Ports of Seattle, Tacoma face sea change in rivalry

Shifting maritime economy, growing competition, larger ships are pushing Puget Sound rivals into a shotgun marriage of sorts

Staff writerMay 23, 2014 

A leaner landscape in the maritime industry is redrawing the business plans of Puget Sound’s two largest ports, Tacoma and Seattle, and forcing them into an uncomfortable embrace to pursue new business.

Those realignment efforts include actions that in recent history would have been unusual if not unthinkable: shutting down terminals, putting aside competition to attract more business to the Northwest, and turning up the political heat in the nation’s capital to alter the stagnant import tax structure. The ports’ individual strategies are different in Seattle and Tacoma, but the desired results are the same: Make their assets more competitive.

The Port of Seattle Commission is expected to take a major step toward making itself more attractive to shipping lines June 3 as it considers shutting down Terminal 5. That shutdown would allow the port to upgrade Terminal 5 to handle the megaships expected to enter the trans-Pacific trade soon.

“If we’re going to keep jobs in Washington state, we need investments that make us globally competitive,” said Port of Seattle Commissioner Bill Bryant. “That’s why we’re rebuilding T5.

Meanwhile at the Port of Tacoma, the port is already begun upgrades to its Terminal 3 and 4 complex to handle those same kinds of huge ships.

And the port is also working hard to wean itself away from the container shipping business monoculture on which it had previously based its growth.

“We’re more than a container port,” Port of Tacoma Chief Executive Officer John Wolfe said. “We have to diversify to contain our risk.”

After years of buying up and cleaning up chemical plants and manufacturers, the Port of Tacoma is once again seeking out heavy industry to balance its portfolio.

Earlier this month, port commissioners approved a lease deal with Northwest Innovation Works, a multinational consortium of oil and chemical companies, to use the former Kaiser Aluminum smelter site to build a methanol plant. That plant is projected to cost $1.8 billion, making it the most expensive new plant built in Pierce County in decades, if not in history. The plant will convert natural gas into methanol. About 1,000 workers would be employed during the plant’s three-year construction period, and more than 200 would work there once production began.

Besides the two ports’ individual initiatives, the traditional rivals have taken the extraordinary step of seeking and receiving antitrust immunity to discuss how to defend their market share in the shipping business. The two port commissions met earlier this month for the first time to begin those discussions.

LONG ROAD OF RECOVERY

What’s driving this suddenly accelerated activity are the lingering effects of the recession.

“The last two years have been the most volatile in the shipping business as any in the last 30 years,” said Bill Mongelluzo, senior editor at the Journal of Commerce.

When the recession hit, the Port of Tacoma lost nearly 25 percent of its container business. By last year, the Port of Tacoma’s container numbers had rebounded to 1.89 million, but that was still short of the more than 2 million that crossed the docks in 2005.

The Port of Seattle also saw a marked decline. In 2010, the Port of Seattle handled 2.15 million container units. Last year the Seattle port handled 1.59 million.

Part of Seattle’s decline and part of Tacoma’s rebound was the result in part of the two ports competing for a big customer, the Grand Alliance, a consortium of four shipping lines. Tacoma won that competition, and the Grand Alliance two years ago moved to the Port of Tacoma’s Washington United Terminal from Seattle.

But while the two ports compete for each other’s customers, they’ve not been so successful in attracting new business from outside the region. Puget Sound, the nation’s third-largest container shipping gateway after Los Angeles-Long Beach and New York-New Jersey, continues to lose market share.

According to the Pacific Maritime Association, the ports of Los Angeles and Long Beach together handled 67.7 percent of the West Coast’s container traffic in 2005. Seattle and Tacoma that same year handled 19.7 percent of the traffic.

Last year, the Los Angeles-Long Beach share of the container traffic had grown to 70.6 percent while Seattle-Tacoma traffic had declined to 16.2 percent.

And things could get worse.

NEW LANDSCAPE

In the wake of the recession, a new maritime landscape has emerged marked by overcapacity and stagnant growth:

  • Container shipping has become a money-losing business. Global shipping lines have lost money in four of the past five years.
  • Too many ships are chasing too little cargo. Shipping lines are swamped with overcapacity.
  • Shipyards are offering bargains. Asian shipbuilders have lowered the price for ships while at the same time increasing the ships’ size. The largest containership being built in 2008 cost about $180 million. Today, those same ships can be bought for $110 million. Today 83 ships sized between 13,300 and 19,000 container units are on order worldwide.
  • Bigger ships cut costs. Shipping lines see the economics of the larger ships and order them despite having too much capacity already.The largest of the new ships, Maersk Lines “Triple E” ships, are three times as large as the typical ships calling on Tacoma and Seattle now.
  • Shipping lines are forming larger alliances. Three huge shipping line alliances, P3, G6 and CKYH, now control about 80 percent of the cargo. The lines within those alliances share capacity on popular trade routes.
  • Foreign port competitors are improving their games. The Canadian port of Prince Rupert, B.C., 500 miles north of the border, wasn’t a factor in the competition for cargoes a decade ago, Now it handles more than half a million container units a year. Canadian railroads have been offering bargain rates to move containers east.
  • The U.S. Harbor Maintenance Tax of about $100 per container is levied on containers arriving at U.S. ports. Canadian ports have no similar tax.
  • The Panama and Suez canals offer cheaper routes from the Far East to the U.S. East Coast. The Panama Canal will open a larger route in 2016 that will handle ships of up to 12,500-container capacity.

POTENTIAL SOLUTIONS

The ports are attacking those problems from several angles:

  • Improving existing terminals. The ports are upgrading Seattle’s Terminal 5 and Tacoma’s Terminals 3 and 4. The most immediate needs there are for larger cranes that can reach across wider ships and deeper water to accommodate the 55-foot draft of the largest vessels.
  • Automating terminals. In Europe and Asia container terminals employ advanced equipment such as cranes that can lift two containers simultaneously and robot carts that carry containers to automated stacking cranes or directly to train cars. That technology is both pricey and politically touchy. The Longshore Union, which is in the midst of negotiations for a new contract, would also have to agree to that level of automation because it would reduce the workforce.
  • Lobbying for reforms to the Harbor Maintenance Tax. Washington Sens. Patty Murray and Maria Cantwell last week pushed through an amendment to a water resources bill that for the first time would allocate $25 million of the $800 million collected annually from the Harbor Maintenance Tax to so-called “donor ports” like Tacoma and Seattle. The two ports have been receiving none of the tax money.
  • Creating an effective cooperation scheme that satisfies hometown interests while presenting a united front to the large alliances shopping for cheaper and more efficient gateways for their cargo. Port commissioners at both ports are not yet talking specifics of how their new cooperative relationship will work, but they acknowledge that the two ports need to focus their competitive energies on other ports, not at each other.

“Our ability to be adaptable to the changing business environment is the key to our success,” said the Port of Tacoma’s Wolfe.

John Gillie: 253-597-8663
john.gillie@thenewstribune.com

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