Terminal Consolidation Seen as Crucial for Seattle-Tacoma

Bill Mongelluzzo, April 21, 2014, Journal of Commerce

The ports of Seattle and Tacoma offer advantages to shipping lines that many ports would love to have — naturally deep water, more than enough container-handling space and excellent on and near-dock intermodal rail infrastructure. But in order to take full advantage, the ports are faced with a stark reality: they must invest heavily to upgrade facilities that were designed for vessels that are half the size of the ships with capacities of 8,000 to 10,000 20-foot container units that carriers are already beginning to deploy in their Pacific Northwest services.


“The problem is not land. There’s plenty of land. The problem is old cranes and berths,” said Ed DeNike, chief operating officer of SSA Marine, which operates two container terminals at the Port of Seattle.


Equally challenging is how the two ports are balkanized into nine container terminals handling international cargo, with each terminal competing for business and none of them generating enough business to make money. “We have to consolidate terminals,” DeNike said.


Tacoma has begun the modernization process by improving the “understructure” of Terminal 3 at the Husky Terminal to support post-Panamax cranes, said Tom Bellerud, director, business development, container terminal business. When that project is completed, the port will take on Terminal 4, where similar improvements are needed. “If you want to have big ships, you must have the infrastructure to handle them,” he said.


The Husky Terminal, at 93 acres, and the nearby Washington United Terminals, at 123 acres, on the Blair Waterway, both fall short of the 200-plus-acre facilities that are becoming standard now at large ports that handle mega-ships in the east-west trades. Combining the two facilities into one, large, rectangular container terminal with on-dock rail is a possibility, Bellerud said.


Tacoma’s APM terminal, at 135 acres, and the Olympic container terminal, at 54 acres, while not contiguous, are on opposite sides of the Sitcum Waterway in their own corner of the port. The Pierce County Terminal, at 141 acres, is located at the end of the Blair Waterway and has a large on-dock rail yard.


With nearby parcels of land that do not have water access but offer opportunities for container marshaling or even distribution facilities, Tacoma has plenty of space available to significantly increase container operations, Bellerud said.


Tacoma’s issue, which is shared by other West Coast ports, is that reckless development of container-handling capacity without regard to future demand will exacerbate over-capacity and will make it even harder for the port authorities and the private-sector terminal operators to charge compensatory rates, said CEO John Wolfe.


Seattle’s two largest terminals — the 172-acre Terminal 5 operated by APL’s Eagle Marine Services and the 196-acre Terminal 18 operated by SSA Marine — are both underutilized to the point where conceivably one could be shut down and all of its business would fit comfortably in the other.


Seattle has two smaller terminals — the 70-acre Terminal 30 operated by SSA and the 88-acre Terminal 46 operated by Total Terminals International — that are adjacent to Seattle’s vibrant and growing downtown area. This area of the port has been described by some as being too valuable for maritime use, similar to the Port of San Francisco, which saw its container handling migrate to Oakland in the 1990s.


Some interests in Seattle would like to see the waterfront property turned into boutiques, high-priced condominium projects and even a basketball arena so Seattle could woo back a professional team.


Seattle executives said the battle over a downtown arena has been fought, and the consensus in the community now is that port activities generate many more good-paying jobs for the city than boutiques or an arena.


Furthermore, Linda Styrk, managing director of seaport, said the gentrification of downtown Seattle is taking place mostly north of Terminal 46. That facility, and the nearby Terminal 30, have bright futures in maritime use, she said. A study determined that area of the port could handle 1 million TEUs a year.


The area to the south and east of those facilities is mostly industrial and is considered an attractive location for distribution facilities, Stryk said.


Nevertheless, Seattle, like Tacoma, must still invest millions to be competitive in the era of mega-ships and mega-alliances, on taller cranes, stronger wharves and inland infrastructure. This raises the same question Tacoma faces: If Seattle spends the money, will the cargo come?


The answer to that question will unfold as carrier alliances such as the P3, G6 and CKYHE rearrange their trans-Pacific services and decide at which ports and terminals their big ships will call.


Bari Bookout, director of commercial strategy at Seattle, said the G6 has already made its rotations public, the P3 is going through that exercise now and the CKYHE has yet to announce its rotations, but she does not anticipate any significant changes in their Pacific Northwest calls.


Similarly, carriers last year made a noticeable shift in their all-water services to the East Coast by canceling some services through the Panama Canal and focusing on the Suez Canal. Bookout said the PNW ports have not experienced a significant impact on their market share since carriers began deploying larger vessels through the Suez Canal to the East Coast.


When the Panama Canal expansion project is completed in late 2015 or 2016, many industry analysts say they do not anticipate a major loss of market share on the West Coast. One anticipated impact is that some Suez services to the North American east coast will shift back to the Panama Canal. In fact, the larger canal will be a more attractive route for services from the Mediterranean and Latin America to the West Coast, so the project could benefit the Pacific Northwest ports, Bookout said.


While these macro-issues sort themselves out, the ports of Seattle and Tacoma are developing or modifying their strategic plans with various options in mind. Since all U.S. ports at present are dealing with imperfect information, they must make all long-term commitments with extreme care.


Of more immediate concern is the desire of the two ports to develop strategic public-private partnerships with their tenants and with local and state agencies in a regional approach to growth. For two ports that have spent much of their past competing for each other’s business, this would certainly be a step forward.

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