Local ports gear up for a vast transformation in global trade

| FROM THE PRINT EDITION |
 
 

In its so-called century agenda, the Port of Seattle has established a 25-year goal of annual container volumes of more than 3.5 million TEUs, which are 20-foot equivalent units, the standard measurement in the container trade.

The Port of Tacoma’s goal is 3 million TEUs—a mark it hopes to reach in 10 years.

Are those objectives realistic? Are they even possible? The targets would be ambitious even in whatever constitutes normal times in international trade. The Port of Seattle’s volume for 2012 was just under 1.9 million TEUs; Tacoma’s was just over 1.7 million.

And these are decidedly not normal times in waterborne international trade. Recessions in the United States and Europe as well as slowing growth in China have cut the overall volume in trans-Pacific trade, the prime market for Northwest ports like Seattle and Tacoma. Shipping lines are adding more capacity to a fleet that many experts say already has too much; not surprisingly, those lines are trying to chase business with rate cutting, losing money in the process.

Meanwhile, international shipping patterns are shifting, with the expansion of the Panama Canal scheduled to happen in 2015, allowing a new generation of much larger container vessels to sail directly to the East Coast rather than unloading on the West Coast. Some ships from Asia are heading the other direction, through the Suez Canal.

But even with those trends, ports from British Columbia down the West Coast to Mexico, and along the Gulf and East coasts are pouring billions of dollars into expansion projects to snare a portion of the growth they’re certain is going to come. Seattle and Tacoma are part of the investment binge. The Port of Seattle’s current budget includes a project to build a dedicated truck route from East Marginal Way to a Union Pacific rail yard. Tacoma wants to redevelop the General Central Peninsula between the Blair and Sitcum waterways to handle larger ships and more cargo volume.

There’s a lot at stake for taxpayers who are footing the bill for expanding terminals and dredging channels, as well as adding rail mainlines and sorting yards on both North American coasts. Thus, two hugely important questions. First, is there going to be enough to go around for everyone? Second, where does that leave the ports of Seattle and Tacoma if there isn’t?

On the first question, Jim Kruse, director of the Center for Ports and Waterways at the Texas A&M Transportation Institute in Houston, believes trade is not growing fast enough to justify the number of major infrastructure and channel deepening projects in the works at ports around the country. “As vessels become larger, the economics of vessel operations will force them to stop at a reduced number of ports,” says Kruse. “The current construction frenzy is based more on a fear of getting left behind than on market-driven demand.”

Terri Danz, director of Auburn-based Dakini International Logistics and author of two e-books on importing and exporting, also thinks competition among ports will intensify in spite of no clear evidence of the need for it. “We’re just not seeing the type of year-on-year growth in import cargo or export cargo as we had prior to the recession,” she says. “There’s not a big enough pie for everyone to have the piece they want.”

Not surprisingly, officials with both the Port of Seattle and the Port of Tacoma believe there’s room for them even with the downturn and even with increased competition.

Boxed Set. Containers from Hanjin Shipping are stacked at the Port of Seattle.

“So much of it is going to be driven by what happens with the global economy and if we continue to see healthy growth,” says John Wolfe, the Port of Tacoma’s CEO. But he thinks Tacoma will do fine. “We’re going to capture, hopefully, our fair share [of trade growth], and as long as we continue to invest wisely in our ports and our region, [the projections are] realistic.”

The Port of Seattle is equally sanguine. “We’re counting on a combination of things” to achieve that 3.5 million-TEU goal, says Linda Styrk, managing director of the Port of Seattle’s seaport division. One is growth from customers already serving the port and doing so with increasingly bigger vessels; where once ships carrying 2,000 to 3,000 TEUs were normal, now 5,000- to 6,000-TEU loads are common, and the port has already handled some 9,000- to 10,000-TEU ships. “You can see just with the upsizing of vessels exponentially how you can increase the volume you might be handling in your port without even a change in mix of customers,” Styrk explains.

But both ports also want to add to their rosters of customers by adding calls from existing clients, becoming the first port of call for a carrier stopping at multiple West Coast gateways and bringing in new customers who over time might increase their service.

The problem for both Seattle and Tacoma is that dozens of other ports, from Prince Rupert in northern British Columbia to the ports on the East Coast anticipating additional cargo volumes with the completion of the Panama Canal project, have the same idea. While the two Puget Sound regional ports have generated headlines for targeting one another’s clients—the Grand Alliance moves from Seattle to Tacoma, Seattle signs Hanjin for an extended lease to keep it from moving—the bigger competitive threat for both is not each other but everyone else. The crucial issue is not so much whether shipping lines call on Seattle or Tacoma— although that obviously matters to the respective ports—but whether they call on Puget Sound at all.

All competitors have strengths and weaknesses in comparison to this region’s ports. The behemoth of the West Coast, for example, is the combination of Los Angeles and Long Beach. While the two are usually referred to as one entity, according to a Port of Long Beach website description, they are situated adjacent to each other on San Pedro Bay but are separately owned and operated.

L.A./Long Beach together handled four times as much container cargo last year as Seattle and Tacoma combined. One huge advantage those ports have over the Pacific Northwest is a home consumer market of, according to one definition, more than 12 million people, not including readily accessible markets like San Diego, Phoenix and Las Vegas. Both Wolfe and Styrk say the Puget Sound ports aren’t likely to challenge L.A./Long Beach for sheer volume of container cargo because of that population differential.

But the local ports have some competitive advantages of their own, they add, including cost and ease of operation and better access to important inland Ameerican markets, including the upper Midwest, Chicago and the Ohio Valley.

“The shipping lines prefer to have options,” Wolfe says. “The Pacific Northwest is a great second gateway on the West Coast for those shipping lines. They will want to continue to have options into the future.” Tacoma and Seattle can be that attractive option, he notes, “as long as we do our part to make sure that there is a cost-effective solution that has a high level of service for them to move goods through our gateway.”

Provided, of course, that shippers don’t look farther north for that alternative to Vancouver, B.C., and Prince Rupert, the latter a comparatively small but rapidly growing container port (see page 27). “The two ports to the north are much more of a threat than L.A./Long Beach,” Styrk says.

Canadian ports can offer access to the same United States markets as Seattle and Tacoma, often with smoother rail connections and without charging shippers the U.S. Harbor Maintenance Tax, Danz notes. “It’s not a huge amount on a per-container basis, depending on what the value of the cargo is, but Vancouver/ Prince Rupert don’t have it,” she says.

Vancouver, Wolfe adds, has “focused much of its growth opportunity within the container business on the U.S. market.” The port has also established a strong partnership with the railroads, he says. “They’ve been very aggressive and strategic in their approach and we can learn from them. We need to step up our game.” Interestingly, the emerging competitive threat that gets mentioned most often is one that causes the least heartburn for regional port executives. Not that they’re not watching what the Panama Canal project will mean, but increasingly, they believe that if shipping lines want an all-water route to the East Coast, they’re already operating it and any further impacts on West Coast ports will be minimal.

Aiming High. Container volume at the Port of Seattle last year was less than 1.9 million TEUs. Its 25-year goal is 3.5 million.

“BNSF believes the West Coast ports have a bright future,” says Steve Forsberg, a spokesman for the rail carrier that is one of two major lines serving Northwest ports. “We believe any significant shift in all-water intermodal traffic through the Panama Canal has already occurred.” Forsberg argues that it’s faster for freight to go through West Coast ports and then by rail to the Midwest and Ohio Valley than for it to go by rail from East Coast ports. Vessels can also return more quickly to Asia from the West Coast.

Even cargo going to the East Coast could be better served through West Coast ports. “The all-water routes via the Panama Canal will be a bit cheaper than routing to the eastern part of the U.S. by rail over the West Coast ports,” Danz agrees, “[but] the transit time differences are negligible—less than a week for most points—and importers are usually unwilling to pay the premium to save a few days.” Those importers that can afford the slightly longer transit time of going by water to the East Coast are already using the all-water route, she says. She doesn’t expect the wider Panama Canal to attract all that much additional traffic.

And while the large West Coast ports can already handle the huge post-Panama vessels, few East Coast ports and no Gulf Coast ports have the water depth to take those ships without costly dredging. Some of the newer container ships are too large even for the expanded canal.

The expanded canal could actually present new opportunities for the Puget Sound ports. Styrk, for example, thinks expanding market areas like South America could choose to deliver their products through the Panama Canal directly to the West Coast.

Shifts in global production and shipping patterns could also benefit West Coast ports. As China becomes a more expensive place in which to operate, some production is moving to Southeast Asian countries like Vietnam and Indonesia. Shippers there may look at a westbound all-water route to the United States via the Suez Canal. Says Kruse, “It is quite possible that Southeast Asia/India-U.S. trade could surpass Asia-West Coast trade at some point.”

Whatever the specific impacts of individual shifts, trends and challenges, the sum total for Northwest ports is that they’ll need to make sure they move cargo from boat to train or truck quickly, efficiently and inexpensively. The pressure to do so is increasing as shipping lines practice what’s known as slow-steaming, reducing their speed on the water in order to save on fuel consumption, with the expectation of fast turnaround at the port to make up some of the delay.

Says Danz, “They [the local ports] need to focus on the Midwest [and] keep the fees to a minimum. They’ve done a lot of great work with clean truck programs that don’t cost the way L.A./Long Beach did. They do a great job of keeping things as cost-effective for importers and exporters as possible.”

These issues are top of the list for Styrk and Wolfe as well. “We want to stay well connected with the railroads wherever we can to influence competitive inland rail rates so that we don’t have any competitive disadvantages with the rail rates being charged by the Canadian railroads or [in] Southern California,” Styrk says. The Port of Seattle is both investing in technology so that the time it takes to move a box off a ship and onto a truck is as short as possible, and pushing highway investment so the transit time to a warehouse or rail yard isn’t bloated by traffic snarls—hence, its public fight over the proposed SoDo arena in Seattle.

“Anytime we can keep the wheels rolling on a truck, then that means any customer that’s sending trucks in and out of our terminals can get more truck moves per day and that help keeps their trucking costs down and maximizes the use of the people they employ,” Styrk says.

The two ports also favor major highway projects, including links to I-5 for State Routes 167 and 509, and at the federal level for some relief on the harbor maintenance tax.

Wolfe sees two other opportunities for Northwest ports. One is exports. “We’re becoming a food supplier to the world,” he says. “We’re fortunate in Eastern Washington to have an abundance of agricultural products the world has a demand for. We certainly need the imports to support the exports because we need the equipment and the vessel services calling here in Puget Sound to take full advantage of those export opportunities [that] are only going to grow.”

The other prospect is to diversify beyond containers. Tacoma has five auto importers as customers and foresees growth in its bulk-cargo business.

But Tacoma and Seattle will have to work for that business. “Rates are dropping like crazy” among shipping lines as they struggle to hold on to business, says Danz. In order to cut costs and make money, or at least pare losses, shipping lines are putting pressure on ports and terminal operators.

“We do really well when our customers are doing well,” Wolfe says. “Shipping lines are struggling, terminal operators we lease to are struggling because they need more volume. We’re still crawling out of this difficult recession. We’ve got a ways to go. … It’s still a challenging business.”

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