B. Terminal Operating Costs
Operating costs typically include both fixed and variable costs. Fixed costs are costs that in general remain relatively constant on an annual basis and are generally not tied to throughput volumes. Such costs include lease payments, maintenance of the infrastructure components such as buildings, wharves, pavement, and utilities. Lease payments, however, are not level, and increase significantly over time based on the provisions of the Terminal 18 Lease. Variable costs fluctuate depending on the volume of cargo handled at a terminal and include items such as crane rental and labor.
Projected expenses associated with the operation of T18, broken down into annual operating expenses, maintenance costs, and non-operating expenses, are presented in Exhibit 3 . Total expenses, excluding corporate overhead and income driven taxes, are estimated to increase from $41,155,000 in 1999 to $84,034,000 in 2005.
1. Operating Expenses
Operating expenses include both fixed and variable expenses and include lease payments; rental costs, on a per-hour basis, for container cranes; labor costs, including cargo handling; layout planning and administration; monthly utilities such as power, sewer service, and water; and expenses associated with container maintenance and repair. Total operating expenses are forecast to increase from $37,499,000 in 1999 to $75,008,000 in 2005.
a) Terminal 18 Lease Payment
The Terminal 18 Lease payment is the amount paid to the Trustee by the operator under the Terminal 18 Lease in each year of the Terminal 18 Lease. The calculation of the Terminal 18 Lease payment is discussed further in Section VII.C of this Report. As shown in Exhibit 3, Terminal 18 Lease payments are calculated to increase from $6,931,000 in 1999 to $18,099,000 in 2005. It should be noted that Terminal 18 Lease payments are scheduled to increase significantly over time (see Exhibit 7 for a summary of estimated lease payments for the term of the Terminal 18 Lease).
b) Crane Rental Expenses
The Port currently owns all of the cranes at T18, and recovers the capital and maintenance expenses associated with the use of the cranes through a Crane Agreement between the Port and the operator. Labor costs are paid directly by the operator, as discussed in Section c). The tariff included in the Crane Agreement provides for a declining hourly rate for both capital and maintenance components as the total number of hours of use per year increases. The tariff is set each year by the Port based on estimates of actual costs. The 1999 forecast annual expense associated with crane rental was estimated based on the existing tariffs, dated July 1 , 1998 and July 1999. The forecast annual expenses for 2000 and beyond were escalated at an inflation rate of 3 percent per year and assuming a productivity rate of 27 containers being moved per hour. Total annual expense associated with crane rental ranges from $4,425,000 in 1999 to $7,552,000 in 2005.
c) Labor Expenses
Labor expense is the largest single expense item at T18. Labor expenses include salaries and benefits for longshoremen working under the ILWU labor agreement, as well as the salaries of management personnel. Annual labor expense is forecast based on au assumed unit cost of $90 per container (1998 dollars), escalating at an annual inflation rate of 3 percent, multiplied by the forecast volume of containers handled at T18 . Annual labor expense is forecast to increase from $20,773,000 in 1999 to $41,708,000 in 2005.
d) Rail Facility Charges
In order to recover the costs of on-lock rail facilities, the operator will pay the Port $10.00 per container for each container moved to or from T18 via rail, pursuant to the Terminal 18 Lease. Though the Port estimates that by the year 2001, 20 percent of the containers will be moved by on-dock rail, for the Base Case analysis, it is assumed that the use of on-lock rail will remain at 5 percent through the year 2003. It is further assumed that the use of on-dock rail will increase incrementally until it reaches a total of 20 percent in the year 2006. Based on the assumed level of on-dock rail activity, rail facility charges payable to the Port are forecast to increase from $115,000 in 1999 to $643,000 in 2005.
