The ports of Tacoma and Seattle, for decades rivals in attracting shipping business, Tuesday announced their intention to form a single seaport alliance to manage the marine terminals and operations of both ports.
The alliance was born out of a series of confidential meetings held between the two port commissions over the past several months. The announcement of the new alliance was made in a joint news conference in Renton Tuesday morning.
According to the two ports, Port of Tacoma Chief Executive Officer John Wolfe will head the alliance. That alliance will jointly market and operate the marine terminals of both ports as a single entity.
Wolfe said it remains to be determined whether he will continue to serve as the Port of Tacoma chief executive as well as the alliance CEO or whether he will give up his Tacoma post to assume the new post.
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“That’s all part of the due diligence process that we will undertake over the next few months,” he said. “There has been discussion both ways.”
The alliance stops short of a merger. Both ports will retain their respective port commissions. They will decide later this year how the profits and costs will be divided between the two ports. The two ports will retain ownership of the terminals and other marine assets in each of the two ports.
The new alliance will focus on attracting business now calling at ports outside Puget Sound.
“Where we were once rivals, we now intend to be partners,” Stephanie Bowman, co-president of the Port of Seattle Commission, said during a news conference. “Instead of competing against one another, we are combining our strengths to create the strongest maritime gateway in North America.” Bowman was once a Port of Tacoma executive.
Much detail of how the new alliance will operate remains to be decided in the next few months as each port assigns staff members to work out the particulars of the deal.
“Now the real work begins,” said Port of Tacoma Commission President Clare Petrich.
Petrich said major alliance decisions will likely require a majority vote by both five-member commissions. That means at least three members of each body would have to vote in favor of a resolution for that resolution to pass.
The two ports, which collectively are the third-largest port for container shipments in the country, are making the move to meet a changing shipping industry environment which is threatening their market share.
Canada’s ports, such as Prince Rupert and Vancouver, as well as East Coast U.S. ports have been gaining market share. . The Canadians enjoy an advantage in part because of lower import taxes there. The East Coast will benefit from an expanded Panama Canal.
Container shipping companies are forming ever-larger alliances in the face of declining profitability and over-capacity, joining to share capacity on certain trade routes and common terminals in major ports. Those alliances give shipping lines greater clout in negotiating deals with ports for terminal capacity.
The two ports share many of the same issues: road and rail capacity improvement efforts to move goods more quickly from their docks to the markets in the Midwest and East, changes needed in the federal Harbor Maintenance Tax to put Puget Sound ports on a more competitive ground compared with Canadian ports, and funding needed improvements to terminals to handle ever-larger container ships.
Historically, the two Puget Sound ports have competed vigorously, stealing customers periodically from each other. . Most recently, the Port of Tacoma attracted the Grand Alliance to its Washington United Terminal from Seattle. Two years before that, Maersk Lines, one of Tacoma’s larger container shipping customers, moved to the Port of Seattle when it joined in a new alliance with French shipping line CMA CGM.
The process of reaching the alliance announced Tuesday wasn’t always easy, said Petrich, but in the end, both ruling bodies were focused on the ultimate objective of creating more jobs for the region.
“We’re lucky that we had such dedicated commission members,” Petrich said.
STRUCTURAL DESIGN NEXT
During the next several months, staff members will work on the details of the new structure such as salary and benefit levels for staffers, job assignments and the basic framework for decision making.
The Tacoma commission president said she expects that such necessary functions such as human resources, financial accounting and information technology will be contracted out to the ports rather than creating a new department within the alliance.
One of the major decisions to be made will be reaching a consensus on what computer system the alliance will use. The two ports have different computer systems.
When the specifics are worked out, the Federal Maritime Commission will have to approve the final agreement. The ports said they won’t be laying off any personnel because of the new alliance. Specific job assignments have yet to be decided.
"Our purpose for scope, function and terms of the Seaport Alliance is to enhance regional job creation by anticipating the needs of our of our maritime cargo customers and marshaling our resources and joint capacities to continue to provide the marketplace with the highest quality service and infrastructure, and thereby serving as sound stewards of the public's assets," the two ports said in a letter to the Federal Maritime Commission.
The alliance does not cover port operations beyond the maritime shipping business. Both ports have other operations outside that core business. The Port of Seattle, for instance, operates and owns Sea-Tac Airport, pleasure boat marinas, two cruise ship terminals and a fishing fleet facility. Both ports own and manage real estate leased for industrial purposes such as shipyards, retail operations and industrial development.
PUBLIC HEARINGS PROMISED
The ports, who have been criticized and sued for holding joint meetings in private, said they intend to hold public hearings to allow stakeholders, citizens and taxpayers to comment on their initial plans. Once the FMC approves the initial agreement framework, some employees of each port will shift to the Seaport Alliance. Others will continue to work for each port's maritime division.
The new alliance, if the political details can be ironed out, could be a model for other rival U.S. ports such as Long Beach and Los Angeles in California and Savannah and Charleston in the Southeast.
Perhaps most difficult to engineer will be the process for deciding which port will compete for particular new business. The shipping industry, for instance, is moving to larger vessels that carry as many as 18,000 container units. Neither port now could comfortably handle a ship of that size, but both ports now have plans to build or update terminals to accommodate much larger vessels.
Given the huge costs of renovating a terminal for such ships, how would the Seaport Alliance decide which port would make the investment remains an open political question.
Pierce County Executive Pat McCarthy said in a statement Tuesday: “I’m cautiously optimistic that this alliance will be a step toward improved economic prosperity for the region, though I am highly interested in the details that remain to be worked out.”
The two ports expect to have a specific agreement drafted by mid-March. Both commissions will have to approve the formation of the alliance in a formal, public vote.