Seattle, Tacoma ports forge alliance to protect market share

Bill Mongelluzzo, October 7, 2014, JOC.com

The ports of Seattle and Tacoma are taking a bold step to improve the competitiveness of the Pacific Northwest gateway by unifying the planning, marketing and management of their marine cargo terminals and related functions under a single body.

 

If the Seaport Alliance is approved by the U.S. Federal Maritime Commission, the ports, which have a long history of competing with each other for market share, will instead be working together to develop or redevelop state-of-the art marine terminals. The pressure is on both port to ready their facilities for the latest generation of container ships operating in the trans-Pacific trades. The alliance is also aimed at allowing PNW to better compete as a region with other U.S. and Canadian ports for market share.

 

U.S. Pacific Northwest ports saw market share of North American west coast ports’ container volume decline 0.7 percentage points year-over-year in the first half of 2014 to 11.8 percent.

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The ports of Seattle and Tacoma’s combined market share of North American west coast container traffic in the first half of 2014 was 11.0 percent, down from 11.7 percent in the first half of 2013 and 11.9 percent in the first half of 2012, according to data collected by JOC.com from the individual ports. Ports in the U.S. Pacific Northwest, including Tacoma, Seattle and Portland, Oregon, together saw market share of North American west coast container traffic decline 0.7 percentage points year-over-year in the first half of 2014 to 11.8 percent.

 

“We will leverage our strengths to bring a value proposition for attracting discretionary cargo,” said John Wolfe, CEO of the Port of Tacoma.

 

On the other hand, each port will maintain its own commission, its own governance structure and its ownership of assets. “This is an alliance of the two ports, not a merger,” said Claire Petrich, president of the Port of Tacoma Commission.

 

The container shipping industry in recent years has experienced an upheaval generated by carriers joining together in vessel-sharing alliances, and at the same time embarking upon an unprecedented buying spree of big ships with capacities up to 18,000 20-foot container units. Carriers are leveraging their huge increase in capacity to achieve the most competitive port charges available, sometimes by pitting one port against another in the same region.

 

In that respect, the proposed Seaport Alliance will give the ports of Seattle and Tacoma leverage of their own as they jointly develop modern marine terminals and negotiate compensatory lease rates with their customers without fear of cannibalizing their respective operations.

 

The two commissions on Oct. 14 expect to formally adopt and move to submit to the FMC an interlocal agreement. The argreement would  provide the ports with a framework for a period of due diligence to examine business objectives, strategic marine terminal investments, financial returns, performance metrics, organizational structure, communications and public engagement.

 

During the due diligence period, the ports will develop the details of their agreement. They intend to submit a proposed final agreement to the FMC during the first quarter of 2015, said Stephanie Bowman, co-president of the Port of Seattle Commission. Citizen and stakeholder review of the proposal will be undertaken throughout the process through a series of public meetings.

 

The intent of both ports is to plan and develop marine terminals that the carriers and carrier alliances seek as they expand their presence in the Pacific Northwest. The ports will split the investment costs as well as the revenues generated by the facilities, said Kurt Beckett, Port of Seattle deputy CEO. Existing lease arrangements will continue to operate unchanged until their expiration dates, he said.

 

This proposed level of cooperation between two ports in the same region is rare, given that most port authorities are viewed by the city or state governing bodies they answer to as being economic engines. In many regions it is a zero-sum game in which one port area wins while the other loses.

 

Given the intense competition for discretionary cargo on the Pacific Coast of North America, no single port authority today has the financial resources, or market share, to fight these battles on its own. Seattle and Tacoma compete with the California ports to the south and the Canadian ports of Vancouver and Prince Rupert to the north.

 

The Pacific Northwest ports are also struggling with an overcapacity issue. Each of the ports over the years has gone its own way, building marine terminals and then luring tenants from the other port, usually with reduced lease rates, to occupy the new terminals. The result has been a duplication of facilities, with most terminal operators losing money because there is not enough cargo to fully utilize all of the facilities.

 

At the same time, the mega-ships that carriers are deploying today generate a need for huge capital investments by the terminal operators to rebuild the terminal understructures to accommodate super post-Panamax cranes and other modern cargo-handling equipment.

 

Wolfe said that by planning together to develop new terminals, or to redevelop and combine terminals that are close to each other, the ports of Tacoma and Seattle will build the most competitive gateway for cargo that could be shipped through any of several port complexes.

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