Tacoma, Seattle focus on intermodal to protect, expand market share

Mark Szakonyi, December 1, 2014, JOC.com


The ports of Seattle and Tacoma are scrambling to improve their intermodal access to the hinterland to protect the discretionary cargo they have, and, perhaps, even regain business lost to Southern California and Canadian ports.


They have their work cut out for them. Shippers have already diverted goods away from Puget Sound to Port Metro Vancouver and the Port of Prince Rupert, because of cheaper and often more reliable intermodal services to Chicago. The pull of the Los Angeles-Long Beach port complex and better availability of empty containers it provides Midwest exporters has also cost the Pacific Northwest duo market share.


Seattle and Tacoma had a 10.7 percent combined market share of North American west coast container volume in the first three quarters of this year, compared with 11.4 percent in the same period in 2013 and 11.9 percent in the first three quarters of 2012, according to data collected by JOC.com from the individual ports.


“If we hope to grow, it has to come from intermodal,” said Linda Styrk, managing director of the seaport division at the Port of Seattle. “We are a secondary port and unless our population base morphs, we are going to have to work at least twice as hard to grow our volume.”


Until now, Seattle and Tacoma could do little but encourage terminal operators to hand off imports to the railroads speedily and hope that Union Pacific Railroad and BNSF Railway provide better and more competitive service.  A planned alliance between Seattle and Tacoma could change that by giving the two ports a larger voice that could grab attention of BNSF and UP.


Under the Seaport Alliance, which is pending U.S. regulatory approval, Seattle and Tacoma will plan, market and manage their marine cargo terminals and related function under a single body. The duo still won’t have commercial leverage with container lines and railroads because they’ll be out of the contracting process. But their combined market share will make them the third-largest North American container gateway, said Mike Reilly, the Port of Tacoma’s director of business development.


The alliance “allows the global marketplace to look at us though a different pairs of lens,” Reilly said.


Ideally, BNSF and UP would offer better service and more competitive pricing, encouraging container lines to ship more cargo through Seattle and Tacoma. The railroads, hypothetically, would moderate pricing increases in exchange for guarantees that the carriers would ship more volume through the gateway.


“Right now, the way BNSF has taken their service is, ‘We will give you good service for full trains,” Styrk said. “If the shipping lines can’t produce a full train, then they’re getting not-so hot service.”


Canadian Pacific Railway and Canadian National Railway’s aggressive development of their networks to grab more of the market stretching from Chicago to Detroit heightens the need for better and cheaper service from Seattle and Tacoma to the Midwest. Getting a grasp on how CN and CP services stack up to those of UP and BNSF is tricky, as the railroads don’t publicly report reliability metrics, only service performance goals.


BNSF and UP transit times this year have suffered just as much as the CP and CN legs, customers have told the Port of Seattle. BNSF transit times from Seattle to Chicago hit 10 days in the second quarter, but have since improved to between six and 10 days, according to Port of Seattle staff. UP’s international intermodal service between Seattle and Chicago is reporting sixth day morning arrival 90 percent of the time.


UP’s published service on the Pacific Northwest-Chicago leg for international equipment is fifth morning and fourth day at noon for domestic intermodal equipment. BNSF handles roughly 70 percent of the intermodal volume tied to the Port of Seattle with UP handling the remaining volume. The breakdown of market share between the two railroads is more balanced for Tacoma, Reilly said.


He said service from both railroads was improving before both ports were hit by port congestion weeks ago. Reilly is confident service will get back to mid-2013 levels sometime next year. As part of its $6 billion capital plan for 2015, BNSF will spend $2.9 billion on maintenance and $1.5 billion on expansion work. Much of those dollars will go toward the railroad’s biggest choke point, the Northern Corridor. Congestion — driven by increased oil and frac sand shipments, grain shipments and broader freight growth — forced BNSF this year to decrease its service goal by roughly 40 hours for its expedited intermodal  services on the line connecting the Pacific Northwest and Chicago.


“Our intermodal customers are experiencing improvements on our railroad and have our continued commitment that we will add the resources necessary to handle all of their business,” BNSF spokesman Amy Casas said in an e-mail. Once the new capital program is complete, we expect to further restore the capacity flexibility we have historically enjoyed to manage the periodic demand surges that come from a dynamic economic environment.”


UP, which is also expected to unveil a robust capital plan for next year, said it is working to improve intermodal service from Puget Sound by reducing truck turn times at its Seattle intermodal yard, and expanding capacity on its line in the Columbia River Gorge.


But improving intermodal service is only one part of  the two-part equation.  The railroads won’t discuss pricing, and international intermodal rates from the West Coast — whether Canadian and U.S. — vary by contracts with container lines. The total inland cost of moving a TEU from Vancouver and Prince Rupert to Chicago is generally $300 to $400 cheaper than shipping via the Puget Sound to the Windy City, Styrk said, quoting estimates provided by shippers.


It’s not all rail costs, though. The Harbor Maintenance Tax — a 0.0125 percent levy on cargo imported into the U.S. — adds $109 on average to each shipment. Efforts by Washington Sens. Patty Murray and Maria Cantwell, both Democrats,  to pass legislation that would impose the tax on U.S.-bound cargo coming through Canada — reducing the incentive for shippers to divert cargo through Canadian ports — hasn’t gone far in Washington, D.C.  CP and CN also calculate their fuel charges differently than BNSF and UP do, giving shippers who use the Canadian railroads a slight cost savings, Stryk said. When excluding HMT and fuel surcharges differences, CP and CN still provide a $200 to $300 cheaper haul than their U.S. counterparts, she said.


The pricing differences aren’t as great, though, when you factor in drayage costs, Reilly said. Shippers moving goods through the Puget Sound via BNSF and UP to Chicago can save on drayage costs by tapping each’s terminals and surrounding logistics parks in Elwood and Joliet, Illinois, respectively. The sprawling logistics complex, which is home to Wal-Mart, Bissell, Cargill, Home Depot and Georgia Pacific and 27 other tenants, is slightly more than 50 miles from Chicago. For many shippers, the drayage costs from using CenterPoint Properties-managed complex would be less than if they used CP and CN terminals, such as the latter’s facility in Harvey, Illinois.


“Because of its central location and proximity to interstates 55 and 80, Union Pacific’s Joliet Facility, known as Global 4” benefits customers by reducing drayage costs,” UP spokesman Calli Hite said in an e-mail. “The facility also offers the advantages of nearby warehouse and distribution centers outside of Chicago’s capacity-constrained downtown area.


The ports of Seattle and Tacoma made their case to BNSF executives in early November at the company’s headquarters in Fort Worth, Texas. Teams have been created to look at way to improve service through not just better infrastructure, but better communication between marine terminals and railroads on when and the scale of volume set to hit the tracks. The Washington Public Ports Association, a political advocacy group representing Seattle and Tacoma,  will meet with BNSF in January to drill down further on how make Seattle and Tacoma more attractive to shippers via intermodal rail connections.  Seattle and Tacoma port representatives will make their case to UP executives in Omaha, Nebraska, this week.


The railroads will exhaust any other operational gains before even considering changes in pricing, Stryk said. But she still hopes the business case can be made for better service and more competitive pricing in exchange for the opportunity for BNSF and UP to recapture volume what has migrated north of the border. The larger political voice the alliance will be able to gain, both on state and national levels, could provide the railroad some encouragement to give it a shot. Still, it’s a tough sell.


“It’s hard to ask a profit-making company to make less profit,” Stryk said.

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