Northwest Seaport Alliance helps Seattle, Tacoma ports prioritize spending, grow cargo volume.
Earlier this year, the ports of Seattle and Tacoma combined their seaport cargo operations into a new entity called the Northwest Seaport Alliance.
With the shipping industry and the container-shipping business, in particular, going through major changes, John Wolfe, chief executive officer of the alliance, said the two ports have been forced “to look at things differently and to reinvent ourselves so we remain competitive.”
“Historically, we have competed with the Canadian gateways and the Southern California gateway and certainly the East Coast through the Panama Canal and here in Puget Sound with Seattle,” said Wolfe, formerly CEO of the Port of Tacoma, and an executive there since 2005.
“In a growth market that worked fine, because everyone was growing,” he said. “Back in the early to mid-2000s the competition between Tacoma and Seattle wasn’t so corrosive—there was enough growth for everyone. Then the recession hit, and that was a game-changer for all of us in the industry.”
In their drive to reduce operating costs, shipping lines have deployed larger ships and formed larger alliances to “return to profitability—or a least attempt to return to profitability,” Wolfe observed.
“Ports have been forced to respond to the changes in the marketplace. We need to make sure that the facilities that we provide for our terminal operators and labor partners and certainly our customers serve them well and that we provide best-in-class infrastructure,” he said.
Seattle and Tacoma are fortunate to have naturally deep water that can accommodate big ships which can draw 50 feet of depth, and their channels have little need for ongoing maintenance dredging, but Wolfe said some terminals require larger cranes, wharfs strengthened and other improvements.
While some berths need deepening, most of the sought after improvements will be on land—the ports’ container yards need to be large enough and set up in a way that they can move cargo from bigger ships carriers now deploy quickly through terminals.
Wolfe also said truck gates at some terminals require upgrading and “we need to make sure that the road and rail network connecting to the main line rail and to our major highway system works exceptionally well.
“As we look at those needs—and they are many—like every other gateway we have limited financial capability and there are less financial resources at the state and federal level that we can lean on. So we’ve got to be very strategic in where we make those investments,” Wolfe said.
“We want to take our competitive spirit and shift that focus to those other gateways and work together to make sure that as we invest in our facilities that we invest as a single gateway and by doing so we think that we can better respond to the customer’s needs,” he added.
The objective of the Northwest Seaport Alliance received support from regulators at the Federal Maritime Commission.
“I am pleased and I commend Seattle and Tacoma for moving in that direction,” said Mario Cordero, FMC chairman. “When you have ports serving a common region these types of alliances are necessary for port operations. Because the name of the game is: How do you best serve the region as opposed to focusing on a local rivalry or competition.”
While not an everyday occurrence, Seattle and Tacoma are seeing vessels call with capacities of as much as 10,000 to 12,000 TEUs, and some of the terminals at the two ports have the capability to handle 13,000-TEU to 14,000-TEU ships.
“Listening to our customers, we envision at least being able to have the facilities that we choose to invest in handling two 14,000-TEU vessels,” Wolfe said. “What we’re planning for is up to 18,000-TEU vessels. Whether we ever handle an 18,000-TEU vessel here in Puget Sound or not, we want to make sure we have that capability.”
Seattle has four international container terminals—Terminal 46 is operated by Hanjin Shipping’s Total Terminals International, Terminals 18 and 30 are both operated by SSA Terminals, and Terminal 5 is currently closed.
Tacoma’s terminals include the Husky Terminal, Olympic Container Terminal, Pierce County, and Washington United Terminal, and APM Terminal, which is currently being used to serve the Matson (formerly Horizon) containerships serving Alaska, as well as the TOTE Terminal, which is used by the Totem Ocean Trailer Express roll-on/roll-off service to Anchorage.
Wolfe said the goal of the new alliance is to have at least four major facilities, likely two in Seattle and two in Tacoma that will be able to handle two 14,000- to 18,000-TEU vessels simultaneously.
While there are terminals able to handle 14,000-TEU ships in the port today, he said they would still struggle to handle two of them at once. Achieving that goal will cost from $800 million to $1 billion over the next decade and the Northwest Seaport Alliance will have to prioritize where to spend the money, Wolfe said.
To illustrate the kind of work that needs to be done, consider Terminal 5 in Seattle where a massive renovation is expected to take until 2019. It will triple the size of containerships the facility is currently able to accommodate to 18,000 TEUs by increasing the outreach of the cranes from 145 feet to 210 feet and their height above dock from 90 feet to 146 feet. Under water, the berth will be deepened from 45-50 feet to 55 feet, and the bank below the terminal dock will be strengthened and a new toe wall will be constructed. The dock will also be strengthened to accommodate the larger cranes.
In Tacoma, there are plans to begin next year to straighten and rebuild Pier 4 at the Husky Terminal in the area the port calls the General Central Peninsula, so it can serve two of the world’s large containerships simultaneously.
What projects the combined ports prioritize “need to include conversations with our existing customers, because there are existing leases in place at each of those facilities,” Wolfe said. “We’ve got to work through the specifics of that with our customer base, and those conversations are just now beginning to move forward.”
Eventually the number of container terminals in the ports could be reduced from eight or nine to four facilities.
He said some terminal operators may want to merge operations or choose to serve a different book of business, noting one of the strengths of the port is the fact that it handles other types of cargo. In addition to containers, logs, breakbulk, automobiles, larger ro/ro cargo, and both dry and bulk freight are all part of the mix of business.
A Chinese consortium called NW Innovation Works is planning to build a plant in the Port of Tacoma at the site of a former Kaiser Aluminum smelter to convert natural gas into methanol for export, one of three it plans to construct in the Pacific Northwest.
London-based Drewry suggested in one of its newsletters last year “given carriers’ current need to raise cash by selling assets such as terminals” this might be a good time for such merger and acquisition activity in Seattle and Tacoma.
Gary Ryan, vice president of the Customs Brokers and International Freight Forwarders Association of Washington State, noted property values are skyrocketing in Seattle and expressed concern that when a tunnel project to replace the Alaska Way Viaduct along the city’s waterfront is complete, interest of developers in projects such as hotels and tourist attractions will redouble.
“I think we have seen a natural progression in all the major metropolitan areas, like San Francisco and New York, where the major steamship lines and international trade have moved elsewhere. In New York it’s over in New Jersey and in San Francisco it’s over in Oakland,” Ryan said.
With 5,000 acres of land in Tacoma, he expects cargo may eventually migrate from Seattle to the more southerly port.
But during a tour of the Seattle’s terminals and environs, port officials emphasized while some of the working waterfront is not very photogenic, it represents an enviable economic engine—in 2013 cargo moving through that port alone generated 11.6 percent of the state’s gross domestic product.
Seattle and Tacoma are landlord ports, with most terminals leasing port property, and the alliance can offer incentives to businesses as leases come up for renewal.
“We’re talking real money here, so we want to manage risk, and part of the way to manage and share risk is through mid- to long-term contracts that work for both sides,” Wolfe said.
Competition. Seattle and Tacoma have seen their share of West Coast container traffic decline over the past 15 years, from 16.5 percent in 2000 to 11.6 percent, according to an article in a Port of Tacoma magazine earlier this year.
Both ports compete not only with other U.S. ports on the West Coast, but those in Canada, and East Coast gateways, especially with the increase in all-water routings by container carriers.
Wolfe said “the challenges of the PMA-ILWU negotiations this last year didn’t help, didn’t help any of the U.S. West Coast gateways.”
In 2014, Seattle and Tacoma handled 3,427,561 TEUs, 3.9 percent fewer than in 2010. (However, through July this year volumes at the combined Seattle-Tacoma terminals are running 4 percent ahead of the same levels in the first seven months of 2014.)
“We have a pretty aggressive goal over the next 10 years to reach 6 million TEUs as a gateway, so we’ll need to have a robust investment plan around the terminals and infrastructure to support that,” Wolfe said.
American Association of Port Authorities’ statistics show that to the north, container volume is up 15.9 percent since 2010 in Vancouver, B.C., to 2.9 million TEUs in 2014, and in Prince Rupert, B.C., volume is up a whopping 80 percent since 2010 to 618,170 TEUs.
A volume spurt seems likely in the coming years at Prince Rupert. In March, the port announced plans to increase capacity at its Fairview Container Terminal from 850,000 TEUs to 1.35 million TEUs. In April, DP World said it would buy the terminal from Maher Terminals. And this fall Maersk and Mediterranean Shipping Co. are beginning service to the port from Asia. In the past, traffic has come from CKYHE carriers and their partners.
To the south, ports like Oakland and Portland, Ore., have seen stagnant or declining volume in recent years. Oakland’s 2014 volume of 2,346,460 TEUs was up less than 1 percent when compared to 2010. Portland volumes fell from 181,100 TEUs in 2010 to 164,900 TEUs last year, and this year will be a tiny fraction of that because both Hanjin and Hapag-Lloyd have cancelled their calls to the port.
In the first seven months of this year, Portland has handled just 21,303 TEUs. Much of the cargo that formerly moved through the Oregon port is now being routed through Seattle and Tacoma, with cargo being trucked up Interstate 5 or moved via rail by Northwest Container Services.
Further south, container volumes since 2010 were up 6.5 percent at Los Angeles to 8.3 million TEUs and up 8.9 percent in Long Beach to 6.8 million TEUs in 2014.
Los Angeles and Long Beach are major competitors to Seattle and Tacoma because all four ports compete for intermodal cargo.
The Southern California ports have some natural strengths, Wolfe acknowledged, such as their large local populations which attract the largest ships on the transpacific, and they can route cargo to both the upper Midwest and in the southern corridor, whereas Seattle and Tacoma primarily route intermodal cargo to the upper Midwest markets of Chicago and the Ohio Valley.
Canada. The Canadian ports “are wholesale eating our lunch,” said Dean McGrath, president of the International Longshore and Warehouse Union’s Local 23 in Tacoma, who added the Canadian government “got a lot of different agencies together and put resources around infrastructure, terminals, and railroad improvements. That was just a recipe for success.
“To put it flat simple, you can’t compete with that when your infrastructure is crumbling and aged. We are not investing,” he said.
Wolfe agrees the Canadians have “a real strong strategy that they’re deploying where they have the federal government understanding and financially supporting trade… in close coordination with the provincial government and the local government being the port authority and the terminal operators.
“That’s the opportunity that I see for us here in the United States,” he said. “We as a network of ports in the United States and our government agencies have talked quite a bit about a national freight strategy and what that looks like,” and he said what is needed is a “consistent funding mechanism to support that effort… We have some ground to make up relative to the Canadian gateway. I’m confident that we can get there, but there needs to be an urgency to that because the competition’s not going to wait and the customers aren’t going to wait for us.”
In July, Washington Gov. Jay Inslee signed a transportation investment bill that will be funded largely with a seven-cent increase in the gas tax that took effect in August and will jump another 4.9 cents next July. Projects will benefit both passenger car and truck traffic, but Inslee’s office highlighted the improvement of SR-167 and SR509 which he said would alleviate congestion and improve the competitiveness of ports.
With the formation of the alliance, “you might see a more robust interest by the state of Washington in the ports,” said John Martin, a Lancaster, Pa.-based consultant who last year prepared a report that estimated the two Puget Sound ports produce 48,134 jobs and create $4.1 billion in total income and re-spending. He said 442,563 jobs in the state are related to cargo moving through the two ports, most related to containerized cargo.
“Maybe Washington state will be able to get behind port infrastructure investments, the same way in certain states where maritime is important, like in Florida,” he added.
Martin said he has done work with the ports since 1987 and there has been “a change in attitude that they cannot go head-to-head against L.A./Long Beach.”
Intact Intermodal. In its 2012 Study of U.S. Inland Containerized Cargo Moving through Canadian and Mexican Seaports, the FMC cited research by University of California-Berkeley economist Robert E. Leachman that found “an inherent trade-off” between transportation and inventory cost.
Leachman’s study noted “small importers with few final destinations, and importers bringing in comparatively low-value products, tend to minimize their overall transportation and inventory costs by shipping inland directly from the port because they lack the scale or the scope to transload marine containers into larger but fewer domestic containers.” It’s commonly said that the contents of three 40-foot containers can be consolidated into two 53-foot domestic containers.
In contrast, Leachman said “nationwide importers who ship imports to multiple destinations, or importers who have moderate to high-value products and have sufficient overall volume, tend to minimize total transportation and inventory costs by transloading their imports in the immediate hinterland of one or more ports of entry.”
“Transloading of U.S.-bound cargo at a Canadian port of entry, however, is considered unfeasible because, if U.S.-bound containers were devanned in Canada, both Canadian and U.S. duties would be assessed,” the FMC reported.
Canadian shipments are exempt from the Harbor Maintenance Tax (HMT) charged on cargo moving through U.S. ports, and the FMC estimated “$109 was a reasonable approximation of the average weighted HMT charged per FEU at U.S. ports.”
Building off work that Leachman did on how an increase in fees might affect intermodal traffic volumes in Southern California, the FMC concluded if the HMT was imposed at the border on U.S. bound containers having used Canada’s West Coast ports, a portion of the U.S. cargo that comes through the ports of Vancouver and Prince Rupert likely would revert to using U.S. West Coast ports.
How much? In 2012, the FMC thought Leachman’s work suggested “up to half of the U.S. containers coming into Canada’s West Coast ports could revert to using U.S. West Coast ports if these fee adjustments were made.”
Legislation that would have imposed a fee similar to the HMT on all U.S. imports from overseas, including those routed through Canada, were proposed in 2013 by Sens. Patty Murray and Marie Cantwell of Washington state, but did not move forward.
FMC Commissioner Richard Lidinsky said the 2012 report found that reform of the HMT is a congressional decision to make, but he thinks “the long-term future of Seattle/Tacoma and again even going into California is going to depend on coming to grips with this Harbor Maintenance Tax.”
Declining Rail. The share of container traffic at the two Puget Sound ports arriving and departing by rail has declined from about 70 percent several years ago to 50 percent or 60 percent, Wolfe estimated.
He attributed that in large measure to a decline in “intact intermodal traffic,” some of which is now moving through Southern California ports, especially as the shipping market has softened and carriers seek to fill up the large ships they have calling Southern California from Asia.
“It’s hard for us to know with certainty because in the middle of that has been a minor shift from intact intermodal to transload. So we would track that as a truck move yet it’s a truck move to a warehouse where it’s converted into a 53-foot domestic box that goes to a railhead,” Wolfe said.
Hubert Weisenmaier, executive director of the American Import Shippers Association, which includes many apparel importers, said Seattle and Tacoma used to be an important entry point for mini-landbridge cargo that moved by ship to the Puget Sound and then by rail all the way to the East Coast.
But he said much of that cargo now moves directly by ship to East Coast ports, because all-water services to the East Coast have “fairly decent transit times and significantly lower rates.”
Weisenmaier thinks it will be challenging for all West Coast ports to recapture that East Coast business, unless carriers “bring mini-landbridge service back at reasonable rates and you have consistently shorter transit times on water.”
FMC’s Lidinsky said, “I subscribe to the view that someone at the Panama Canal told me, that if the rails could get along and create some favorable contracts, particularly in the Northwest area, there would be no worrying about canal diversions because everyone would want to come to the Northwest or California ports with good rail rates. But it just seems to be a problem that’s been with us for years that the rail relationship is very contentious and it certainly has had an impact over the years.”
Weisenmaier also said some importers are unhappy from their experiences during the labor negotiations in 2014 and earlier this year between the ILWU and its employers. He had some members who paid a premium for landbridge service only to have cargo hung up in Seattle or Tacoma during the negotiations when employers accused workers of slowdowns and employees said cargo was being backed up because employers slashed hours. Had those shippers routed the cargo to the East Coast with an all-water service rather than choosing more expensive mini-landbridge routings, their cargo would have arrived sooner and cheaper, he said.
“So I think those members probably won’t go back easily again,” Weisenmaier said.
Sara Mayes, president of Gemini Shippers Association, said her staff has found Seattle and Tacoma to be good alternatives for moving intact intermodal boxes to interior points and for local consumption, though this is a relatively small market for Gemini’s members.
They also said some shipper members have found carriers no longer offer a significant reduction in rates for moving cargo through Seattle/Tacoma and that some find Prince Rupert moves smoother or that rail rates from Vancouver are more attractive.
More companies are routing intermodal cargo through Los Angeles, including those that formerly used APL’s Terminal 5 in Seattle, though the Puget Sound ports benefitted during the past year from congestion in Los Angeles and Long Beach, Mayes said.
The Class I railroads Union Pacific and BNSF serve both ports and BNSF has been making massive investments in its northern corridor, adding double tracks, sidings and centralized traffic control that will result in higher speeds for intermodal trains traveling between Seattle/Tacoma and Chicago.
Wolfe said the Northwest Seaport Alliance is focused on “trying to strike a balance between imports and exports. It creates a more competitive situation for us here with the Class I railroads and equipment utilization and things of that nature. We have a robust export market here in the Pacific Northwest,” with the ports acting as a gateway for agricultural products such as animal feed, hay, fruit and potatoes. While the gap between imports and exports has narrowed in the past five years, he noted export volumes are dependent on market conditions and the value of the dollar.
Earlier this year, a group of 222 farm and forest product companies in Washington state organized by the Agriculture Transportation Coalition wrote to their congressional delegation to express frustration during the ILWU negotiations with employers, stating “continuous uncertainty, crippling congestion, ships skipping calls, random walk-outs and lock-outs have forced us to lay off Washingtonians, absorb huge financial losses, and prevented us from being able to export this year’s crop. In fact, the uncertainty is already causing foreign customers to cancel orders for future deliveries.”
Wolfe said the alliance is trying to rebuild relations with the state’s farmers and other exporters.
On the heels of the ILWU-PMA contract ratification this year, “We recently made a trip over to eastern Washington and visited with the exporters,” Wolfe said, and the presidents of the ILWU locals accompanied him.
“It was good for them to be able to interact with those customers and to hear firsthand what the customers expect of us as a gateway and how by working together we can achieve that best-in-class service so that we can create more jobs and economic wealth here. There was some straight talk that occurred, and that was good. The cargo owners didn’t point the finger at one entity. They recognize that the whole system was and maybe still is broken,” Wolfe said.
McGrath and other ILWU members also reached out to farmers this summer in an even more direct way by assisting communities hard hit by forest fires. They collected tens of thousands of dollars and bought supplies to distribute to firefighters on the front lines and volunteered for tasks like driving water tankers and coordinating logistics.
McGrath believes there needs to be a boost in spending on infrastructure in the state and increased cooperation between the players at the ports. Among the problems he sees are not enough chassis or chassis sharing through pools; insufficient planning by carriers before forming mega-alliances; global shipping and terminal companies not allowing enough local decision making to occur.
He sees the Seaport Alliance as a tool that the ports can use to force collaboration and take back control of the port.
Increased collaboration among diverse companies and other interests that rely on ports is getting a big push in the Port of New York and New Jersey, where a Council on Port Productivity has been formed, and in the ports of Los Angeles and Long Beach, where supply chain working groups were set up.
Seattle and Tacoma have created something similar, called the Executive Advisory Council.
“We invited representatives from the shipping lines, terminal operators, our labor partners, the trucking companies, the warehouse distribution companies, the railroads, both our switch operator and the Class I railroads, all into a room together—approximately 35 people from the industry and our staff,” Wolfe said.
Groups were formed around four main areas: waterside/vesselside operations, container terminal yard operations, drayage trucking, and rail operations.
They met with industry experts to discuss each area and brainstorm to identify one or two key initiatives that would raise the performance bar at the port gateway.
“Now we have a task force working on each of those key initiatives,” Wolfe said, adding that going forward the entire group will meet twice a year and each of the four groups will meet more regularly.
The Northwest Seaport Alliance also created an operations center with the goal of establishing “key measures of performance for our port gateway and then to work beside our customer base to provide visibility to all aspects of operations,” Wolfe said. “One of the things that we heard through our outreach program was that we need to improve the lines of communication and visibility to the movement of cargo through our gateway.
“So that operations center is focused on those two things: To improve the communication around day-to-day operations and to create visibility to the movement of cargo through the supply chain so that our customers can see at any point in time the status of their freight,” he said.
Wolfe noted that goal will take some time to achieve, but he said “imagine a point in time where you as a customer, a cargo owner, could go on to our website, access information about your container and understand at any point in time where it is in that logistics chain—whether it is on the vessel still, or been, say it’s an import, discharged into the yard. Is it sitting in the yard? Has it been picked up? When did it get picked up and by whom?”
Initial steps may be to provide shippers information about vessel arrivals, when cargo can be picked up at the terminal or if it has been loaded, and whether the gate at a terminal is congested.
Collaboration can be challenging, said the ILWU’s McGrath, who added “forming relationships with people that you don’t normally reach out to—I’m on a board in this port operations center with some people I really don’t care for, but we have to work together. And I’m sure they don’t care for me. We got to get past that and think what’s best for the region.”
This article was published in the October 2015 issue of American Shipper.
