Puget Sound ports said cooperation plan is a response to the competitive pressures in the container industry.
The ports of Seattle and Tacoma on Tuesday said they plan to form an alliance “to unify the management of the two ports’ marine cargo terminals and related functions.”
The goal is to “strengthen the Puget Sound gateway and attract more marine cargo for the region,” the port authorities explained.
The so-called “Seaport Alliance” will manage marine cargo terminal investments, operations, planning and marketing, while the individual port commissions will retain their existing governance structures and ownership of assets.
“This unprecedented level of cooperation between the state’s two largest container ports is a strategic response to the competitive pressures that are reshaping the global shipping industry,” the ports said in a press release.
Tara Mattina, spokeswoman at the Port of Tacoma, noted most of the world’s top container shipping lines call at one of the two Pacific Northwest ports.
She said the increased ship sizes and alliances between liner companies means there’s a need for infrastructure improvements at the ports to handle these larger ships that are cascading into the transpacific.
“We know those improvements are going to cost millions of dollars at a time when there is already overcapacity in the system,” Mattina said. “So we are trying to think regionally about how do we prioritize those investments in order to make sure that we have terminals that are ready in the Pacific Northwest, but we are not adding capacity into a system that already has too much.”
Ed DeNike, president of SSA Containers, agreed “that at this point there just is not enough container volume for two major ports in the PNW and there has been a lot of competition between the two ports, which may not have been good for either one.
“Depending on what they are going to do, it could be good,” he said. “But it is too early to tell.”
Mattina said both ports are making improvements to their facilities.
The Port of Tacoma is strengthening and straightening Piers 3 and 4 at its Husky terminal so it can accommodate bigger ships and the larger cranes needed to work them.
In Seattle, APL has been moved from Terminal 5 to 18 so that Terminal 5 can be improved.
One of the first pieces of work under the alliance will be to reconcile the strategic plans of the two ports and figure out how to prioritize investments, Mattina said.
One complication is the fact that members of the G6 Alliance have terminal equity in both ports. Hyundai Merchant Marine has a lease at the Washington United Terminal in Tacoma and APL has the lease for Terminal 18 in Seattle, so G6 ships are calling both ports.
Combined, the two ports would be a much larger entity when negotiating with carriers, just behind Los Angeles/Long Beach and New York/New Jersey.
In the past, the two ports have competed for business, and traffic was split about 50/50, with the larger share swinging back and forth between the two ports – some years with Seattle leading Tacoma, and in others with Tacoma overtaking Seattle.
But in recent years, Mattina said those swings have gotten wider.
“Because the lines are forming the shipping alliances. They are taking bigger chunks of cargo when they switch from one port to another and the game has changed so much that the competition is hurting us instead of helping us,” she said.
The combined ports could conceivably help carriers negotiate better deals with railroads since so much of the port’s cargo is transported intermodally. Today, about half of the region’s cargo moves inland by rail, down from 70 percent. But that number is somewhat misleading since the decrease is not due to increased local consumption, but largely a reflection of the growing popularity of cross-docking and domestic containerization, as opposed to “intact” intermodal where goods move inland in ISO boxes.
“Even before the announcement of the Seaport Alliance, the ports were working together to let the railroads know how important it was that they keep investing in the Northern Corridor,” Mattina said.
The ports also feel the combination will improve their competitiveness with Vancouver and Prince Rupert in British Columbia, which are both competing for cargo moving to and from the U.S. Midwest.
“If they can work together and work with the railroads to be more competitive with Canada, that would be a good thing for both ports,” SSA’s DeNike said. “Politically, the ports can play a big role because the railroads will listen to the ports where they may not listen to anyone else.”
The U.S. Federal Maritime Commission has given its approval to let the two ports hold discussions, but additional agency approval will be needed for the two ports to take action.
If the Seaport Alliance fails to become a reality, the two ports will continue as separate municipal taxing authorities in their respective counties—Tacoma in Pierce County, and Seattle in King County. No federal or state legislature would be needed for the alliance to form.
Outside the agreement, each port will continue other activities independently. For example, the Port of Seattle will continue to operate the Seattle-Tacoma International Airport, its cruise business, marina, fishing docks, and a real estate department, while Tacoma will retain its industrial real estate.
The Seaport Alliance will manage the marine cargo facilities—negotiating leases and improvements with tenants – at the two ports and be governed by the two commissions acting jointly.
As container carriers form larger alliances, ports have more formidable customers to negotiate leases and other issues. At the same time, container carriers face the challenge of figuring out whether they want to consolidate calls at fewer terminals — terminals in which they may have a financial interest — or call multiple facilities in a single port or region.
Last month, the Port of Long Beach harbor commissioners directed staff to prepare a draft discussion agreement between it and the Port of Los Angeles to be filed at the FMC with the goal of improving the competitiveness of the two ports.
“The ports of Seattle and Tacoma face fierce competition from ports throughout North America, as shipping lines form alliances, share space on ever-larger vessels and call at consolidated terminals at fewer ports,” said Port of Tacoma Commission President Clare Petrich. “Working together, we can better focus on financially sustainable business models that support customer success and ensure our ability to reinvest in terminal assets and infrastructure.”
Stephanie Bowman, co-president of the Port of Seattle Commission, said, “where we were once rivals, we now intend to be partners. Instead of competing against one another, we are combining our strengths to create the strongest maritime gateway in North America.”
The two ports said the alliance is the outgrowth of talks held under the sanction and guidance of the FMC. Subject to further FMC review and approval, the two port commissions said they will enter into an inter-local agreement, which is intended to provide the ports with a framework for a period of due-diligence to examine business objectives, strategic marine terminal investments, financial returns, performance metrics, organizational structure, communications and public engagement.
The two port commissions intend to submit a more detailed agreement to the FMC by the end of March.
During the due-diligence period, John Wolfe, chief executive of the Port of Tacoma, and Kurt Beckett, deputy chief executive officer of the Port of Seattle, will co-lead the planning work and coordinate with both port commissions. Commissioners from both ports expect to hold a public meeting next spring to hire Wolfe as the CEO of the Seaport Alliance, following the FMC’s approval of the agreement.
The two commissions expect to formally adopt and submit their agreement to the FMC at a joint public meeting on Oct. 14.
Ports of Seattle, Tacoma plan ‘Seaport Alliance’
