Ted Fick Is Making the Port of Seattle More Businesslike
The CEO is getting results in his bid to create more transparency.
March 22, 2016
STEPHEN H. DUNPHY
Last summer, Norwegian Cruise Lines approached the Port of Seattle with a plan. The company wanted to expand its Alaska cruise business by using much larger ships and wanted the port to upgrade Pier 66 so the 5,500 people on board each ship and all their luggage could be quickly loaded and unloaded.
The port was interested. After all, the 900,000 cruise ship passengers who passed through Seattle in 2015 spent $441 million at local businesses, and this deal would mean thousands more passengers coming through. But the upgrade would cost $30 million and the construction would take the port four years to complete. Norwegian wanted it done in two.
Ted J. Fick, a Tacoma native who had been appointed CEO of the port just a year before, was undeterred.
Working directly with the top executives at Norwegian, he set about making a deal. I wasnt interested in spending $30 million on a new look for the dock, says Fick. I talked to them of getting their skin in the game.
In just 10 weeks, Port officials fashioned an innovative deal: Norwegian committed to a 15-year lease instead of its normal year-to-year lease; it agreed to handle the dock upgrades, which it could complete in half the time it would take the Port; and Norwegian would even pay half the cost of the project.
It was the first time a cruise line had made that kind of commitment to and investment in Seattle. It was also the first time the Port has stepped beyond its usual insular, bureaucratic culture to take a risk.
I dont know of any public agency that has moved that fast, says Fick. I wanted to show whats possible when the private and public sectors go after something with a sense of urgency. We are coming to grips with our need to build infrastructure to take advantage of all this economic growth we have. We need to make the Port a high-performance organization.
Fick, the first Port of Seattle CEO to come from the industrial sector he has had extensive business experience in manufacturing, including leadership positions at Paccar, the Bellevue-based truck giant is tapping his private-sector expertise to create a metamorphosis of the organization. The Port was once known for bureaucratic decision-making, bloated overspending and a circle-the-wagons mindset; Fick wants to transform the organization and its 1,800 employees into a growth-oriented, entrepreneurial enterprise that can serve as a powerful engine of economic development.
If he succeeds, the impact could be huge. According to a 2014 report, existing Port businesses generated 216,000 direct and indirect jobs, $9.6 billion in personal income, $19.8 billion in business revenues and $894 million in taxes. The Ports 2012 Century Agenda set a target of adding 100,000 additional jobs within 25 years while still reducing its environmental footprint. With the growth, the finances and the talent that we have, we think we can move far faster and accomplish this in 10 years, Fick says confidently.
To accomplish this, Fick says he needs to continue transforming the Port into a high-performance organization, a semipublic agency that sheds past behaviors and takes advantage of the best of private-sector practices. He started off by flattening the organization.
Where the seaport, airport and real estate divisions once operated autonomously, almost as separate businesses, Fick wants to create a single company. To streamline and speed decision making, he now has 11 directors of port operations reporting directly to him. He made the surprising many say brilliant choice of David Freiboth, executive secretary of the M.L. King County Labor Council, as the Ports new senior director of labor relations and gave recognition to the importance of the position by giving Freiboth a seat at the CEOs table.
He wasnt afraid to go into the lions den, says one observer of Ficks choice.
Fick created a new Office of Economic Development that now includes the real estate division as well as the airports retail operations and is tasked with leveraging Port assets to create more middle-class jobs. Among the few new executives pulled from within the Ports ranks is the head of the Maritime Division, Lindsay Pulsifer, a 30-year port veteran. A new Office of Strategic Initiatives will launch Kaizen, or lean, initiatives throughout the organization to improve efficiency and cut costs.
Fick is eliminating redundancy by creating centers of expertise so that functions such as accounting, business development and public relations, which once had separate departments in every line of business, now serve the whole entity. When the maritime group was negotiating the deal with Norwegian Cruise Lines, Fick says he really would have loved that business-development team from the airport available. They were the team that had some savvy.
So far hes getting rave reviews. We were looking for someone who would be able to manage change in a large, complex organization, says John Creighton of the Port of Seattle Commission, whose five members are publicly elected. Im thrilled with the direction Ted is taking us.
Its hard to overstate just how radical a departure these initiatives represent. During its 105 years, the Port of Seattle has faced some large challenges, starting with the battle between residents and railroads in the early 1900s over control of the waterfront. It created Harbor Island from the muck of Denny Hill and it was among the first to invest in facilities to handle the arrival of container ships in the 1960s, making it a leader in intermodal shipping.
But the Port always seemed to have a reputation. Under Zeger van Asch van Wijck, a former executive at the Port of Rotterdam, there was a dustup with The Seattle Times over releasing salary information, a no-brainer for a public organization. Under Mic Dinsmore, who was promoted from within and ran the Port for 14 years, there were questions about his domineering management style. A state audit raised serious questions, but they were eventually settled. Nonetheless, during his tenure, Dinsmore showed the entrepreneurial side of the Port, improving seaport terminals, expanding Seattle-Tacoma International Air-port and ushering in the new cruise business. Tay Yoshitani, the former deputy director of the Port of Los Angeles, the next CEO, swung to the opposite extreme, imposing rules that stifled initiative. Yoshitani spent his final days dealing with criticism after Port commissioners allowed him to moonlight as a director of Expeditors International, with cash and stock pay totaling $230,000 on top of his Port salary.
So Fick knows he has challenges ahead transforming the Port. A recent survey of its top 300 employees found disturbing results. We had become a very avoidance-based culture, Fick explains. People were afraid to make decisions, afraid of making a mistake.
While there needs to be structure and discipline, he adds, We need to encourage innovative thinking, entrepreneurship and risk taking.
Fick also has his own issues with audits. In January, a Port of Seattle audit found the lax management of dispatch and taxi services at the airport allowed underreporting of receipts and, consequently, underpaying the Port.
Perhaps nowhere is that risk-taking challenge more crucial than in responding to the surge in passenger traffic at Sea-Tac, plus capitalizing on the fact that the airport is the Ports largest single asset. The airport generated $323 million in revenue in the first nine months of 2015, more than 75 percent of the Ports total revenue. In 2015, about 42 million passengers passed through the airport, up 30 percent from 2012. In 2014, the Port projected that the passenger count would grow to 66 million by 2034, but almost half of the growth that was expected during five years is likely to occur in two.
Many analysts now expect the airport to hit that 66 million number far sooner. Pressure is mounting to act. If the Port doesnt move quickly to add capacity, Fick predicts, The airlines wont keep bringing us new routes. We have growth now, but its fragile.
Sea-Tac plans to add 35 new gates, about a 40 percent increase over the current 88. Already, nearly $2 billion in new investment projects are underway, including renovation of the north satellite ($522 million), a new international facility ($608 million), a re-constructed center runway ($95 million) and a new, centralized, highly efficient baggage system ($320 million). Longer term, the airport expects to spend at least an additional $10 billion and perhaps as much as $20 billion to $40 billion to handle all the new traffic.
The challenge is that all this growth has to occur in a relatively small footprint for a major airport. Sea-Tac still has the unflattering distinction of being the only major airport still operating from a single terminal. Hangars will have to be moved to make room for new terminals. One proposal even calls for lopping three floors off the adjacent parking garage to accommodate a new airport drive. Although the Port has suggested the cost will be upward of $12 billion, some insiders say it could be more than twice that amount.
Supervising that expansion will be Lance Lyttle, Sea-Tacs new managing director. Lyttle replaces Mark Reis, who ran Sea-Tac for 11 years. He has overseen $3.5 billion in improvements as COO of the Houston Airport System. He also has been chief strategy and performance officer at Hartsfield-Jackson Atlanta International Airport, the nations largest.
Lyttle is an example of Ficks strategic thinking in hiring. He has experience with competing airlines in the battle between United and Southwest in Houston, meaning he may be the right person to balance demands from a surging Delta Air Lines and its growing international hub with preserving the Ports long relationship with home-grown Alaska Airlines.
Under Ficks new organization, retail space at the airport rests under the purview of the Office of Economic Development. As 90 percent of leases end and the airport undergoes reconstruction, it is looking at a major overhaul of retail operations, including fresh food offerings and spreading retail throughout the facility. The ideas include new kinds of dining spaces, adding an upper level in the central terminal, spreading out nail salons and massage areas, and adding grocery stores, fresh-food spaces, cheese stores, sushi restaurants and tech locations. These changes, in effect, would create a world-class international airport.
The key to this vision is a new international terminal helping to cement Seattle as a global hub. The existing area is unchanged since the 1970s and often an area of congestion, especially for arriving passengers.
After spinning off its large and troubled container business to the new Northwest Seaport Alliance, which now operates the container terminals of both Seattle and Tacoma under the direction of the commissioners of the two ports, Port of Seattle executives and the Port Commission now play a much different role.
If the airport is the biggest money maker and growth sector, the container business has been a drain on the Ports resources. That situation only worsened when a recent labor slowdown led many shippers to divert cargo through competing ports in British Columbia. Seattle also suffers from productivity that is less than half that of highly automated facilities such as Long Beach, California. Traffic congestion in Seattle and frequent delays on routes through the Cascades also hurt the seaports competitiveness. At the same time, the cost to move a container from Asia to the West Coast has dropped from $1,150 in 2014 to about $650 today. Theres a margin squeeze for someone, notes Fick.
The Northwest Seaport Alliance, now operating under the management of Port of Tacoma CEO John Wolfe, should help increase efficiency by eliminating a past tendency to over-build capacity to handle container traffic and then compete on price to attract shippers to those terminals.
This alliance will decide where, for example, it will invest to build expensive mega terminals to handle huge container ships. Mega terminals for mega ships are becoming a must for any port participating in major deep-sea trade lanes, and so Seattle-Tacoma is no exception, says Neil Davidson, an analyst with Drewry Maritime Research, a London-based company that follows the shipping industry.
The Port of Seattle expects to invest as much as $300 million to convert Terminal 5 on Harbor Island for the big ships, while Tacoma intends to make its Terminal 4 a mega terminal. We also are looking at improving container terminals in both harbors to accommodate up to the 18,000- to 20,000-TEU ships being built today, says Wolfe. TEUs are 20-foot equivalent units, a method of measuring cargo capacity.
New, highly automated terminals planned for Harbor Island, Fick observes, will likely be able to handle virtually all of Seattles container traffic volume and could lead the alliance to shut down Terminal 46, near the SoDo-Stadium district, when Hanjin Shipping Co.s lease ends in 2025. But Fick and the Port may have other plans for the area. Asked about Terminal 46, Fick says cautiously that he would more likely be a buyer than a seller.
The shrinking footprint of the seaport Terminal 46 itself covers 82 acres could open up more of the Ports 4,024 acres. Its the second-largest landholder in Seattle after the University of Washington. What Ive learned since Ive been here is that my job is not just about running a financially successful port, but its about the economic development component, says Fick. Its the job creation, workforce development and environmental stewardship.
Studies are underway on how best to use about 60 open acres at Interbay and the 82 acres that could become available at Pier 46.
Fick has asked the Office of Economic Development to create a real estate strategic plan that considers how the Port should use its empty land, as well as consider what property it should consider acquiring to support the five key clusters that we think are important for middle-wage jobs: aviation, manufacturing, construction, aerospace and fisheries.
Since he has had little experience in economic development, Fick hired Dave McFadden, who helped build out Yakimas wine-tasting attractions, to create a strategy for the Port. McFadden has had Fick traveling the state to talk with mayors and port directors about how the Port of Seattle can partner with them. When Dave Kaplan, the mayor of Des Moines, asked for help building a stronger commercial base, the Port let the city establish Des Moines Creek Business Park on 87 acres of Port of Seattle land south of Sea-Tac Airport. Fick even helped the city land its first major tenant, the Federal Aviation Administration.
Now, 1,600 people will come to work in Des Moines that used to work elsewhere, … so now youll have restaurants, hotels, car dealerships, says Fick. The developer, Panattoni, also plans to build up to two million square feet of manufacturing, distribution and office buildings at the site.
A similar deal is in the works in Burien. Fick has also pushed his people to work with the FAA to provide incentives, such as no fees for the first two years, to any airline that restores service to any city that has lost it. So far, Port Angeles and Moses Lake have had service restored by SeaPort Airlines under the plan.
Fishermens Terminal, home to the Bering Sea fishing fleet, provides another example of Ficks push for economic development.
We have 500 vessels homeported here and theyre looking at recapitalizing that fleet, says Fick. Id like to see us get some of that work. Id like to bring shipbuilding back.
Fick adds hes meeting with boatbuilders to determine the level of interest in taking a stake in a project to bring back as many as 1,000 jobs in boatbuilding. These are core, middle-class jobs, he says. We want to provide the job training and infrastructure so the maritime, aerospace and manufacturing sectors can thrive.
Its an unusual idea maybe even impractical but a more efficient organization making quick decisions and taking a fresh look at new opportunities will go a long way toward making the Port a powerful player in economic development across the state.