A steady hand at the helm
Reinhart guides turnaround at the Port of Virginia
- November 30, 2016
In the summer of 2013, John Reinhart was vacationing in China Lake, Maine when he broached the idea of a career change with his wife, Mary, and their three adult children.
The Port of Virginia was looking for its next executive director, and a number of people had asked if Reinhart was interested in the job.
At first he wasn’t, even encouraging others to apply. But the more he thought about the opportunity, the more it intrigued him.
Reinhart had been CEO of Norfolk-based Maersk Line Ltd. (MLL) since 2000. Under his leadership, MLL, a subsidiary of the Danish shipping company Maersk Line, became the largest U.S.-flag commercial fleet in international trade. Annual revenues had grown fivefold under his watch.
Reinhart told his family: “I can work another few years at Maersk and retire and go away, or I can chuck it in now, retire early and go sign on for this opportunity to rebuild the Port of Virginia.”
Initially, his wife was shocked. .
“Mary was a little bit taken aback,” Reinhart says, “But as we talked through it, I said, ‘You only have a certain amount of time when you can effect change and do something of importance.’ ”
The port at the time was in disarray. It had been bleeding money since the Great Recession, losing $120 million in five years.
It also had undergone two separate rounds of bids within four years to privatize its operations. The uncertainty surrounding the port’s future kept executives from upgrading service, improving finances or investing in capital infrastructure.
“I believed the port was at a critical point,” says Reinhart. “If we didn’t stabilize it and turn it around, it was going to damage the economy of Virginia. It was going to continue to flounder.”
Reinhart pursued the job “because I wanted to help Virginia, and I wanted to turn this wonderful economic engine and true natural resource into something that all Virginians could be proud of.”
In February 2014, Reinhart became the CEO and executive director of the Port of Virginia. Under his leadership, the port has made a stark turnaround, recording profits during the past two fiscal years.
The port’s improved financial picture has provided a foundation for an unprecedented investment in its facilities. With an injection of state money and a new 50-year lease for a privately owned, high-tech terminal, the port is undertaking two massive construction projects that will increase its cargo capacity by 64 percent.
“John, with his talents, got ahead of [leadership] problems at the port,” says Virginia Transportation Secretary Aubrey Layne. “And he took the port to much higher heights in terms of getting finances under control and turning the operations around, which led us to this $700 million investment within a couple years of finding the place a mess.”
Because of his leadership in turning the money-losing port into a profitable entity that now is making major investments in its future, Virginia Business has named Reinhart its Virginia Business Person of the Year for 2016.
Reinvigorating the culture
The turnaround hasn’t been easy. “He’s been under pressure since the day he got there,” says John Milliken, chairman of the Virginia Port Authority board of commissioners. “The port was losing significant amounts of money. Its position relative to its peers on the East Coast had slipped, and he had a new and impatient governor who told him how unhappy he was about the current state of the port.”
While Reinhart was hired by the VPA board in the waning months of Gov. Bob McDonnell’s term in 2013, he actually started work at the port one month after Gov. Terry McAuliffe was inaugurated in 2014.
McAuliffe and Layne were dismayed by the port’s financial situation, which turned out to be even bleaker than what they had expected. They quickly applied pressure to the VPA board to reshape port finances. Eventually five of its 13 commissioners were replaced, which included re-appointing Milliken as chairman.
Reinhart didn’t hesitate to act when he took over as the port’s CEO. Even before he started the job, he required members of his senior leadership team to read “Reinvent: A Leader’s Playbook for Serial Success,” a book by pharmaceutical entrepreneur Fred Hassan, which focuses on organizational ABCs: attitude, behavior and culture.
One of his first steps was to complete a rebranding and reorganization of the port, an effort begun before he took the job. The organization focused on branding the port and its operations as the Port of Virginia, whereas it had previously used several different names.
He also worked to re-energize and refocus employees, whose morale had been battered by the Great Recession and the turmoil generated by the bids from outside firms. The port had lost several longtime employees.
Reinhart reorganized the senior leadership team and added some new employees.
“When John came in in February of 2014, he was very methodical with regard to how he wanted to approach the challenge that was the Port of the Virginia at the time, both from an operational perspective and also the perception others had of the port,” says Joe Ruddy, chief innovation officer at the port. “You had to initiate the brand, you had to reinvigorate the culture, to define and let folks know they had to live by certain values.”
Unlike some turnaround specialists, instead of entering the organization and firing employees, Reinhart focused on building up the leadership team. “I think John’s a facilitator,” says Shawn Tibbetts, chief operations officer of the port. “John’s really big on not only developing the physical assets of the port, but the human capital. He has an eye toward how we create sustainability in the people side.”
Layne, the state transportation secretary, says Reinhart has a natural ability to encourage employees to excel. “John has a way of getting people wanting to work for him,” he says. “There are some people who have this ability for people who want to follow their leadership and believe in them, and John has that. I think that’s one of the reasons why you’ve seen the port turn around as quickly as it has.”
Reinhart led his team through a thorough review of the port’s finances. “We started to say, ‘What’s our burn rate? How much money are we losing each day? How much are we losing each hour? What are the true costs of doing the activities that we are doing, and are there things we are doing that we should stop doing? Are there things that we can do more efficiently?’” Reinhart recalls.
The port decreased costs with steps like reducing the percentage of overtime hours and dropping money-losing incentives. Cost cuts, however, did not include layoffs or reductions in salaries.
Financial results improved rapidly. When Reinhart joined the port, there were five months left of fiscal year 2014, and the port was projected to lose $24 million.
Through the team’s efforts to reduce expenses, the loss was only $17.1 million. In FY 2015, the port reported its first profit since 2008, $13.6 million. That was followed by a profit of $4.76 million in the latest fiscal year.
The port also faced operational challenges. Growth in cargo volume had taxed its terminals, which suffered from years of little investment. A bad winter in early 2015 forced the port to close for an unprecedented four days. That created congestion nightmares for truckers who transfer containers to and from the port.
For short-term fixes, the port took several corrective steps: buying chassis that trucks use to transport shipping containers, adding container-handling equipment and spending $7 million to reopen Portsmouth Marine Terminal, which had been closed to container traffic for almost three years. “It allowed us to move some pressure off [Norfolk International Terminals], because they were operating well above optimal utilization,” says Reinhart. “They were at 95 percent. Well, that means you have no resiliency, everything takes more time, and you’re at the broken point. This was a triage effort.”
But the need for greater capacity was evident.
Although a global decline in shipping volume has dampened projected volume at ports around the world — the Port of Virginia’s container volume is up 2 percent this year — international trade is expected to surge over the long term.
In anticipation of that growth, the Port of Virginia is increasing the capacity of its terminals by 1.6 million TEUs over the next three years with expansions of its two largest terminals.
These investments would not have been possible without improving the port’s operations and finances. “We had to get stability here and revitalize the port in order to create confidence in our capabilities in order to serve the business,” says Tibbetts, the port COO. “That had to come before we could start investing heavily in our future.”
The renegotiated lease for VIG was a crucial piece of the puzzle.
Soon after he arrived at the port, Reinhart began an arduous two-year negotiation process with VIG’s new owners. The port was operating the modern Portsmouth terminal, originally owned by APM Terminals, under a 20-year lease that the McAuliffe administration viewed as unsatisfactory.
With 60 acres of land adjacent to its existing terminal, VIG offered the port an ideal opportunity for expansion.
“It took about a year to get a detailed term sheet together that had the major muscle movements, and then you had to translate that into all the final legal documents,” says Reinhart. “So, it was painstaking.”
The process had plenty of obstacles, but in September the state announced that it had a new deal.
The 50-year lease allows the port to operate VIG with the option to purchase the terminal at the end of that time. It also allowed the port to embark on the $320 million project to nearly double capacity of the terminal to 2 million TEUs, which will be financed by the terminal’s owners.
That expansion will take place while the port expands Norfolk International Terminals (NIT), currently its largest terminal. While VIG negotiations were underway, McAuliffe agreed to include a $350 million bond issue in his budget this year to fund the NIT project.
Convincing legislators to support the bond was made easier by an outreach effort begun under Reinhart. The port decided it had to tell its story better to legislators so that they understood the economic impact of the port on businesses in their districts. According to a study by the College of William & Mary, the port generates $60 billion in economic activity each year.
Another ongoing construction project at NIT will add a 26-lane, semi-automated gate complex to improve the movement of trucks in and out of the port. The gates will eventually tie into Interstate 564, removing trucks from local streets.
Meanwhile, the port also is making improvements at Richmond Marine Terminal, formerly known as the Port of Richmond. The Port of Virginia signed a 40-year lease with the city to operate the terminal on the James River.
Previously, the port had a five-year lease. “By having a 40-year lease, taking over full operations and increasing the potential of the barge service, now advanced manufacturing or distribution centers know they can build along that 95 corridor,” says Reinhart.
Laying the groundwork
Throughout his career, Reinhart has been ambitious.
He grew up in Columbus, Ohio, and earned a degree in general studies at Ohio University. That is where he met Mary, whom he married before their senior year.
When they graduated in 1975, jobs were scarce. They moved back to Columbus, where Reinhart began working as a night manager at a fast-food restaurant.
The chain quickly recognized his talent. Reinhart became a district manager within six months. After 18 months, he was promoted to training manager, helping to open franchises.
Eventually, Reinhart opened his own 11 franchised restaurants in Southern Ohio and Northern Kentucky, which employed 700 people. “It was going well until about 1986-87, and then the fast-food wars really started to heat up,” says Reinhart.
He’d been reading about the effects of globalization, and it piqued his interest.
So he began to wind down and sell his restaurant businesses while discussing job opportunities with executives at the U.S. headquarters of A.P. Moller-Maersk in New Jersey. The company was growing rapidly with the expansion of containerized cargo.
At Maersk, Reinhart’s first role was in the human resources department. After about six months, he transferred to the maintenance department at Port Newark in New Jersey and within a year was leading that terminal. Here he had his first exposure to the intricacies of terminal operations.
Eventually he was promoted to president of Universal Maritime Services, a part of Maersk that ran six terminals in the U.S. Under his leadership, the business went from losing $6 million to making money the next year. “I just fell in love with what I call the structural ballet that happens on a pier, because you’re moving big stuff, you’re trying to do it all safely, and it takes a lot of collaboration, cooperation by all,” says Reinhart.
After several years in Maersk’s sales division, Reinhart was named to an integration team when the company bought Sealand, which was at the time the largest U.S.-flag carrier. After the integration was complete, Reinhart was named president and CEO of Maersk Line Ltd., moving to Norfolk in 2000.
“We grew MLL to be the largest U.S.-flag shipping company in international trade,” says Reinhart. U.S.-flag shipping means the company is subject to the rules and regulations of the U.S., and its ships must be manned by a U.S. crew. MLL typically transports specialized or sensitive cargo.
Under Reinhart, annual revenues grew fivefold, and the company’s operating profits grew tenfold.
In 2009, Somali pirates “seajacked” the Maersk Alabama, an MLL cargo ship, taking its captain, Richard Phillips, hostage. The harrowing incident ended five days later when Navy SEALs killed three pirates in a daring rescue. The Maersk Alabama story was the inspiration for “Captain Phillips,” a 2013 movie starring Tom Hanks.
Reinhart learned about the pirates’ attack in a call from Copenhagen at 2 a.m. Months before the crisis, MLL had established a “situation room” in its Norfolk headquarters complete with video screens and monitors in case of emergencies. By 5 a.m., executives had assembled there. “We were interfacing with the Maersk fleet, with the Navy, the families of the crew and with the media trying to communicate with and work with a very volatile and sensitive situation,” Reinhart recalls.
MLL chartered a plane to fly the ship’s crew home, bringing their families to Norfolk to greet them. The company also provided psychiatrists to help crew members recover from the traumatic experience. Reinhart was in touch with Phillips’ family throughout the ordeal. “So it was a week of danger, a week of sleeplessness, and we just tried to respond,” Reinhart says.
Reinhart hopes his legacy ensures a bright future for the Port of Virginia. “I felt, with my life, you get one more set, one more chance to do good,” he says. “I said, ‘Where else would it be better to invest your life than for the Port of Virginia and the Commonwealth of Virginia?’ I openly ran to this job, and I’m trying to set it up so that the generations behind us are ready to carry it forward.”
Despite its dramatic turnaround in the past three years, the port still faces major obstacles. First up will be managing the expansion projects.
In addition, the shipping industry remains volatile. The global containerized business remains depressed, and bankruptcies and consolidations among ocean carriers continue to cloud the industry’s future.
Carriers likely will continue their switch to larger ships to move goods more efficiently. That trend puts pressure on terminal operators to handle immense volumes of cargo coming come on and off these huge ships.
The port also is conducting a study with the U.S. Army Corps of Engineers about deepening its harbor to 55 feet. That depth would give the port an advantage in handling large container ships and ensure the channel could still handle two-way navigation with the bigger ships. It also could be an important competitive advantage as many East Coast ports have recently deepened their channels.
And then in three years, when the port has the additional cargo capacity, executives must focus on filling it, especially being competitive for discretionary cargo headed to the Midwest.
“It does us no good if we have built all this capacity and no one comes,” says Milliken, chairman of the VPA board. “So the nature of the job now changes for John. You can’t neglect any of the financial or operational pieces at all, but the real emphasis now shifts externally to customers, partners and others who influence the decision on whether a ship line or cargo owner uses Virginia versus another port.”
And with solid numbers, historic investments in its two largest facilities and plans to dredge a deeper channel, he has a good story to tell.