Crane delay leads to late start for terminal rent income.

A permitting quandary involving eight large cranes at the Port of Los Angeles is costing close to $2 million a month rent from its largest tenant.

A unit of Maersk Sealand, which the L.A. port lured from the rival Port of Long Beach in August 2002, has delayed occupancy of the 165-acre second phase of its facility at Pier 400 by at least a month, to Oct. 1.

The rent being foregone by the city-owned port amounts to $10,250 per acre per month, or $1.7 million.

Delays have been caused by port officials who waited more than a year to decide how to proceed with the permitting of the cranes, according to a letter sent to port officials by a lawyer working for Maersk's APM Terminals unit. During that time, the letter states, port staff members asked APM not to order any of the cranes, which have about a 12- to 18-month lead time for delivery.

"The port's delay in acting on APM Terminals' request has resulted in a situation whereby the subject wharfage will sit idle until the cranes are delivered," according to the letter, sent to the port's chief operating officer, Bruce Seaton, by Elizabeth P. Beazley, the lawyer representing Maersk. "The delay costs to the parties will be significant."

Beazley's letter indicated that the cranes won't be ready for use until at least June 2005. The letter also states: "In order to account for this delay, the parties need to meet for purposes of deferring the occupancy date for Phase II ... and working out a financial solution."

October start date

Arley Baker, the port's director of public affairs, denied that the cranes had caused any delay in the terminal's opening, saying it is still 30 days from "substantial completion," which requires fenders (bumpers that protect the docks from the ships) to be installed on the edge of the dock, some electrical work, lighting and final pavement work.

"We are expecting the billing schedule to start Oct. 1, a month behind schedule but terms unchanged," Baker said.

However, a source said port officials have essentially stopped work on the facility to buy time while they work out a financial arrangement with Maersk. The source said that materials for the fenders, for example, are already at the port or easily obtained.

According to this source, the terminal could have opened and been drawing rent as early as July.

Beazley referred calls to Maersk Sealand. Maersk spokesman John Heenehan said "the crane permit was issued and things are moving forward. I can't speak to when those cranes are going to be here. That's a question mark I can't answer. We really wouldn't want to go any further than that."

Baker also said he did not know about the arrival time of the cranes, which are needed to unload large cargo containers from the ship. But he said the facility could open without them, using other cranes. "It would depend on how many ships were docked at one time," said Baker.

Separate dispute

The delays arose from a separate environmental dispute over the China Shipping terminal that overtook the port around the same time Maersk was planning its second phase.

In the first phase of its terminal construetion, Maersk installed 10 of the 250-foot cranes without incident. But before the second batch could be ordered, the size of the cranes became a hot-button issue for residents near the port, who complained they blocked views of the ocean.

As part of the eventual $60 million settlement with environmentalists over the construction of the China Shipping terminal, the port agreed to install two cranes that are about 100 feet shorter. Port officials were contemplating requiring similar cranes at the APM terminal.

According to Beazley's letter, APM Terminals advised the port in early 2003 of its intention to order eight standard cranes. But the port's executive director, Larry Keller, subsequently sent a letter to all terminal operators advising that they needed to coordinate with port staff on all future crane orders to secure a Coastal Development Permit.

APM contended that a new permit was unnecessary, since one had been obtained earlier covering both phases of the terminal's development.

The port then suggested that APM complete a Harbor Development Application. The application, completed last August, was never approved by the port.

The port eventually reconsidered the necessity of a new Coastal Development Permit, agreeing with the view that APM Terminals held all along. Instead, a more general Harbor Engineer's Permit was to be granted, Beazley's letter said.

In her letter, Beazley also implied that the port has agreed to provide political cover for APM if friction arises from the decision on the permits.

"We appreciate and expect that the port will publicly acknowledge that APM Terminals is only obligated to obtain a harbor engineer's permit prior to the installation of the balance of the cranes," the letter states.