TacomaÆs turbulent times
Farrell leaves behind an uneven legacy as port tries to rebound from investments decisions, economic downturn.
By Eric Kulisch
The Port of Tacoma's mid-October announcement that Executive Director Tim Farrell will leave at the end of the year caps a tumultuous five-year term marked by all-time highs in container volumes, criticism of the port's management and major investments that backfired.
Farrell approached the port commission to discuss a possible transition following news that Japanese ocean carrier NYK Line had cancelled plans to occupy a 168-acre, purpose-built container terminal. Farrell salvaged the situation by getting NYK to agree to a long-term deal to bring ships to an existing, underused terminal operated by APM Terminals.
Farrell said he wanted to spend more time with his family.
Both sides' description of events as having been initiated by Farrell downplayed the fact that the five-member port commission had increasingly begun to question his leadership.
'We've had some reverses here and we're quizzing Tim about them, looking at all the alternatives for him and the port,' said R. Ted Bottiger, the board's outgoing vice president, several days before the final decision.
At 38, Farrell was the youngest port director in the nation when he was promoted from deputy director in October 2004 to take over in Tacoma. During his tenure container volumes, which were directly related to the strong economy and trade, climbed from 1.8 million TEUs to 2.07 million TEUs in 2006 before declining to 1.86 million TEUs last year.
The port also attracted new liner services from Yang Ming and MOL (20,000 TEUs that previously went to the Port of Seattle).
In 2005, the port relocated Evergreen Line to a new facility, which allowed 'K' Line to double its presence by moving over to an expanded Terminal 4. The port expanded Hyundai Merchant Marine's Washington United Terminal and is proceeding with a 600-foot wharf extension for the carrier.
The port also added several logistics businesses, including:
' Carlile Transportation Systems, a large trucking company based in Alaska that relocated its local terminal to a new 64,000-square-foot facility.
' Northwest Co., a major retailer in the Pacific Northwest, which established a distribution center in Tacoma.
More distribution space has recently been developed too in the industrial
region surrounding the port. Swedish furniture retailer IKEA last year opened a nearby distribution center on property it bought from the port, and O'Reilly Group, an auto parts distributor, opened a warehouse.
In an interview, Farrell took pride in the port's environmental efforts, including a project initiated under his watch to purchase surrounding hillsides to preserve habitat and provide a buffer between industrial and residential areas.
NYK Snag. Landing NYK in 2007 was perceived as a big coup for the port at a time when trade was booming and growth estimates called for a doubling of U.S. container volume by 2020. Shippers and carriers were concerned about having the capacity to meet demand and new terminal space was at a premium. That all changed 18 months ago as the global economy fell into recession.
Although the original NYK deal was derailed by the economic downturn, Farrell was criticized for unanticipated developments that saw the projected cost of the development expand from $800 million to $1.2 billion. The port has spent $190 million on property acquisition, engineering, environmental remediation and other pre-construction steps on the Blair Waterway site, although a large portion of the costs extended beyond the terminal footprint to allow other industrial development. Some property was acquired through eminent domain.
The NYK terminal alone was estimated to cost $300 million.
Port Commissioner Richard Marzano, a longshoreman who was up for re-election in November, said he didn't think the NYK deal should be a reflection on Farrell. But, he explained, one of the reasons the port director received a critical performance review last year was that incorrect assumptions were made about the amount of environmental remediation, utility relocation, and road and rail improvements required to prepare the industrial land for redevelopment.
Much of the land for the project is over a well-known former chemical plant with a large plume of underground contaminants that first must be cleared.
'When they started penciling out the costs, they were far greater than' assumed, Marzano said when reached by cell phone. Spreading the blame, he said the board and staff now all realize that future decisions need to be made on the basis of sound analysis and not assumptions.
Critics with ties to the port claim Farrell's mistake was rushing to conclude a deal with NYK and gain a new customer without properly scoping out the risks ahead of time.
'We knew (at the staff level) that costs were going to be much larger for the road-rail infrastructure portion' because the terminal negotiations were only based on preliminary planning documents, one former insider said.
The engineering firm that spent several months on the conceptual designs only spent about two weeks developing the specifications for the road and rail infrastructure before the port and NYK reached an agreement.
'The costs didn't necessarily balloon. They just weren't well known. When they came out in 2007, there was a great deal of anxiety to keep it secret' until the deal was finalized, the source said, speaking on condition of anonymity so as not to jeopardize job prospects or a separation agreement with the port.
The U.S. Environmental Protection Agency was upset over attempts to speed up development around the chemical site it had been trying to clean up for years, and asked the port not to proceed with engineering and architecture work before it had decided how to clean up the rest of the area, according to hometown paper The News Tribune.
When staff members raised questions about the cost they were told that some of the site preparation and infrastructure costs could be charged back to NYK. Although the lease included provisions for sharing common infrastructure and maintenance costs outside the terminal gate, what specific infrastructure and what percentage of that cost NYK would be responsible for was not spelled out, but was to be negotiated, according to the source.
The latest estimates put the infrastructure costs at about $100 million.
Officials also falsely assumed they could spread the costs to Totem Ocean Trailer Express, a major carrier in the Alaska trade, for repositioning its terminal and future tenants at an adjacent property on the Blair Waterway that was to be turned into a breakbulk facility. But TOTE rejected sharing any costs for being relocated to accommodate NYK because it was happy in its original location.
The port last summer completed the $44 million breakbulk terminal as a speculative development.
Another reason costs were unknown is that the port did not own all the property for the project and could not investigate the environmental conditions prior to purchase.
'We knew right away when they came out with the original announcement that it wasn't accurate, it was underestimated,' said an official who works in the marine terminal industry outside of Tacoma but didn't want to be identified because of ongoing business relations with the port.
As the port finally got a handle on its anticipated development costs, the big problem became the schedule. The port was under pressure to deliver a terminal by July 2012 because that's when NYK's lease was up in Seattle and the carrier didn't want to extend the arrangement for fear Seattle would jack up the interim rates, according to the former employee.
State experts determined that moving giant electric utility lines, as well as gas and sewer pipes, would take at least until 2014 or 2015. Port officials scrambled to see if they could stretch the schedule to help keep costs under control because of the complexity of co-locating many utilities.
Farrell acknowledged to the The News Tribune that relocating electrical lines proved much more expensive than anticipated, but said the port had a good sense of the environmental task it faced even though it hadn't determined a specific dollar figure for the job.
'The utilities are where we could have done a better job,' he told American Shipper. The land previously housed power-intensive facilities such as shipyards, chemical plants and saw mills, so the port assumed the electric capacity was in place without accounting for work required to deliver it to the exact new spot where it was needed, he added.
In summer 2008, the port checked to make sure NYK would need the full 168 acres at once or if the carrier would accept a temporary home at an existing terminal until construction on its dedicated facility could be completed. NYK was adamant that the port stick to the 2012 start date, the source said.
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| After NYK Line cancelled plans to occupy a 168-acre, purpose-built terminal, Executive Director Tim Farrell salvaged the situation by getting the carrier to agree to a long-term deal to use and underused terminal operated by APM Terminals. |
As the global economy cratered in fall 2008, port officials began to worry that NYK might not be able to deliver the 800,000 TEUs per year of anticipated throughput at the start of service. By the end of the year it became clear that NYK only expected to bring less than half the original volume to Tacoma, the former employee said. Discussions in late 2008 and early 2009 revolved around only building one wharf instead of two and then consolidating NYK at an existing terminal that is underutilized. The obvious solution came in March, when Maersk Line announced it would depart the APM Terminal in Tacoma and move to Seattle.
The new arrangement represents a price break for NYK, which was scheduled to make lease payments of more than $200,000 per acre per year, or $33.6 million, at a new dedicated terminal compared to APMT's arrangement of less than $90,000 per acre per year, according to an ex-manager.
The port's decision to enter into a cost-plus contract arrangement with NYK for construction of the terminal itself turned out to be wise, Commission President Clare Petrich said, because it forced both parties to reconsider moving toward construction when the economy sank.
Bottiger said it would be 'an oversimplification' to claim the NYK deal was only a casualty of the economy, but quickly added that 'Tim is an extremely capable guy that I don't think anybody wants to lose.'
Maytown Mess. In June 2008, the port authority pulled the plug on a $23 million real estate investment to build a 745-acre inland port in nearby Maytown in the face of vocal opposition from an environmental group and local residents concerned about truck traffic and other issues.
Port officials viewed an intermodal facility in rural Maytown, located about 30 miles southwest of Tacoma, as a way to quickly move cargo off the docks so it could be better sorted for final destinations and develop a logistics park. The decision was based on estimates at the time that the port would reach 6 million TEUs within a short period and need space to stage complete trains. Port claims that the park would create almost 2,000 jobs made little headway with opponents.
The Port of Tacoma has since put the parcel up for sale.
Marzano said the concept of a rail-served logistics park made sense, but that senior staff and the board failed to engage the community early on to make sure their concerns were addressed. He suggested residents might react differently now to the potential for more jobs in the midst of a recession.
The outcome also might have been different if Tacoma had taken the lead on the project instead of its partner, the Port of Olympia, according to a source familiar with the situation. Tacoma's strong environmental expertise would have gone a long way to cleaning up waste from the former ammunition plant at the site, but Olympia was allowed to take responsibility for shepherding the planning, land use and permitting process because the site was located in its jurisdiction of Thurston County, the source said.
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| Washington United Terminal at Port of Tacoma. |
Under Washington law, a port district can't do business in another port district without the involvement of the home district.
'I think more research should have been done before the sale was finalized, particularly in regards to the rail' expansion, Petrich said.
Farrell acknowledged as much, but said the port authority was under pressure to move quickly.
'At the time we discovered the site, the seller was in negotiations with another buyer. That competitive situation left us with less information than we would have liked' and not enough time to communicate with the community about the port's intentions, he said.
Don Meyer, a former port official who was elected Nov. 3 to an open port commission seat, criticized the Maytown project because the port bought the property without having clear entitlement for its intended purpose.
'You don't sink a bunch of money into something that you can't use,' he said. 'I think that's just fundamentally wrong.
'It's like buying a piece of property for an office building in a residential area, when it needs to be rezoned.'
Bottiger said the port is going to take a big financial hit on the Maytown property if it finds a buyer.
'If we're going to lose a lot of money I'm not going to vote to sell it,' Marzano said. The port has received two offers, he said.
The Port of Tacoma was also outmaneuvered in 2007 by Seattle-based terminal operator SSA Marine, which quietly acquired some property and struck a surprise deal with the Puyallob Indian tribe to build a $300 million marine terminal along the Blair Waterway on land coveted by the port for terminal development.
SSA is moving ahead with permitting and minor land improvements as originally planned, said Mark Knudson, the company's vice president for project development. The terminal management company will assess the market once the lengthy permit process is complete to determine when it makes sense to pour concrete, he said, adding the goal is be able to 'turn into construction mode at short notice' of customer interest.
The port is cooperating with SSA on planning, air quality assessments and information sharing because a private terminal would still fulfill its economic development and job creation mandate. (continue)