08 Apr A Conversation John Murray CEO and Director of Port Canaveral
John Murray:
You go to Port Canaveral. The nearest village or city to us is the City of Cape Canaveral, which has about the same population as an Oasis-class cruise ship. Our grid is not there. Our grid in Florida, in particular, is not there. Now, one thing we'll learn, and I won’t speak out of turn on this.
The electric project they're doing down Southern Florida, they're going to have it finished, I guess in the next couple of years. You can't plug in seven ships just because seven berths are electrified. You plug in two So, the infrastructure on the shoreside is big; it’s the long pole of the tent. And in our case, that needs new substations, dedicated substations to terminals. Miami, of course, the island has got some conduit underground. It makes their hook-ups much easier because it's a single straight line.
At Canaveral got six terminals in 6 different directions. Some are on the port's north side; some are on the south side, which means they have two substations, one in the north and one in the south, depending on how you configure these things. It's not easy. We've gone through preliminary estimates. It looks like it's about a 200-million-dollar project for us, not us, but for the landslide to be ready, to prepare to receive the equipment to charge the ship. It's a huge expenditure.
Question: The ships, tell me, are there two substations?
John Murray:
And this is all driven by IMO regulations. You sit there and think, "Okay, I got an LNG-powered ship alongside the dock, right? That gas is clean. No issue there. But I'm going to plug that ship into the Florida grid, which, my last check on it, Florida grid's somewhere like 73 and 74% gas. The balance is nuclear, oil, and coal. So, I'm not drawing from a cleaner source. So, what's the advantage? But this is all the IMO credits they get daily when they plug in versus operating in their port. It would make no sense, mainly if you got an LNG ship that's burning clean. But that's what we deal with. So, we have 2 LNG ships out of our 13 at Port Canaveral. We will have another one coming in '25 that's already known, Disney Wish. Two others are coming that aren't already known. But they'll be LNG powered too. So, I'm sitting here thinking, "Who's going to pay 200 million dollars to plug all this stuff in? And is it a realistic thing to do? Or is it because it's being driven by an IMO regulation that doesn't make sense? I mean, the way it works, you can plug it into the grid in China by burning coal, and you get credit for it.
Question: Versus your LNG ship?
John Murray: No. And the only port in the United States that was ever big at it was LA Long Beach. And they mandated it 20 years ago.
Tony Munoz: Yeah, that's right. And the reason they mandated this is that everybody on Dan Pedro Island above the terminals was getting cancer. And the ships would sit there, and idle, and burn. Burn heavy fuel. And yeah, they had the highest amount of cancer in the entire country, it seemed like. Just because they sat in that basin., that provoked the whole situation of let's plug it in. And then this past year, they said, "Don't plug it in because we're running out of power in Southern California. Suddenly, it became the industry standard. You got to plug it in. You got to plug it in. And that's what they're doing now. Everybody's coal ironing when they come in and plugging it in. And so, how many ships did you have overall? All ships, bulkers, tankers, and cruise ships this year at Port Canaveral?
John Murray:
Cruise ships are just under 900. Yeah. And the cargo ships were somewhere about the same. We are the gateway port. What we offer now is that we have 13 home-ported ships this winter season. And because the cruise lines are headquartered here in Miami, South Florida. And when a new ship comes out, It is always a ship that goes to Miami, generally, Port Everglades, one of the two southern ports close to the home offices. And then a year or two later, we get them up in Port Canaveral. What happened when the Mardi Gras was built and ready to go with LNG before the Port of Miami or Everglades were ready for LNG? So, we got out in front of And then when I first started at Port Canaveral, seven years ago, it's hard to believe it's seven years. And, I said, "All these," and I'm looking at the cruise list, and I said, "All these ships are being built with LNG. How do we do that?" We don't have an LNG. How do we do that? So, the bottom line is you got to figure it out. Nobody had done it before. So, we went through all of the hard work of educating the community and working with the suppliers.
Training. We've got a firefighting academy for LNG at Port Canaveral. It's operated right there on port property And now, we're training others. We're training others. Yeah. We had the fire department in New York down there a few weeks ago. We do the FireTime Unions. For any of the new LNG ships out there, most of the union people are flowing through our firefighting academy. So, we got out in front of it. And, we thought, if we're going to get these new ships, we got to be able to handle them." So, we have two bunker barges. One is JAX LNG, and the other is the other is Shell. And the Shell comes from Elba Island, and the JAX LNG comes from Jacksonville. And the barging is coast-wise and integrated, articulated tug barges. They come in. They bump the ships. We go back and get more fuel.
They're hailing ports. But one is operated by Shell is the QLNG 4000. We name it the 4K. And the other one is the Clean Jacksonville, which is JAX LNG from Jacksonville. So, the dynamics of LNG have created some challenges with the LNG-operated vessels because the price when Putin did his thing over in Europe, the price of gas went sky-high. And then they lost their connection to Russia. We were exporting as much as we could. So, Shell is a major owner of a lot of gas in the ground in the United States. So, they were pulling off the network in Elba Island and shipping all that to Europe. But I don't understand the mechanics of it. You'd have to talk to one of the oil and gas people to understand it. But the export gas price was exporting at this level. The domestic gas price was down at this level. So, all of a sudden, it became more incentive to move everything they could to Europe.
So, we did some other things with Shell. And we were bunkering over the dock to the barge with 40-foot ISO containers coming in with LNG loading to the barge. And the barge put alongside the Carnival Mardi Gras, the bunker. So, we did that for six months. And it was all approved by the Coast Guard, the fire department, and everybody else. So, we have approved processes for taking it from an ISO container to the barge, or from the barge to an ISO container, or the barge coming in and going straight to the ship and transferring directly from the shipyards.
Question: How many passengers are you pushing through? Is it just Disney? Do you have MSC? I mean, who do you have coming into the port now?
John Murray: We have Disney, Disney, MSC Cruises, Norwegian Cruise Line, the Carnival, and Royal Caribbean. We also have Marella Cruise Line, which will be operating here for the summer. Marella is a British-based company. Part of TUI, a major travel corporation in the world. And their subsidiary in England is TUI UK. They're flying 777s across the ocean with the guests. They will do some things in Florida and stay in tourism-type activities. All-inclusive package. And they're also going to have a seven-day cruise in the middle of that. And they're going to home port Marella's vessels at Port Canaveral for 26 sailings. It'll go up and down the East Coast in the Bahamas and then the Gulf. They're calling it the American; what was it that they have? It was in the paper yesterday. The American, not history tour, but American something tour. And you ride and can go to all these different American cities by cruise ship. We are unlike South Florida, where all cruise ships disappear in the summer.
They go to different places. We don't have that fall-off in the summer. We only have two seasonal vessels that are going to be leaving us. One just left last weekend.
And we've got the Jewel of the Seas with Royal Caribbean, which will be moving somewhere else. And we've got the Carnival Magic, which will leave and go somewhere else for the summer. So, those three ships will go away. We still have 10. But then we're going to get one back with Norwegian Escape will go away, but the Norwegian Getaway will replace it for the summer seasons.
John Murray: And then we've got Marella. So, we'll still be at I guess 10 or 11 through the summer season.
Question: How is the port doing otherwise?
Murray: So, last year when we went down for 17 months, we had to do some very radical things because we are not part of a county government like Miami or Port Everglades. We have no backstop. Our port is we're a special district in the State of Florida. There are a couple of ports set up that way. Palm Beach is set up like that, Port Fernandina. We have an elected board.
And we do have the power to levy a tax. But we haven't done so since 1986. And if you look at the millage rates permitted by statute, we couldn't have done anything with it anyway. We'd have made about $4 million in tax revenue, which is nothing compared to losing 80% of your revenue stream. So, we did the things you have to do. I came from the private side. I've been through a Chapter 11 bankruptcy and restructuring.
You do the first thing when you're going to have a problem; what's the first thing you do? Where's all the cash? Grab it all. Don't spend it on anything we don't need. Any projects we can cut right now that we've got a cash commitment for, let's look at them all. And if we don't have to spend it, let's not spend. Now, in certain projects like we had Cruise Terminal 3 underway. We had some work being done at Cruise Terminal 8.
Those were all restricted revenue funds. So, we had some bank and bond funding for those. Once you get that money, you can only spend it on it. So, we couldn't spend those on operating expenses anyway. So, we continued those projects through the pandemic. Because we had the funds already allocated. And coincidentally, on the Disney contract, we did that. We got the money seven days before they shut the industry down. Bank called us the next week and said, "If this had happened a week later, we wouldn't give you the money right now."
During COVID But anyway, we laid off 40, 43% of our workforce. You make the hard calls. You got to do what you got to do. And we did the best we could to retain all of our talents. Because we knew when we started, we didn't know if it would start fast or slow. I was saying it went off like a light switch; we'll come back like a different switch, which is kind of the way it
We were able to maintain all of our key staff, and reassign key cruise people to other areas of the operation. And we got through it.
So, I'm sitting with a rating agency, bank, or anybody right now. And they say, "Oh, your revenue. You're too heavy in the cruise." Yeah, we just went 18 months, and we could've gone another 18 because we manage our money well. And- We've been the second busiest probably for the last 8 or 9 years. But passing Miami. Now, granted, last year, we were higher for that fiscal year. It was a startup year. We started, COVID was still going, and ship capacities were running at about 50% initially. We weren't the first to start. Miami started with about four ships before we started our first one. But still, it was a different switch coming back.
We reinvest it. And one of the things we're doing right now is, while the times are good, we have other big projects that we're facing. And we plan to not go into the bond or into the bank markets right now with the interest rates where they are. All of our bond and longer term bank debt, 20 year debt, is under 2%. So, why would we pay any of that off? We just maintain that and cash fund our next projects as much as possible.
The budget? We finished last year. Well, in 2019 was our best year ever with $107 million I believe. When we came back last year, it was it $106 million/. We came back last year at $128 million. This year we budgeted $154 million. Well, well we budgeted a boom year. But it's going to be much more of a boom year. We're going to be exceeding that number base as our six months is up now for the first-half of the year. We have a pretty good indication where we're going to end up. I'm not going to say because I don't want to be printed and then to be wrong.
So, it was kind of we never had to hear of it before. So, it got us through. We didn't have any bond issues with any of our bond holders or banks. Everybody's just happy that we're around the back end of it. And we're doing quite well.
We're operating today with about 25 people fewer than we had in 2019. We took a lot of time to automate some processes while we were on pandemic mode. We said, "What are the things that we like to do and we never have time to do?" We had some billing systems with our parks and recreation that we overhaul. We had issues with our parking garages that we overhaul.
We got rid of cash. We used to bring in 3 million dollars in cash a year. But it was every cruise day somebody's dumping cash in the machine. We got people collecting it, bringing in the armored car company to pick it up and haul it away. We don't do that anymore. It's all cashless. And that saved us a bunch of people.
Thanks for meeting with us.
https://www.portcanaveral.com/
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