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Bill Virgin: Answers, strategy needed with new Northwest port alliance

Quick quiz: Which of these two recent headlines is of greater long-term significance to the region’s ports, its international trade sector and its economy?

Headline No. 1: “Tacoma, Seattle ports agree on final Northwest Seaport Alliance details” (The News Tribune, Aug. 5).

Headline No. 2: “China to Step Up Its Stock-Market Rescue Moves; Government to increase its stock purchases to prop up the equities market following sharp sell-off” (The Wall Street Journal, July 27).

All right, it’s summer, it’s been hot, so we took it easy on you. We couldn’t have made it more obvious if we’d circled the answer (Headline No. 2) in red pencil and drawn stars and arrows around it.

Headline No. 1 signified a non-event, a celebration of this region’s one competitive advantage — the ability to generate more self-congratulatory rhetoric than any other corner of the planet.

The alliance of the seaport operations of Tacoma and Seattle represents “a 21st century example of doing it right … a tremendously bold choice … a historic day,” according to the flowery praise from commissioners of the two ports, as detailed in C.R. Roberts’ story from last week.

Of course the alliance represents none of that. It does nothing, as has been discussed in this space previously, to address the competitive challenges of cost, efficiency and reliability that in many cases the ports have no control over, as was demonstrated all too visibly and painfully earlier this year.

Dismiss that view as carping or lacking in vision if you want, but the numbers and trends say something else. Zepol Corp., a Minneapolis outfit that compiles trade data, recently reported that “a hefty chunk of businesses have switched from using Pacific to Atlantic and Gulf ports this year. Total imports along the East Coast have increased by 15 percent, while import traffic on the West Coast is down 4 percent.” The comparison is January to June for 2015 vs. the same period a year ago.

China, not surprisingly, was the main driver, with container volumes growing by 20 percent at Atlantic ports and 43 percent at Gulf ports.

The losers were the ports of Los Angeles, Long Beach and Oakland; Tacoma and Seattle, by contrast, were both up modestly from a year ago.

So what’s the worry, right? The local ports are doing all right, and all this is just temporary noise that will subside once the backlogs from the labor dispute are cleared up.

Here’s why. A lot of that traffic didn’t go away temporarily; it’s gone for good. The issues of inland transportation infrastructure capacity didn’t go away either. “Shipments are setting sail for Eastern ports even before the Panama Canal expansion is complete,” Zepol Chief Executive Paul Rasmussen said in a release. “Shippers may be tired of West Coast backups, and with carriers adding more lines from Asia to the East Coast, it’s hard to blame them.”

China to the U.S. East Coast via the Suez Canal — there’s one competitive threat. Via an expanded Panama Canal? There’s another. The LA/Long Beach combo is unlikely to sit by idly and lose that cargo without a fight. There’s a third. And the published Zepol numbers don’t include the Puget Sound ports’ much closer and potentially larger competitive headache — the Canadian ports of Vancouver and Prince Rupert.

Looming over all of this is what’s going on in China’s economy.

That there is a problem with China’s economy (as signified by the slump in stock prices) should surprise absolutely no one. The frenetic growth rates weren’t sustainable, and you’d have to go out of your way to avoid stories about weaknesses in the banking industry, the uncompetitive state enterprises that had to be propped up and the construction of entire towns that lack one crucial element — residents.

Least surprised at all is the leadership of China’s government, which has been trying to manage a slow cooling and a soft landing through even more intervention in the economy. Recent U.S. history provides some insights on how well that usually works.

Economic problems in China are everyone else’s problem. The Chinese may export their way out of a downturn, even if it means dumping (and they’ve been accused of that), just to sustain employment. Perversely, that might actually mean a short-term gain for U.S. ports.

An economic slowdown in China will mean less purchasing of exports from the U.S., of everything from agricultural commodities to manufactured goods to raw materials such as logs and scrap metal. That’s got all sorts of ramifications; some U.S. producers will be hurt, but others will be helped by declining prices for the raw materials they had to compete with China to buy.

The alliance’s backers have been as mute on the meaning of these trends and how to address them as they’ve been effusive in lauding what a swell idea the affiliation is. The regional ports got their alliance; what they really need is some answers and a strategy.

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

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