Facts about the Lorain Pellet Terminal

The Lorain Pellet Terminal was built by LTV Steel as a transfer facility to transfer iron ore from the 1000-foot lake carriers to the shorter (500 to 600-foot) ships capable of navigating the tight bends of the Cuyahoga River to bring iron ore to its blast furnaces in Cleveland. The terminal is located in the city of Lorain, on the west side of the mouth of the Black River.

The terminal has a capacity of transferring six million tons of ore per year.

The Cleveland-Cuyahoga County Port Authority plan:

• Move the conveyors, tower, and all associated infrastructure to the CBT -- the Cleveland Bulk Terminal (formerly known as the C&P Ore Dock) -- on Whiskey Island.
• In preparation for that move, they have loaned the city of Lorain $150,000 so that the city can secure financing to purchase the Pellet Terminal property from LTV's successor, ISG. The city of Lorain will pay ISG a reported $3 million for the twenty-acre site.
• The taxpayers of Cuyahoga County will pay for disassembling, moving, and re-assembling the conveyor equipment at the CBT, at an estimated cost of $2.5 million -- for the benefit of ISG.

Here's what the Pellet Terminal looks like superimposed on the ore dock (CBT):

Rationale for the move

According to sources at the Port Authority and ISG, operating the Pellet Terminal in Cleveland instead of Lorain will save ISG $1 million per year in expenses.

Is that true? Let's examine the figures.

First, the savings in transportation: Using the Port Authority's figures of $4000 savings per 1000-foot lake vessel, a capacity of 60,000 tons per vessel, and ISG's projection of 3.5 million tons of ore per year, the transportation savings would be $236,000.

Second, ownership of a $3 million parcel means that $3 million is not earning a return. A reasonable return on a $3 million investment is estimated at 5% per year or $150,000.

Therefore the total yearly savings to ISG by not owning the Lorain Pellet Terminal is $236,000 + $150,000 = $386,000.

However the cost of using the CBT must be subtracted from that figure. That cost, which in effect replaces the cost of ownershp of the Lorain facility, is a rental amount that is paid by the lessee of the ore dock, Oglebay Norton, to the owner and landlord, the Cleveland-Cuyahoga County Port Authority. Assuming that Oglebay Norton would at a minimum pass through their rental cost to its customers, the rental cost, if distributed among Oglebay's present customer base and ISG, would be rent on 1.5 million plus ISG's 3.5 million tons, or a total of 5 million tons.

The Port Authority's lease with Oglebay Norton spells out the rent per ton:

• 0 to 1,500,000 tons: $725,000
• 1,500,001 to 2,500,000 tons: $0.18 per ton
• 2,500,001 to 4,000,000 tons: $0.14 per ton
• over 4,000,001 tons: $0.07 per ton

Using these values, rent on 5 million tons is $1,185,000. ISG's portion is 3.5 million of the 5 million tons, or 70 percent of the total, or $829,500.

The cost of using the CBT, $829,500, must be deducted from the savings from not using the Lorain Pellet Terminal, $386,000.

$386,000 minus $829,000 is no savings at all. It is an extra expense of $443,000.

So how does the Port Authority figure a $1 million per year savings?