Massachusetts Port Authority Request for Information Conley Terminal Crane Acquisition Project

Massachusetts Port Authority RFI Conley Terminal Crane Acquisition May 14, 2018

MASSACHUSETTS PORT AUTHORITY

REQUEST FOR INFORMATION

CONLEY TERMINAL CRANE ACQUISITION PROJECT

Interested firms must submit a response no later than 12:00 p.m., noon, EST, June 18th, 2018. Responses should be marked “Response to Request for Information Conley Terminal Crane Acquisition Project”. Eight (8) copies of written proposals responding to the questions outlined below should be submitted to:

Anna M. Tenaglia Director of Treasury Massachusetts Port Authority One Harborside Drive Suite 200S East Boston, MA 02128

Massport intends to short-list 2-3 bidders from the respondents to the RFI. Subsequent to the shortlist, the Authority plans to issue an RFP to the shortlisted respondents and one-on-one meetings may be held to address questions related to the RFP and financing agreement. Selection of the winning bidder will be based Goals and Objectives outlined in Section 1.2.

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1) INTRODUCTION

The Massachusetts Port Authority (“Massport” or “the Authority”) is pleased to present this Request for Information (“RFI”), a solicitation to entities or groups (“Respondents”) interested in submitting Statements of Information (“SOIs”) to acquire, deliver, and finance the Conley Terminal Crane Acquisition Project (“Project”) through a volume dependent, revenue-based concession pursuant to a concession agreement (“Contract”) with Massport. Massport intends to invite Respondents that they consider most qualified to respond to a subsequent Request for Proposals (“RFP”) to be issued by Massport for the Project. If there is only one qualified Respondent, Massport may proceed directly to negotiations of the Contract with such Respondent.

The Authority was created pursuant to Chapter 465 of the Commonwealth of Massachusetts Acts of 1956, as amended to date, and is a body politic and corporate and public instrumentality of the Commonwealth of Massachusetts. Massport owns, operates and manages the Airport properties, which consist of Boston Logan International Airport, Laurence G. Hanscom Field and Worcester Regional Airport; the Port properties, which consist of the Paul W. Conley Marine Terminal (“Conley Terminal”), Massport Marine Terminal, Flynn Cruiseport Boston at Black Falcon Terminal and Moran Terminal, Medford Street Terminal, Mystic Piers 1, 48, 49 and 50 (a/k/a the “Boston Autoport”), the Boston Fish Pier and the Commonwealth Pier (site of the World Trade Center Boston); and various other commercial real estate properties.

This RFI does not represent a commitment to issue a Request for Qualifications or Request for Proposals in the future.

1.1 OVERVIEW OF THE OPPORTUNITY

The Project consists of the acquisition of three (3) low profile neo-panamax ship-to-shore cranes (the “Cranes”) that will be used at Conley Terminal, the container port in the Port of Boston, which is owned and operated by Massport. Each Crane is estimated to cost approximately $13-$15 million for a total estimated cost in the range of $40-$45 million (excluding any applicable tariffs/taxes).

With funding support from the Commonwealth of Massachusetts and the U.S. Federal Government, Massport is investing approximately $850 million in Conley Terminal related waterside and landside infrastructure improvements, to compete for a greater share of New England inbound and outbound container volume. These investments include the development of a new 50-foot deep berth, called Berth 10. The Ship to Shore (“STS”) Cranes will be used at Berth 10. The Authority anticipates that the manufacture and delivery of the Cranes will take approximately 24 months. Upon completion of the Berth 10 and Crane acquisition project, Conley Terminal will be able to service the 14,000+ twenty-foot equivalent unit (“TEU”) vessels that are now calling the U.S. East Coast following the opening of the expanded Panama Canal. In addition to the acquisition of the Cranes and the development of Berth 10, Massport is the local sponsor for the U.S. Army Corps of Engineers’ Boston Harbor Deep Draft Navigational Improvement Project which will dredge Boston Harbor to -47 ft. in the Main Ship Channel and Reserved Channel, and to -51 ft. in the outer harbor (the “Dredging Project”).

Massport is interested in exploring an innovative arrangement with a strategic partner (the “Concessionaire”) to capture a greater share of New England inbound and outbound TEU volumes. The transaction would entail the Concessionaire making an investment to purchase the Cranes at Conley Terminal for use at the new Berth 10. In return for the acquisition, delivery, and financing of the Cranes, the Concessionaire will have the right to receive a portion of the revenues (“Massport Concession Payments”) from the increased TEU volumes that are generated at Conley as a result of the completion of Berth 10 and the delivery, acceptance and operation of the Cranes by Massport. The term of the Contract is expected to be up to 25 years.

In parallel, Massport may conduct its own procurement to acquire the Cranes through a more traditional equipment procurement model in which Massport would finance the Cranes using its own capital sources. It is Massport’s intent to evaluate the results of the innovative procurement process versus its traditional delivery method to determine which approach is the most advantageous to the Authority.

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Conley Terminal (including Berth 10, when operational) will continue to function as an operating port under this innovative arrangement. Transfer of Conley Terminal operations and maintenance is not included within the scope of this RFI and will not be considered by Massport.

1.2 GOALS AND OBJECTIVES OF THE AUTHORITY

Massport’s principal objective is to partner with a strategic investor or consortium that can provide the Cranes that can help drive future TEU volume growth and that can provide a relatively low cost of capital.

In general terms, the project goals and objectives include:

Goal 1: Obtain Cranes capable of serving 14,000+ TEU vessels in a timely manner

Given the change in fleet mix and the desire of current carriers to serve the Port of Boston with larger vessels, it is critically important for Conley Terminal to be equipped with three new Ship to Shore Cranes, which are capable of serving 14,000+ TEU vessels when Berth 10 is complete.

Goal 2: Incentivize Concessionaire to drive TEU volume growth.

Concession payments will be based upon ability to drive TEU volume growth in excess of what Massport can generate without a strategic partner.

Goal 3: Transfer delivery risk.

- Concessionaire is responsible for the acquisition of the Cranes, including financing such acquisition. - Concessionaire makes milestone payments to the Crane manufacturer. - Massport Concession Payments commence once the Cranes have been accepted and placed in service, post testing.

Goal 4: Actionable marketing plan.

Critical to the success of Conley Terminal in a highly competitive market is the ability to service larger neo- panamax vessels. The Concessionaire’s capabilities to increase container volumes will be part of the evaluation criteria.

1.3 CONLEY TERMINAL BACKGROUND

Conley Terminal is a 101-acre container terminal in South Boston, Massachusetts located 10 nautical miles from the Boston Sea Buoy (transit time of 1 hour) with no bridge-related height restrictions in the federal shipping channel. It is positioned for growth due to its strategic location and strong regional demographics, and stands to capitalize on the larger neo-panamax vessels as a result of the Dredging Project, expansion of the Panama Canal and the continuing evolution of the global container shipping alliances. In 2008, Massport acquired an additional 30-acres of land to the west of the existing container terminal upon which Massport is developing Berth 10 and the waterside and landside infrastructure investments needed to service the larger neo-panamax vessels. This site also hosts the recently completed dedicated freight corridor which removed truck traffic from neighborhood streets and provides for more efficient connectivity to the interstate highway system.

Conley Terminal is New England’s only significant container terminal, with strong local and regional cargo traffic. Conley Terminal provides global access for New England’s businesses and industries, and has the following attributes:

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• Maintains an approximately 37% market share of port container volumes in the New England market (FY2016, excluding western Connecticut).

• Conley Terminal container volumes have recovered from the 2008-2009 recession, with a Compounded Annual Growth Rate (“CAGR”) of 6.6% over the past five years (FY2012-FY2017).

• Since 2011, TEU volume at Conley Terminal has been steadily increasing. Volume increased by 11.9% in FY2016 and 3.9% in FY 2017, ending fiscal year 2017 with 256,951 TEUs. A table of TEU volumes for the period from FY 2002- FY 2017 is set forth below:

Fiscal Year TEUs % Change

2002 126,713 --

2003 150,138 18.5%

2004 164,361 9.5%

2005 180,828 10.0%

2006 193,922 7.2%

2007 203,177 4.8%

2008 216,434 6.5%

2009 200,071 -7.6%

2010 173,735 -13.2%

2011 185,980 7.0%

2012 186,515 0.3%

2013 192,846 3.4%

2014 204,951 6.3%

2015 221,014 7.8%

2016 247,329 11.9%

2017 256,951 3.9%

• Massport management estimates volume to grow at a CAGR of between 3% and 4% over the next 20 years. This projected growth is driven by the expected completion of landside improvements and expansion, the Boston Harbor Dredging Project, organic growth in the existing customer base and emerging container shipping alliance opportunities.

• Boston is a densely populated mature market (tenth most populated metro area in 2016) with high per capita income and an unemployment rate below the national average. Projections for the region indicate that the Boston area will maintain an approximate average per capita income 30.0% greater than the national average through 2030. • Top imports are alcoholic beverages, frozen seafood, footwear and furniture. Top exports are paper, frozen seafood, hides and skins and scrap metal. The import to export ratio at Conley Terminal is 1.4.

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• Truck turnaround times at Conley Terminal average 32-34 minutes.

• Crane productivity at Conley Terminal averages 32.5 container moves per hour. Conley Terminal has strong long-term relationships with leading global carriers and is now served by 9 of the world’s ten largest container lines. Its customer base includes Mediterranean Shipping Company (“MSC”), which has called on the Port of Boston for more than 30 years; members of the Ocean Alliance, including COSCO Shipping (which began calling on the Port of Boston in 2002), CMA CGM, APL, Evergreen and OOCL; and members of THE Alliance, consisting of the Ocean Network Express or “ONE” (resulting from the merger of “K” Line, NYK and MOL), Yang Ming and Hapag-Lloyd. • MSC operates the weekly North European service with Mediterranean trans-shipment opportunities. • The Ocean Alliance provides weekly container service to China and Northern Asia on 8,500-9,000 TEU vessels. • THE Alliance launched a North Asian service in May 2017, calling on Boston weekly with 8,500 TEU vessels. • Agreements with carriers (Ocean Alliance, THE Alliance and MSC) are effective through September 30, 2018. They include volume discounts and annual escalations in container handling rates. Conley Terminal also has the following growth opportunities:

• Organic Growth: growth in the affluent diversified New England economy. The region’s diversified industry mix and skilled workforce will continue to drive economic growth in the future. • Panama Canal: diversion of Asia-New England traffic formerly routed via the US West Coast to Boston via THE Alliance and Ocean Alliance. • New Markets: access to Asia, Indian Subcontinent and Middle East markets via MSC’s Mediterranean transshipment network and access to Latin American operations via MSC’s and the Ocean Alliance Caribbean transshipment networks. • New Carriers: The Ocean Alliance and THE Alliance have each brought new carriers with direct service to the Port of Boston.

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Conley Terminal is strategically located. • Conley Terminal provides efficient connectivity to I-95 (connecting Boston to southern New England and Maine), I-93 (New England’s main north-south interstate) and I-90 (Massachusetts Turnpike connecting Boston to western Massachusetts and upstate New York). East Boston • Over the last five years, Massport has invested nearly Boston Inner Boston Logan International $100 million in capital and operating improvements at Harbor Airport Conley Terminal. Massport also initiated changes to Boston improve efficiencies that have resulted in high crane productivity of 32.5 moves per hour and average truck times of 32-34 minutes. These initiatives have already begun to yield results, as evidenced by a 11.9%

increase in TEU throughput during FY2016 and a 3.9% South Boston Pleasure Conley Terminal Bay increase in FY2017. Dedicated Freight Corridor • The U.S. Army Corps of Engineers has commenced the deepening of Boston Harbor to a minimum depth of 47 feet below mean low water and the Dredging Project is expected to be completed in 2021.

• Massport has constructed a new $75 million dedicated freight corridor, the Thomas J. Butler Freight Corridor, to increase efficiency and access to I-90, I-93 and I-95. Massport is making the critical investments in Conley Terminal necessary to create its “Big Ship” capabilities to accommodate 14,000+ TEU vessels. • The U.S. Department of Transportation selected Massport’s Conley Terminal Intermodal Improvements and Modernization Project for a $42 million FASTLANE Grant. This grant will help fund a $103 million project to repair, strengthen, and deepen Berth 11 to -50 ft., repair Berth 12, provide a new refrigerated container storage area, construct new gate facilities, and upgrade terminal technology and equipment. Massport provided $61 million of matching funds for this project. • In addition to the $103 million of work funded in part by the U.S. Department of Transportation, Massport will undertake critical improvements to expand the facility. These improvements include the construction of Berth 10, a new 50-foot deep berth and wharf, directly west of the existing Berth 11, which will have a site area of approximately eight (8) acres, as shown in the maps below.

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Conley Terminal Map

• The new Berth 10 will align with the existing berths, extending approximately 1,275 feet west from the end of the existing Berth 11. The length of this new berth configuration will allow Conley Terminal to accommodate vessels up to 1,160 feet long while providing the necessary area for support equipment, and will have the ability to accommodate longer vessels using a section of Berth 11. Berths 10 and 11 will both be dredged to a depth of 50 feet. • The procurement of the new Cranes, currently being contemplated as part of this RFI, will allow Massport to better handle the 8,500 TEU ships calling today, and the new larger 14,000+ TEU vessels expected to call on Conley Terminal in the future. The Cranes are required to be low- profile due to Conley Terminal’s proximity to Logan Airport. Total construction cost of Berth 10, excluding the cost of the cranes is approximately $170 million. Massport’s funding plan for the Berth 10 and related infrastructure improvements (excluding the cranes) will utilize a combination of Massport funds, State funds and, potentially, Federal grants. Massport submitted an INFRA Grant application for the Berth 10 project in November 2017 and is awaiting the U.S. DOT’s announcement of grant awards (anticipated by mid-2018).

The Authority’s Comprehensive Financial Report for the most recent fiscal year can be found on the Massport website or by following the link below: http://www.massport.com/massport/finance/financial- publications/comprehensive-annual-financial-report-cafr/

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1.4 STRUCTURE OF THE BID

To ensure TEU volume risk transfer, future concession payments will be determined by annual TEU volume growth over a base case “organic growth” scenario. Should TEU volumes decline, Massport's payment to the Concessionaire would likewise decline by a similar percentage, subject to a base concession payment or “floor”. As it relates to upside, Massport would share in a portion of the revenues generated by the incremental TEU volumes, subject to certain thresholds to be defined as part of the final Contract.

1.5 ACQUISITION AND DELIVERY OF THE CRANES

Given that Massport is seeking a strategic investor as a partner, Massport is interested in determining whether a Concessionaire would be able to secure crane pricing at a cost lower than Massport’s cost of acquiring the Cranes. Under the innovative approach, the Concessionaire will be responsible for the acquisition of the Cranes and will enter into a contract with a Crane manufacturer to manufacture and install the Cranes. The Concessionaire will be required to use Massport’s Crane specifications in order to meet Conley Terminal’s unique operating requirements imposed by the height restrictions at Logan Airport and the characteristics of the Conley Terminal. The Concessionaire will select the crane manufacturer that meets the specifications and provides the best overall value. The response to this RFI must identify the proposed crane manufacturer and describe the manufacturer’s expertise in crane design and development. During the delivery period, the Concessionaire will be responsible for making vendor milestone payments. Massport’s payments to the Concessionaire will commence after the Cranes have been placed in service, post-testing and acceptance. Because the Cranes cannot be installed until the development of Berth 10 is nearly complete, Massport will coordinate with the selected Concessionaire regarding the timing of the notice to proceed for construction and delivery of the Cranes. To address potential project delivery delays relating to Berth 10, Massport is open to exploring certain compensation events in the case of delays to completion of Berth 10 outside the control of the Concessionaire. Similarly, Massport would expect that the Concessionaire would be subject to penalties for failure to deliver the Cranes within the timeframe required.

If it is determined through this RFI process that Massport can acquire the Cranes for a lower cost than the Concessionaire, there may still be advantages to entering into a strategic arrangement with the Concessionaire to finance the Cranes subject to the structure described above. In this case the Authority would accept responsibility for the acquisition and delivery of the Cranes and the Concessionaire would be responsible for the financing, with compensation of the Concessionaire based upon TEU throughput, with the floor payment, as described above in Section 1.4.

1.6 CONSORTIA

Respondents are encouraged to put together a deal and team structure that meets the goals of the Authority. The Authority is amenable to development of consortia that include shipping companies, a designated crane manufacturer, and infrastructure funds. Respondents should be clear as to the nature of their consortium and the benefits that it provides.

1.7 SOURCE OF FUNDS FOR CONCESSION PAYMENTS

Concession payments will be determined by TEU volume growth. Actual payments from Massport to the Concessionaire will be paid from Massport’s Improvement and Extension Fund, after provision for Massport’s operating expenses, Massport’s senior Revenue Bond debt service, required reserves for capital maintenance, general capital expenditures, and payments in lieu of taxes. Massport is among the highest rated Port Authorities in the US, with senior lien ratings of Aa2 (Moody’s) / AA (S&P) / AA (Fitch), each with stable outlooks. The Authority is open to exploring either a capital or operating lease. It is anticipated that a leasehold or security interest in the Cranes will be granted to secure the financing, although the Authority cannot mortgage its fee interest in Conley Terminal.

Due to Buy America restrictions, Massport will not be allocating any federal funds for the Crane acquisition.

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1.8 GENERAL PROCUREMENT AND PROJECT SCHEDULE

Massport anticipates, but is not bound to, conducting the procurement using the following guideline:

Interested firms must submit a response no later than 12:00 p.m., noon, EST, June 18th, 2018

2) PROCUREMENT STRUCTURE

If Massport determines to proceed with a public-private partnership, it expects to employ a two-step selection process for the Project consisting of this RFI and a subsequent RFP.

RFI submittal, evaluation, and selection processes are defined herein. Massport may use the SOIs to shortlist a select number of qualified Respondents. While Massport retains full discretion to determine the number of Shortlisted Respondents, Massport has an objective of having not more than three (3) Shortlisted Respondents.

Following the identification of Shortlisted Respondents, Massport intends to issue a draft RFP to Shortlisted Respondents for review and comment, and may schedule confidential one-on-one meetings to exchange ideas and to discuss issues raised by the Shortlisted Respondents. Following the release of the draft RFP, Massport intends to issue a final RFP to the Shortlisted Respondents.

3) BACKGROUND INFORMATION ON CRANE SPECIFICATIONS

Massport is seeking an innovative approach to fund the purchase of the three (3), low profile 22-foot-wide cantilever boom, gantry type ship to shore container handling Cranes, complete with all necessary ancillary equipment and associated engineering cost.

The cranes’ technical specifications may be accessed via the following link: http://www.massport.com/massport/business/bids-opportunities/current-opportunities/. The Cranes shall be completely equipped in all respects with electric motors, motor controls, hoisting and traveling machinery, head-block assembly, spreader, hoisting ropes, electrical protective devises, emergency and operating brakes, operator’s cabs, machinery enclosures and all other essential items required to provide a complete, efficient and trouble-free operating installation. A link to the Cranes’ specifications is provided in Section 1.5 above.

The acquisition of the Cranes and related equipment will be financed by the subject long-term financing facility. The reasonably expected useful life of the Cranes is at least 25 years.

Tariffs Risks During the first quarter of 2018, the Office of the U.S. Trade Representatives announced a number of products that will have tariffs imposed on them if imported from certain originating markets. Pursuant to a directive issued by the Trump administration, the Office plans to impose additional duties of 25% on approximately $50 billion worth of Chinese products, including steel and aluminum. In response, China has announced its plans to impose tariffs on $50 billion of U.S. imports into China. In addition, tariffs have been imposed on U.S. imports of steel and aluminum.

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While the final policy position of both countries may change in the weeks to come, the trade policies being originated by the U.S. and responded to by trade partners may have a negative impact on trade generally and the cargo volumes for the Port of Boston specifically. Additionally, the tariffs on steel and aluminum may impact the acquisition cost of the Cranes. Massport will communicate with interested bidders as additional information related to the tariffs becomes known.

4) MASSPORT BOARD APPROVAL

As a condition precedent to the execution of the Concession Agreement, approval for the transaction must be provided by the members of the Massport Board.

5) SOI SUBMISSION INSTRUCTIONS

Any and all feedback is welcomed by the Authority; however, the below questions outline the general information being sought from this RFI.

6) QUESTIONS FOR INTERESTED BIDDERS

1. Please describe your firm, its experience in relation to the port sector, public-private partnership (“P3”) projects, and its potential interest in relation to the plans to acquire and finance the Cranes.

2. Please describe your proposed team or consortium, including the identity of the proposed crane manufacturer, shippers, port operators, and infrastructure funds.

3. How would your firm propose to market container service at Conley Terminal? Would you be willing to guaranty a minimum level of annual TEU volumes? What, if any, strategic advantages will Massport potentially gain?

4. How did you identify the best possible crane manufacturer for the Cranes? How would you evaluate experience versus cost?

5. Is TEU volume risk transfer appealing? Please explain your reasoning.

6. Are there any particular concerns that may prevent your firm from responding to an RFP in the Project? How might these concerns be resolved?

7. What is the minimum amount of time that your firm would require to develop and submit a response after the issuance of a potential RFP?

8. What additional information would your firm need in order to prepare a response to a potential RFP?

9. How might you approach financing the capital cost of the Project? Do you have a preference between structuring the P3 as a capital versus operating lease, with the understanding that Massport’s payments under either alternative would be made from the same source of funds?

10. Is a 25-year concession term sufficient? If a substantially longer term is preferred, how would you address obsolescence risk related to the Cranes?

11. Operating and maintenance risk transfer is not under consideration, but Massport is open to exploring the transfer of major maintenance requirements to the Concessionaire. Is this appealing to the Concessionaire?

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12. Are there any particular concerns with the information provided in this RFI? Please explain any concerns and provide any proposed solutions or mitigation to address those concerns.

13. Are there any additional financing structures, compensation structures, risk transfers, or other considerations not mentioned in this RFI that your team would like to propose?

14. What is the maximum period that you would be willing to hold a firm bid under your response to an RFP?

15. Please provide a description of all expected costs associated with the cranes including shipping, tariffs, taxes and fees.

16. How do you anticipate the tariffs proposed by the Trump Administration, as well as any response for a foreign government, to affect this procurement? Can your team offer any means or methods to mitigate the impacts of any such tariffs? If so, please describe them.

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