Leading from the ground up

Soon after taking over at the Port of Virginia in early February, John Reinhart wanted to understand firsthand a chief complaint from truckers: Congestion had doubled the time it took for them to get in and out of the port.

“A few weeks ago, I rode with a trucker on a blind drive just to see what was going on and to see it from a trucker’s point of view,” Reinhart said during an interview with Virginia Business in March.

Soon after that, Reinhart spent Saturday monitoring rail yard operations at Norfolk International Terminals and APM Terminals in Portsmouth, speaking with laborers directly.
“I said, ‘What can we do to improve our velocity?’ ” Reinhart recalls. “Another way to build solutions is to ask people who do the job. Wisdom doesn’t just rain down from above.”

Reinhart’s hands-on leadership has been noticed in the Hampton Roads’ maritime industry. “John Reinhart is making himself available to everyone in the community,” says Captain J. William Cofer, president of the Virginia Pilot Association. “He’s trying to learn everything he possibly can…every event I go to, John’s attending. He’s listening. He wants to hear what all the issues are, and he takes them back to his team to figure out.”

Reinhart is already well known in the region’s maritime community. He led Maersk Line Ltd., the Norfolk-based U.S. flagship of Maersk Group, from 2000 until he retired at the end in January.

He comes to the helm at a pivotal time at the Port of Virginia.

The Virginia Port Authority recently revamped its organization and its longtime terminals operator, Virginia International Terminals, a move designed to eliminate redundancies and save money. The reorganization followed the port’s rejection of private bids to run the port terminals — a process many in the maritime community now refer to as a “distraction.”

And so now the focus is how the Port of Virginia can continue to grow — without losing money.

The Port of Virginia has been well positioned to compete for cargo with its deep, unobstructed channels and rail connections to the country’s heartland. In addition, the port has been attractive to the massive new Post-Panamax vessels, as the only East Coast port capable of handling these colossal ships when fully laden. (Baltimore has one berth that has been dredged to 50 feet.)

As a result, the port’s terminals have been handling record-breaking levels of cargo, growing 10 percent in the most recent fiscal year.

But the growth has come at a price.

The influx of containers has fully taxed the port’s rail and trucking operations, causing delays and congestion at its marine terminals. In addition, the number of labor hours required to unload these massive ships has sparked an unprecedented amount of overtime pay. The port has faced operating losses for the last six years, reporting a loss of $10.5 million from July through December 2013.

Reinhart has been open about problems facing the port and his eagerness to fix them. “He’s not going to describe a situation any differently than what it really is, and I think that’s comforting not only to the port community but also to port customers,” says Art Moye, executive vice president of the Virginia Maritime Association.

In his short tenure, Reinhart has put an emphasis on the port’s need to become profitable. Without making money, he says, the port can’t invest in the infrastructure needed to prepare the future.

He’s hit the ground running. Less than two months into his term, the port had started to address congestion issues, investing money and time into finding ways to improve the movement of containers to and from trucks and railroads. February’s numbers looked better, too, as monthly operating losses dropped to $1.3 million, compared with $5 million in January.

Reinhart’s focus on financial performance aligns with a focus of Gov. Terry McAuliffe, who replaced five members of the Virginia Port Authority’s Board of Commissioners because of ongoing losses.

“I think, 40 years from now, we’ll look back at this time and think this was really a pivotal time for this port,” says Cofer. “There’s a great potential for growth here. For all of Virginia, not just Hampton Roads.”

Following is the full transcript of Virginia Business’ interview with Reinhart in March.

Virginia Business: I wanted to talk first about the consolidation of VIT [Virginia International Terminals] and VPA [the Virginia Port Authority] and your assessment of how that’s been going so far.

Reinhart: It’s like any integration. It’s a work in progress. The decision was to move forward with the reorganization or restructuring in 2013. I can tell you that I think we’re moving along well on the path of integration and coordination. We still have a ways to go, but when you’re taking large organizations, it takes a little time because you’re trying to blend the culture, blend the priorities and create an aligned view for all the colleagues that work in the organization. So that happens with repetition and with a clear message. We’re still working. It’s a work in progress. I’m confident we’re along the path pretty well.

VB: Is part of the goal then, to rather than be seen as two organizations to be seen as one Port of Virginia?

Reinhart: We have to brand and communicate the message of the Port of Virginia. That’s the view that we have; the view of the board moving forward. What you have within the Port of Virginia though will be distinct operating entities that have different duties and responsibilities. So under the Port of Virginia you’ll have the port authority that has a certain mandate and license in areas that the port authority has to focus on. Then you will have VIT, which has to be the consummate terminal operator, managing the best most modern terminals here in the port, as well as trying to manage the future with our labor negotiations, with working with our collective bargaining, the [International Longshoremen’s Association] to improve productivity, to implementing new gate systems. Their focus really has to be forward-looking at the terminal and day-to-day operations. We have to look at some of the long-term strategy and the services that surround some of the terminal operations.

VB: And some of organizational change got rid of redundancies, right?

Reinhart: Some redundancies also some competing priorities. If you really kind of start from the top and say, “We are the Port of Virginia,” then your strategy tactics and implementation all kind of flow down, where before there might have been competing strategies between the two organizations. So this reorganization helped clarify those lines.

VB: At the State of the Port address you talked a lot about a new focus on profitability. What do you think have been the port’s challenges in that arena, and how long do you think it will take to become profitable?

Reinhart: It’s going to take longer than it should, because we should be profitable today. So we’ve got a little bit of runway in front of us. The purpose and the mission of the Port of Virginia is really to be an economic engine for the commonwealth, expedite the flow of trade and creating a dynamic environment for business and trade to move through Virginia. So that’s really the mission.

If we did it and broke even that’d be ok, because we’re accomplishing the mission to create jobs and other opportunities in Virginia for business. But we still have to be able to cover the debt services required to continue to invest in infrastructure to be competitive. So right now, when we went into this year we weren’t making money, therefore you can’t go out and get the debt to build the new structures, so you’re not going to be able to serve the community in the future.

To use an analogy, we have a great arena here, but it’s like a farm. We can go out and harvest and harvest and harvest, and we’ll have a diminishing crop yield unless we use some good farm planning, reinvest and fertilize, move the crops around. So our goal is not to just weed out every energy today. It’s to make the port so it can be like that farm that will harvest a sustainable yield from the acres employed for the long term.

There are big muscle movements with terminals. It takes a long to build one. So you’ve got to have a fairly robust planning system in place so you’re investing to get that infrastructure 10 years from now, 20 years from now. You’ve got to be planning that today.

VB: What do you think have been the biggest struggles for the port?

Reinhart: We had a platform. We weren’t investing enough in the infrastructure. We continued to grow to where we were getting beyond the capabilities with some of that infrastructure without new equipment, new processes, new technology. We then started to overharvest the capability. In doing that, we were running 24 hours a day and doing more of our work on premium time. So we could not get our cost of doing business back to a level that was sustainable. So we’ve got to work on the model. You have to improve the velocity. If we can take our current facilities and do 10,000 containers in a day today, on a normal cycle, not on overtime, on a regular eight-hour day, can we get that to 15? If we get that to 15,000, there’s your growth, but you’re not going to need more land and you really should have systems that don’t require a lot more labor, so therefore your costs will go down on a per unit basis. That’s why ships have gotten so big.

VB: Another issue that seems to stem from the growth is congestion at both rail and truck [operations at the terminals]. Where do we stand as far as the trucking and on the rail?

Reinhart: We’re studying our handling of the rail, but we had an infrastructure review of our facilities to say how we can reorganize rail yards to be a little more productive. And that study was completed. We just recently started our implementing phase. To our trucker community, we started three weeks ago, I think it was, with the trucker task force. So now we’ve got those committees working and they’re looking at every element to come up with process improvement or simplification for what critical investments might be required to make us more effective for the truckers.

Three weeks ago I rode with a trucker on a blind drive just to see what was going on and to see it from the truckers’ point of view. There are a lot of little refinements we can do that will make us more efficient and reduce the turn times.

VB: As far as the rail yard and improving efficiencies there, where are we on that?

Reinhart: We’ve brought in the rail partners, and we’ve been meeting directly with Norfolk Southern and with CSX about what we can do to increase the velocity and turn time on our tracks. They’re professionals at running rail yards. We’re running a rail yard attached to a marine terminal, so it adds another complexity. It’s not just a pure rail yard. But if we can take lessons form how they run some of the inland facilities, maybe with the equipment and the approaches, maybe we can help improve our track turns.

If we can turn each track turn another half a time a day that makes us more effective and helps us get the cargo in, and helps eliminate the congestion that’s right by the terminal. We’ve also added some equipment that we’ve ordered to try to speed up our process in the near term. This past Saturday I was watching both rail yards work. I went from [APM Terminals] over to [Norfolk International Terminals], and I spent hours just watching. I actually talked to the laborers and I said, “What can we do to improve our velocity?” So another way to build solutions is to ask the people who do the job. Wisdom doesn’t rain down just from above.

VB: Since you’ve been on the side of being a customer of the Port of Virginia, what do you think impressions are from the users?

Reinhart: I just finished meeting with a customer, a beneficial cargo owner, so I’d rather quote them without naming them, than giving you my personal views. And what they said was they could always rely on the Port of Virginia to be their partner, and that they trust that we’ll find the solutions that are needed going forward. The congestion and some of the delays have hurt, but they know we’re working on them. They also understand that the end users, just like we said about with the rail partners or the steamship lines, the truckers and the end users are part of the solution. So we’re saying, “What can we change in the way that we do processing that can improve the turn times so that they’re more efficient and that they don’t have delays on the terminal?” So they’re giving us some ideas that they see.

VB: What are the priorities for capital investment going forward?

Reinhart: The first thing we have to see is that we’re going to slide [construction of] Craney Island [marine terminal] out on the horizon. It’s going to be needed; it’s going to be important; but it’s not in the near-term plan. There is some underlying work that will continue to be done, but it won’t consume the real capital.

So then you pull yourself back in. Of the two terminals that we’re operating as container facilities, trying to figure out how to build out [APM Terminals] is a top priority. Our design plan to figure out how to invest to improve the platform for the rail and the gates at NIT is an important priority. And thirdly, we have some underutilized assets within our portfolio: Portsmouth Marine Terminal, or Newport News. What are we going to do to optimize those assets?

We have a fairly good berth length. We have moderate cranes and sufficient cranes, so most of our capital is going to be on the upland, the intermodal interface for the near term. And then we’ll get to Craney Island, and my children will see it.

VB: As far as PMT goes, are you still looking for possible bulk and breakbulk cargo opportunities?

Reinhart: We’ve taken the disk and all the data that we have, and we’re putting it on the table. And we’re creating a new strategic plan for PMT. Part of it may be the ro-ro, the breakbulk and the mixed-cargo use. It could have some opportunity for ag, movement of agriculture and ag products. So we’re finishing those. There’s faster delivery potential for ro-ro, breakbulk and light container use. Cause you can turn that on fairly quickly without a major capital investment. If you’re going to repurpose it for something that’s more specific like an ag, you’re talking about a multiple-year investment before you get the real yield.

(Since the interview, Virginia International Terminals announced a short-term deal with Pasha Automotive to ship about 2,500 vehicles from Portsmouth Marine Terminal overseas.)

VB: Have there been any big surprises in your first couple months at the port?

Reinhart: It’s day 36 of this journey. I’m surprised and amazed at how much we’ve accomplished to this point. I’m pleasantly surprised by the capability within the organization but also within the community at large. Our trucking community, the rail community, all of those involved in the shipping business, are here to make a change.

VB: There’s a lot of discussion in the media about the race among East Coast ports for when the Panama Canal expansion happens and capturing the increased cargo. Do you see the Port of Virginia’s focus now on really getting these efficiencies down rather than going after just growth?

Reinhart: I think what we’re trying to do is articulate a more holistic view. What we have in our responsibility, what we’re stewards for, is this beautiful natural resource that we have here in the port and this incredible infrastructure that’s been invested in. And we have a long tradition of growing the business.

So what I want to do is align our efforts to make sure we’re growing responsibly, that we’re making sure that we invest in what are the most important priorities for our service and out product today, listen to the customer so we know how to plan out the facilities and the structures for tomorrow, and drive this organization to be the champion of Virginia’s port and the natural and industrial infrastructure we have.

We’ll get there, and we’ll make it profitable. Part of it is making sure we understand what our cost of goods really is, and that’s been a focus. We’re aligning our team with a sense of urgency to understand our costs, to improve our processes, to reverse the trend that started over the last number of years of losing money, the fiscal responsibility, and building the platform for profitable growth for the future.

VB: Do you have any time outside of work? Do you have any hobbies?

Reinhart:  I put a lot of my hobbies on the shelf because when I assumed this job I knew it was going to be hard work. But it’s hard work that needs to be done now. So I’m deferring some of things that I like and personal interests. I’m sacrificing a little family time that I should be spending. Those are things that will come back. I love being with my family. I love being outdoors. There are other things that I like to do but right now, it might sound a little bit trite, I elected to take this job because I knew that the timing was important to Virginia and the port.

I don’t feel I can waste a minute right now until we get this on a path that’s sustainable. So some of the personal stuff will have to wait. Although my granddaughter’s birthday is coming up and everything will have to take a backseat when I go to my granddaughter’s birthday. That’s coming up in April. I’ll be gone for a few days.

I love being with my family. I can’t wait to be up there with my granddaughter, daughter and son-in-law in three weeks for a long weekend. That will be fun…
So that’s a hobby. I’ll try to golf again when the weather gets better again because I need a lot of practice.

VB: How do you think the shipping alliances out there will affect the port?

Reinhart: When you consolidate the shipping lines you’ve got to understand what’s going on. Their economies aren’t working. So we as a port have to be ready to take the larger volumes that could come with these alliances and provide the upland services that the larger ships demand. So the necessity for us is to be ready and able to handle these large alliances, and I think we are. We do have, as you said, the water depths that will match the ships requirements. We have the cranes. We need to match the requirements, but we have to fix the intermodal connectors, the gates to get the velocity that these big alliances are going to require. So we have to work hard to make sure we keep our share of the alliances as they formalize their networks, which will happen this year.