively in a court in Honduras. The seaman sued his employer in a federal court in Louisiana for personal injuries. The district court denied the employer’s motion to dismiss the case holding the forum selection clause unenforceable. The court of appeals held a foreign forum selection clause in a US maritime employment contract is not per se unreasonable and that the party objecting to it bears the burden of proving it unreasonable under the circumstances.

Dockage Agreements
Forum selection clauses may also be found in dockage agreements. In Ruble Heck-Dance v. Inversiones Isleta Marina, Inc., 381 F.Supp.2d 50 (D. P.R. 2005), the dockage agreement required all legal matters to proceed before a local state court. The marina sued its tenant in state court for unpaid charges and obtained a judgment. To satisfy the judgment, the marina attached the tenant’s vessel. Three years later, the tenant sued the marina in federal court alleging the marina had not followed proper procedures in the state court action. The marina moved to dismiss the action based on the forum selection clause in the dockage agreement requiring suits to be brought in state court, not federal court. The federal court dismissed the case, finding the forum selection clause in the dockage agreement applied to the facts of the case, that is, the allegations arose from the dockage agreement. It also found the forum selection clause “obvious and understandable” and within the tenant’s knowledge because it participated in the state court proceedings and did not object at that time.

Insurance Policies
A marine insurance policy is also a maritime contract in which a forum selection clause may be found and enforced. In Marco Forwarding Co. v. Continental Casualty Company, 2005 AMC 2669 (S.D. Fla. 2005), Marco was sued for negligence in stowing and securing a shipment. In turn, Marco sued its insurer, Continental, for denying coverage for its liability. Continental successfully moved to dismiss the case based on a clause in the policy requiring litigation of disputes in Canada. The district court held the inconvenience and economic hardship to Marco, who was located in Florida where the underlying cargo damage claim had been litigated, were insufficient to avoid the forum selection clause.

Forum selection clauses have been held enforceable in a wide variety of maritime contracts. They have been upheld in negotiated as well as non-negotiated contracts. Before negotiating a forum selection clause in a maritime contract, due consideration should be given to various factors including the convenience of the chosen forum to the parties and the availability there of necessary witnesses and evidence. A court’s subpoena power does not extend across state or country borders. Accordingly, the ability to prosecute or defend a claim can be severely compromised when witnesses and evidence cannot be compelled into the chosen forum.

The party facing an undesirable forum selection clause in a non-negotiated contract may have little choice. It can accept the potential need to litigate in an undesirable or inconvenient place as a condition of doing business with a company or not do business with that company because the forum selection clause is likely to be enforced.

Marilyn Raia is of counsel to Bullivant Houser Bailey and is located in the firm’s San Francisco office. She specializes in maritime and transportation matters and can be reached at

EnviroFocus: Hybrid Marine Solutions

By George Roddan

Commercial vessels operating in and around the world's ports have been identified as being responsible for a significant element of the total daily air pollution for a given surrounding area.

This pollution has been associated with an increased incidence of respiratory-related disease, in addition to increased greenhouse gas emissions. Governments and regulatory bodies are now focused worldwide on reducing the marine component of pollution in these heavily used ports.

Harbor craft are typically powered by diesel engines regulated by the US Environmental Protection Agency (EPA), whose emission regulations for the new marine engines require the use of low sulphur fuel and other strategies to improve emission profiles. Future EPA regulations are becoming even more stringent and are aggressively geared toward simultaneous reduction of toxic air contaminants, particulate matter (PM) and nitrogen oxides (NOx), as well as greenhouse gas emissions (CO2).

One available solution to achieve these emissions standards is the use of a number of propulsion sources in one vessel (also known as the hybrid propulsion). This technology is not new to the marine world; diesel electric ships and submarines have been common for more than sixty years. These vessels are driven by an electric motor which derives energy from diesel generators, or batteries in the case of the submarine.

Advances in hybrid propulsion technology are accelerating the solution to both emissions and energy efficiency in the marine industry. For certain types of craft, such as the harbor tug, which spends most of its time loitering or in transit at low loads, followed by short bursts of high bollard pull, a hybrid solution can achieve real emissions reductions of particulate matter, carbon monoxide and nitrogen oxides by 50 percent or more, and fuel savings of about 25percent. This is accomplished through the use of a combination of smaller more efficient diesel engines coupled to electric drive systems and a battery bank to assist in the intermittent high load situations.

Other vessels and equipment can benefit from the use of hybrid technologies, depending on the application, including ferries, fishing vessels and port machinery. The return on investment for a successful marine application can be as little as 2 years, which is a compelling reason to seriously consider this option, which also provides significant environmental benefits.

Battery Storage for Marine Hybrids
Hybrid marine applications provide a unique challenge for electrical storage systems, and these challenges are the basis for a new Pacific Northwest industry. The PNW has a long history of marine industrial activity and experience. More recently there has been intense activity in the high tech sectors of electrical power management and advanced battery development. New technology and battery systems development have provided a basis for the marine industry to now look seriously at integrating these advances into projects that require high energy density and power.

The Technology - Lithium Ion Battery Systems
Currently, a state-of-the- art lithium-based battery cell technology is being integrated by Corvus Energy Ltd. to provide a high-density electrical energy storage solution that is safe, reliable and readily adapted to the marine environment.

The team of engineers at Corvus Energy has extensive experience in marine design and powertrain development, as well as the production of battery storage systems for both automotive and undersea applications. Corvus engineers have worked in the fields of naval architecture and ship design, as well as undersea technology with manned and autonomous underwater vehicles.

Previous solutions to battery storage utilized lead-acid based technology. For most large scale applications, (over 200 kWh), the size and weight of the lead acid batteries makes them too un-wieldy and dangerous for marine installations. With recent advances, lithium ion battery technology becomes the choice for certain applications. Although the first cost of the lithium-based systems is high, the advantages of increased number of life cycles, low volume and extremely low weight provide incentive to develop high performance large-scale systems.

Based on life cycle costing, lithium battery systems are more economical than any other chemistry, and over the life of the battery pack become comparable in cost to grid power. This will be a key factor driving the adoption of lithium ion battery packs for years to come.

Li-ion System Benefits
Independently tested to achieve exceptionally high abuse tolerance, Li-ion batteries offer safety by way of inherent cell chemistry and design as well as patented battery management system.

With a wide operating temperature range between -20 degrees Celsius to 60 degrees Celsius, a 3,000 + cycle life and a 10 to 20 year calendar life, advanced lithium-ion battery systems ensure the reliable availability of power under all operating conditions.

Lithium-ion battery systems offer rapid charge and discharge rates, and can respond within milliseconds to required power and energy outputs. The Li-ion systems are scalable to meet different power and energy storage specifications ranging from 5 kWh all the way up to multiple megawatt sized banks.

Finally, lithium ion chemistry provides a clean and recyclable solution to high density storage as compared to the toxic alternatives of lead acid and nickel-metal hydrides. Lithium is non-toxic and 100% recyclable.

Local, state and federal governments worldwide continue to clamp down on maritime emissions. With many tug companies like Foss, Seaspan and Crowley either already using hybrid technology or developing hybrid vessels, lithium ion battery technology could power the next generation of harbor craft.

George Roddan has been involved in consulting and hydrodynamic design of marine craft for the last 28 years. He has extensive experience in physical model testing, computational fluid dynamics (CFD), and performance evaluation, as well as in detailed structural design and driveline engineering for all types of vessels.

Alternate Fuels for Marine Propulsion Plants

By Louis J. Lemos

Commendable strides in the pursuit of alternative fuels and energy sources are being made, thanks mainly to private enterprise initiative and governmental endeavor, expressed by the US Department of Energy, to share information with interested members of the public. Meanwhile, public awareness of this progress is also assured by trade and consumer media reports on the topic of atmospheric pollution by exhaust emissions from ships. Proposed counter measures within the realm of feasibility and currently in use include legislation mandating that ships use low sulfur fuel within coastal waters such as Sulfur Emission Control Areas (SECA), or switching to shore power (cold ironing) while moored alongside the pier; increased use of Selective Catalytic Reduction (SCR) systems and electronically-controlled common rail fuel injection systems.

The overall effect of such measures has produced a significant drop in nitrous oxides, sulfur dioxides, hydrocarbons and particulate matter. The trend toward diesel-electric main propulsion plants involving medium speed engines of the trunk piston type, mainly for large passenger cruise liners, coastal ferries, research ships and some offshore support vessels, has also contributed significantly to the reduction of pollutant bearing exhaust emissions.

The difference in NOx emissions produced by diesel-electric plants can be as much as 20 percent lower than that of their straight-diesel-powered counter parts. This is attributable to the fact that the diesel engines in a diesel-electric propulsion plant, operate at a fairly constant speed, conducive to fairly stable combustion temperatures, maximum efficiency, optimum fuel economy and resultant uniformity of exhaust emissions with reduced pollutant content.

Cylinder Liner Lubrication
Currently, most large container ships, bulk carriers and super tankers are propelled by large slow speed, large bore diesel engines of the crosshead type. Many of them are now equipped with electronically controlled common rail fuel injection systems in addition to Selective Catalytic Reduction (SCR) systems of which there are several variations. Because of their immense size, these engines with cylinder bores ranging from 500 millimeters to 980 millimeters (19.68 inches to 38.58 inches) cannot rely on splash lubrication of the cylinder walls exclusively. For this purpose a separate cylinder liner lubrication method is employed using mechanical lubricators, independent of the main engine-driven lubrication system. The requirements for independently lubricating the cylinder liners of slow speed, large bore engines are to neutralize acids formed during combustion and thereby protect the cylinder liner from cold corrosion attack, to establish a reasonably stable oleous film between the cylinder liner and the piston rings and to preserve a degree of cleanliness of the cylinder liner surface and piston ring pack.

Low Sulfur Fuel Compatibility
It has been established that the requirement for continued reduction in allowable sulfur content of fuel, such as Low Sulfur Fuel (LSF), and Ultra-Low Sulfur Fuel (ULSF), adversely affects cylinder liner lubrication, particularly of the large-bore, slow-speed, main propulsion diesel engines. This is due to the use of a cylinder oil having a rather high Total Base Number (TBN), such as 70 TBN, that may result in excessive deposits on the pistons and scuffing of the cylinder liners. The severity of such adverse factors will vary in accordance with the degree of usage of LSF. For ships operating on trans-oceanic routes, wherein the majority of their running time is outside of the above-mentioned coastal areas, the use of conventional diesel fuels with relatively-higher sulfur content will be permissible. However, upon approaching such regulated areas it will become mandatory to switch to LSF for the duration of passage and/or presence therein. Conversely, ships engaged mainly in coastal trade on a full-time basis, and burning LSF, will require the use of a cylinder oil of a correspondingly lower Total Base Number such as 40 TBN. Given that the acidity of diesel fuel is proportional to the level of sulfur content, the Total Base number of the lubricant is relative to the oil's ability to neutralize the acid. This is why the Total Base Number of an oil is also considered to be its Neutralization Value, and can be expressed as a measure of the acidity or alkalinity of the oil, whichever characteristic it possesses, and is also called the Acidity Number. A significant advantage of these mechanical lubricators is that, based on the known sulfur value of the fuel, the corresponding feed rate of the cylinder lubricant can be adjusted accordingly, for maximum effect. Should the need arise to change from the 70 TBN cylinder oil, commonly used for high sulfur fuels, to the lower 40 TBN cylinder oil, for use with low sulfur fuel, it is advisable to contact the lubricant supplier to determine the recommended feed rate of the lubricant, in order to ensure that the appropriate degree of cylinder liner lubrication is maintained.

The Cost of Compliance
While the enforcement of restricted exhaust emissions is of prime concern to ship-owners, so too is the difference in cost between conventional heavy fuel (380 centistokes) averaging 2.5% Sulfur Oxide (SOx), currently available for about $480.00 per ton, versus Marine diesel Oil (MDO) rated at less than 0.1% SOx, reportedly, around $695.00 per ton, depending upon the location of the bunkering port. Hence, compliance with the law becomes a rather expensive proposition. In addition to which, the contemporary solution to such outlawed exhaust emissions, involving switching from conventional heavy fuel (380 centistokes), or from No. 2 diesel fuel, to a distillate fuel with very low sulfur content, known as Ultra-Low Sulfur Fuel (ULSF), has caused problems of its own. Typically, related incidents involving ULSF have adversely affected cylinder liner lubrication of large-bore, slow-speed main propulsion diesel engines, and the diminished lubricity of ULSF has also been determined to be the cause of fuel injection pump binding of generator engines, resulting in loss of power. In one such incident, the generator failure resulted in a loss of steering power aboard a vessel heading into port.

Furthermore, it has been found that bio-fuel blends (also used as substitutes for conventional heavy fuel), are detrimental to elastomer sealing materials (a form of polymerized compounds), used in certain fuel transfer pump oil seals, apparently due to acidity of the bio-fuel due to oxidation. Given the temperature difference between MDO and ULSF, and the potential for fuel injection pump seizure, MAN diesel & Turbo has devised a diesel “switch” to handle changeover between high and low sulfur fuels, independent of engine load, and to automatically adjust fuel temperatures in the MGO cooler, for vessels entering or departing from SECA regulatory zones. The system is also designed to “log” the changeover process for official documentation for port authorities if and when required. This system is actually a later version of the “switch” originally developed by MAN diesel for the changeover from MDO to LNG, applicable to dual-fuel engines. Another alternative to the ultra-low sulfur fuel lies in the potential efficacy of “exhaust gas scrubbers", such as those built by Hamworthy, Krystallon and the dry-scrubbing system recently certified by Germanischer Lloyd for MAN Diesel and Turbo, to reduce the levels of emission effluents by a factor not less than 95% sulfur oxide (S0x); 78% for nitrogen oxide, (NOx), and about 83% for particular matter (PM) within the next five years.

Dual Fuel
Yet another possible alternative lies in the feasibility of converting contemporary main propulsion diesel engines, whereby they become capable of burning "dual fuel“. This would involve retaining the conventional marine diesel oil (MDO) capability and modifying the engines to be capable of also burning liquefied natural gas (LNG). Several recently built European tankers, designed for the LNG trade with dual fuel (DF) capability plus a fleet of Norwegian ferries currently in operation are also burning LNG, from which the exhaust emissions are reportedly extremely low. While conventional wisdom appears to fault marine diesel engines for their exhaust emissions far more so than that of their highway or railroad counterparts, the truth is that for a riverine tugboat pushing a “fleet” of twelve of fifteen loaded barges upstream, the diesel engine exhaust emissions are estimated to be approximately 0.470 grams per ton/mile; which is about 27.70% lower than that of railroad trains and 35.60% lower than that of highway trucks, and are expected to become even lower if and when they eventually switch to burning LNG, given the current trend toward the adoption of LNG as a preferred marine engine fuel.

Since most ships are now powered by oil-burning diesel engines, either direct-drive, geared-drive or diesel-electric drive, the number of steam ships still in operation has diminished considerably. However, in the case of heavy oil tankers, such as VLCCs, (Very Large Crude Carriers), despite their large main propulsion diesel engines of 50,000-bhp or more, steam boilers play a prominent role in providing steam to sustain the cargo tank heating coils. This is due to the fact that in cold climates such as found in Northern European seaports, the relatively low sea water temperature has chilled the heavy black crude oil to a such a high viscosity that the cargo can not be pumped out without being pre-heated by the steam-heated tank coils. In such instances, the critical factors become (a) the oil seals of the fuel oil transfer pumps and boiler service pumps and (b) the steam boiler burner tips. Are they all currently designed for use with ULSF? Or do they also need to be replaced with ULSF-compatible components? The inevitable conclusion to all this is that solutions to certain problems that in turn, create problems of their own, are unacceptable and must be carefully evaluated before allowing one problem to be replaced by another potentially worse. Hence, responsible ship owners and ship managers can not afford to ignore the above-mentioned factors, and have a moral obligation to alert their crews to such potential problems and take appropriate instructive and/or corrective measures to ensure that the required level of "readiness" is capable of sustaining the appropriate level of sea-worthiness.

Likewise, in view of the growing trend towards Dual-Fuel diesel engines, despite their several years of experience with various grades of diesel fuel, an appropriate level of readiness will be required of all those crew members involved with bunkering and monitoring of LNG fuel aboard ship. Meanwhile, ashore, it is reasonable to assume that as the demand for LNG as a marine fuel increases, and that suppliers develop the technology for economic mass production of same, that the price of such fuel will gradually decrease to a more competitive level. Meanwhile, considering their extensive experience with LNG as a marine fuel, with the design of ships and main propulsion engines specifically designed and built to be powered by LNG, Rolls-Royce is probably the most valuable source of information on this subject within the vast maritime community.

Tuesday, December 28, 2010

Alameda Corridor Hit With Bond Rating Downgrade

Bond rating agency Moody’s has downgraded a major portion of Alameda Corridor debt, becoming the third major rating agency in December to either downgrade the corridor's bond ratings or issue a negative outlook regarding the financial future of the Southern California rail expressway.

Moody’s downgraded $737 million in corridor subordinate debt from Baa2 to Baa1, or one step above non-investment grade. The agency did affirm its previous rating of A3, or one step above Baa1, on $966 million in corridor senior debt. Moody’s also changed the outlook for the corridor to negative.

Less than a week ago, the Alameda Corridor Transportation Authority, or ACTA, received a negative ratings outlook from ratings agency Fitch. At the time, Fitch also affirmed medium grade ratings for both the senior and subordinate debt.

In April, Standard and Poor’s was the first agency to issue a negative outlook for ACTA. This was a downgrade from the stable outlook S&P issued to ACTA just six months earlier in October 2009. S&P also reaffirmed the negative outlook for ACTA in a review issued last week.

Opened in April 2002 at a cost of $2.4 billion, the Alameda Corridor is a 20-mile-long freight rail expressway that currently shuttles approximately 35 percent of the cargo containers moving through the Southern California ports to a transcontinental railroad yard near downtown Los Angeles.

The construction cost of the corridor was financed by the issuance of just over $1.7 billion in corridor revenue-backed bonds, $400 million from the ports of Long Beach and Los Angeles, and funding from various other government sources. Corridor revenues are generated by fees charged on containers using the corridor.

Bond ratings, such as those issued by Fitch, offer a guide to the level of risk associated with a particular debt issuer--in this case ACTA. Moody’s is one of the three most recognized bond rating agencies along with Fitch and Standards & Poors and one of only ten such agencies recognized by the Securities and Exchange Commission.

Higher ratings, such as "Aaa" or "Aa1" in Moody's case, generally open more financial resources up to an issuer and often at much more favorable terms. Low ratings can mean a significant increase in what a debt issuer has to pay--through higher interest rates or stricter terms--when looking to issue new debt. Low ratings can also prevent an issuer from being able to renegotiate or restructure an existing issuance at more favorable terms.

According to Moody’s, the ACTA downgrade reflects what the agency sees as less than sufficient ability by the corridor to generate enough revenues to cover both consolidated $1.7 billion in senior and subordinate debt.

“The negative outlook reflects the expectation that container growth will remain somewhat sluggish after an initial strong increase,” said Moody’s, “therefore key liquidity may weaken as reserves are utilized to pay for operations and consolidated debt service coverage will likely remain below one times given the current escalating debt service schedule.“

“The downgrade and negative outlook also incorporate the delays in the implementation of a debt restructuring plan that is necessary for coverage relief, and the short timeline remaining to successfully implement a plan before ACTA's target of the October 1, 2011 debt service payment date.”

A fallback measure if refinancing was not available would be the ports of Long Beach and Los Angeles which under the corridor operating agreement are responsible for up to 40 percent of ACTA debt service in the event of shortfalls. A long term reliance on the two ports for corridor debt service could drain the ports of much-needed cash reserves.

Fitch estimated the two ports' total gross liability for corridor debt service "at $60 million to $150 million spread over the years 2012-2020 [and] depending on the severity of the stress assumptions."

All three agencies have pointed out that both ports have an adequate amount of unrestricted cash to meet any near-term shortfall payments without having to adjust their rates or tariffs, any sizable draw down of port cash reserves could reflect on the ports' own ratings.

According to Fitch, as of Sept. 30, 2010, the Port of Los Angeles had $311 million in unrestricted cash and the Port of Long Beach had $403 million in unrestricted cash.

Vigor Ind. Looks to Buy Todd Shipyard Corp

Portland, Oregon-based Vigor Industrial has entered into an agreement to purchase the 94-year-old Todd Shipyard Corporation, which operates ship building, maintenance and repair facilities in Bremerton, Everett and Seattle.

The agreement calls for Vigor to acquire the stock of Todd for $22.27 per share, or approximately $130 million, in an all-cash deal.

The Todd board of directors has unanimously approved the agreement.

Vigor’s tender offer is scheduled to commence no later than December 30, 2010, and will expire on January 28, 2011, unless extended.

Under the terms of the agreement, Todd may solicit superior proposals from third parties through January 28, 2011, subject to extension at Todd’s option as provided in the agreement.

Unless a third party offer appears, the Vigor transaction is expected to close in the first quarter of 2011.

“Todd is Puget Sound’s leading shipyard and the combination of Vigor and Todd will create the largest and most capable marine services company in the Pacific Northwest,” said Frank Foti, the President of Vigor. “The combination of resources and capabilities will allow the combined companies to expand both the scope and capacity of their ship repair and new construction business.”

Todd’s management will remain intact and all contracts will remain in place.
“We believe that the addition of Todd’s products to Vigor will help create a stronger, more diversified company with long-term advantages for both companies’ customers and employees,” said Todd President and CEO Stephen Welch. Todd currently employs about 800 workers.

Todd’s directors and officers and certain other stockholders who own an aggregate of approximately 15.3 percent of Todd’s outstanding stock have entered into agreements pursuant to which they have agreed to transfer their shares to Vigor and to vote their shares in favor of a merger if a vote is required by law.

Vigor claims it has obtained enough financing to purchase all 5.78 million Todd shares outstanding as well as refinance all existing Todd debt.

The terms of the agreement set 67 percent of outstanding Todd stock as the minimum Vigor must purchase for the deal to close. In the event that the minimum condition is not met, and in certain other circumstances, the parties have agreed to complete the transaction through a one-step merger after receipt of shareholder approval.

In related news, at least a half-dozen shareholder-representing law firms have said they are investigating the agreement and how the Todd board may have abrogated its fiduciary responsibility and short-changed certain shareholders.

San Diego Port Approves 30-Year Pasha Lease

The National City Marine Terminal in San Diego Bay is a 125-acre five-berth facility operated by Pasha Automotive Services, which over the past 20 years has processed more than four million imported vehicles through the terminal. The NCMT serves as one of the primary United States ports of entry for car manufacturers Acura, Hino Motors, Honda, Isuzu, Mitsubishi Fuso, Nissan, and, Volkswagen.

Last week, the governing board for the Port of San Diego sought to assure that Pasha will be at the NCMT for some time to come.

The board approved a 30-year terminal operating agreement for Pasha at the NCMT which takes effect Jan. 1, 2010 and extends through December 31, 2040.

"They have been a superior tenant to us and have brought in millions in revenue, which is ultimately pumped back into capital improvement projects in National City and the other member cities," said Robert Valderrama, Chairman of the Board of Port Commissioners.

For its part, Pasha has pledged to invest over ten million dollars in improvements over the life of the agreement, or an average of about $335,000 a year
The terms of the lease include a minimum annual guarantee of revenue from the number of vehicles imported each year at the terminal. The minimum annual guarantee is approximately $5.2 million during the first year of the new agreement, and increasing to $5.9 million from years five through nine. Additionally, Pasha will pay dockage, wharfage, and space occupancy charges, assume utility costs after 2011, and assume pavement maintenance on the terminal.

“In 20 years this partnership with the port and our community has blossomed from 30 employees to several hundred, from 30,000 vehicles to more than 400,000 in a single year,” said Pasha Automotive Services Vice President John Pasha. “There is no other West Coast solution like the National City Marine Terminal which includes five berths, capacity for 180 railcars on site, proximity to local and regional markets via truck or landbridge, a highly skilled and efficient workforce trained in over 200 accessories on more than a dozen brands and plenty of capacity to grow.”

In addition to automobiles, Pasha is looking at the possibility of luring general cargo to the NCMT.

Diesel Emission Reduction Act Renewed By Congress

Lost in the spotlight of the tax-compromise legislation, the Don’t Ask, Don’t Tell repeal, and the START Treaty ratification, the 111th Congress did manage to pass a few other pieces of legislation during its final two weeks.

On Dec. 20, following an earlier Senate approval, the House passed a five-year extension of the Diesel Emissions Reduction Act. The bill now awaits President Obama’s signature.

The bill, if signed, would authorize providing grants and loans worth $500 million over the next five years to reduce emissions from existing diesel engines through the installation of retrofitting equipment.

First authorized in 2005, and set to at the end of fiscal year 2011 if not extended, the DERA has provided $465 million to retrofit programs over the past five years.
The catch is that the bill only authorizes the $500 million in funds, but does not appropriate them. The 112th Congress must take up that battle in the coming session.
According to data from the Diesel Technology Forum, retrofit diesel vehicles emit 20 percent to 90 percent less emissions.

Supporters of the bill claim that for every $1 of DERA money spent over the past five years, the nation has experienced $20 in environmental or health benefits.
Federal estimates suggest that there are as many as 11 million older diesel trucks and other commercial vehicles or pieces of equipment in service.

With retrofit devices typically costing in the neighborhood of $10,000 to $20,000, the $500 million target for DERA would only provide enough funds to fully cover the costs of roughly 25,000 to 50,000 retrofits.

A program at the ports of Long Beach and Los Angeles to bring all ports-servicing trucks up to 2007 or newer emission standards began in October 2008 and though DERA funds did not play a role, the private trucking industry did spend more than $600 million to bring the less than 10,000 trucks still servicing the two ports into compliance, mainly through the purchase of newer vehicles.

The DERA legislation was introduced in the Senate by Delaware Senator Tom Carper and Ohio Senator George Voinovich. The House version was sponsored by California Representatives Doris Matsui and Laura Richardson.