The port is chartering a ship from Dutch company Spliethoff Group to carry goods like steel and machinery from Antwerp to Cleveland about once a month.
Bart Peters, director of Spliethoff Group's Atlantic department, says the company wants to expand into the Great Lakes. It’ll test the waters in Cleveland, where the port can handle a good deal more cargo than it does right now.
“This lake is empty," Peters said. "You have a stevedore here, you have a terminal, where you’re only doing a bit of cement, and a few ton of steel, that’s all. Well, you have the heartland of America right there at your door. We will open this area to the world.”
The port’s giving Spliethoff an incentive to come here, too. It’ll pay the company a daily fee, and also cover the ship’s fuel -- in total that will cost the port $850,000 a month.
It’s not unheard of for a port to offer a subsidy* to get a shipping service started, says John Carroll logistics professor Bradley Hull, who helped lay the groundwork for this agreement.
And while not all these subsidized plans have succeeded, Hull says the goal is to jump-start trade between two areas.
“That’s going to make it far more comfortable for a shipper to commit cargoes, because they know the Port of Cleveland is standing behind the service," Hull said.
Port CEO Will Friedman acknowledges it might take a year or two before the port starts to make a profit off the venture. That’s because companies that send goods overseas sometimes take time before warming up to a new shipping service.
*Update 11:50 a.m. 11/22/13:
After this story aired, port officials disputed characterizing the deal as a “subsidy,” saying the port is underwriting the cost of a vessel like any private shipper might when chartering a ship.
“We’re not using our money to prop up a service,” says Dave Gutheil, vice president of maritime and logistics for the port. “We’re paying for the service.”
In an email, Ned Hill, the dean of the Maxine Goodman Levin College of Urban Affairs at Cleveland State University, defines a subsidy as “any flow of funds that are…provided by one party to support the consumption of a good or service by another.”
Hill adds, “Some will try to depict a subsidy as an investment, arguing that the service will break even in the future and be ongoing. That of course is nonsense because the ‘investment’ does not result in ownership, control, or an expected stream of financial returns.”
In this case, Gutheil argues, the port does have an expected stream of returns.
The port aims to make money by collecting the fees companies pay to ship their goods across the ocean. In turn, Spliethoff will make money by collecting a rental fee and fuel payments from the port.
“To me, a subsidy is either a gift or a contribution,” Gutheil says. “That’s not what we’re doing. We’re paying to rent a vessel.”
John Carroll professor Brad Hull, who characterized shipping projects initiated by other ports as subsidies, says that may not be the most precise word to use in this case.
But he says debating which word to use may be beside the point. The important point, Hull says, is that the port is taking a loss on the deal in the short term, expecting to make a profit once business picks up.
“At least for some period of time the port is going to pay those costs," he says, "and then they’re going to see what revenue they can earn.”
Cost and revenue estimates from board meeting minutes show port officials expect it will take at least a year before the venture recoups its losses and makes an $8,750 profit for the port.
