PNW Power Play

There is no question the ports of Seattle and Tacoma face competitive challenges. They are losing market share to Canada’s west coast ports, particularly to fast-growing Prince Rupert, British Columbia.

In a continuation of a multiyear trend, Seattle and Tacoma last year saw their combined West Coast market share edge downward from 15.6 to 15.4 percent while Vancouver and Prince Rupert saw their combined west coast share increase to 12.7 percent from 12.4 percent in 2010, an increase fully attributable to growth at Prince Rupert.

The figures don’t tell the complete story. Prince Rupert’s growth as an import gateway for goods headed to such destinations as Chicago and Memphis affects export volumes through Seattle and Tacoma. Backhaul containers that arrive via Prince Rupert often go back the same way, depriving Pacific Northwest exporters of access to containers.

This scenario was described in comments submitted to the Federal Maritime Commission for its inquiry into the reasons for U.S. cargo moving through Canadian ports. Laura Daniels, transportation manager for Anderson Hay and Grain, said the trend has caused the exporter of 25,000 40-foot containers annually to shift its routings to Los Angeles-Long Beach because, as container availability in the Pacific Northwest has declined, ocean rates have increased, affecting the competitiveness of price-sensitive commodities on world markets.

“The lack of equipment supply and reduced carrier capacity in the Northwest has inflated rates to a point where PNW hay exports struggle to compete with (Pacific Southwest, i.e., Los Angeles-Long Beach) hay exports in landed cost in the marketplace,” she wrote. “Without available containers and competitive ocean freight rates, the commodity is not a viable export,” at least through gateways where those conditions exist.

Such comments illustrate the tough spot Seattle and Tacoma find themselves as they assess their future. The U.S. Pacific Northwest region is large enough to support direct vessel calls from Asia, but what the 55 to 70 percent of volumes they send eastward via the rails is what has made the ports successful, according to figures cited by the International Longshore and Warehouse Union.

Thus, their volumes and competitive position have always been subject to the vagaries of rail rates charged to ocean carriers to move containers inland; if the railroads wish to see more volume moving over Los Angeles-Long Beach, rail rates will encourage this, and there isn’t a lot the ports can do about it.

It’s well known by now how the ports have chosen to take matters into their own hands, encouraging a Federal Maritime Commission inquiry into containers entering the U.S. via Canadian ports and calling for a new federal tax on such containers to neutralize the cost advantage that imports via Canada enjoy because they don’t pay a roughly $140 per-container harbor maintenance tax charged on boxes entering U.S. ports.

The FMC has received and reviewed more than 80 public comments, and a staff working group is gathering data and reaching out to government and private sector experts for additional information. Its chairman, Richard Lidinsky, said he hopes the commission will be in a position to issue a report in late spring.

It’s understandable where Seattle and Tacoma and the state of Washington are coming from. Their economy, which had long benefited from the success of the Seattle and Tacoma ports, is seeing that benefit diminish. There needs to be a strategy; ones that ports traditionally turn to such as improving infrastructure or dredging the channels either have been tried or in the case of channel deepening, don’t apply to the naturally deep Puget Sound ports.

That the ports felt the need to turn to Washington is a sign of how complex the challenge is and how limited the options are. For example, the Harbor Maintenance Tax differential could be eliminated by taxing containers arriving via Canada, but “such a tax would violate the GATT and at least the spirit of NAFTA,” the World Shipping Council said in comments submitted to the FMC. It would be easier to justify such a tax if Canada was unfairly subsidizing its ports, but the truth is U.S. ports themselves receive billions in federal funds for security and infrastructure and benefit from tax-exempt financing.

Alternatively, the U.S. HMT could be eliminated or altered as a way of eliminating the differential, but that’s a political long shot given how many ports already benefit from the tax. And it’s not even clear how much of a difference the HMT differential makes, given shippers’ focus on transit times to maintain lean supply chains. In its FMC submission, the National Retail Federation said, “While fees such as the HMT are a consideration, they are not the sole factor in a retailer’s decision” on where to route cargo.

It would be great if there were an easy answer. I’m afraid there isn’t.

Peter Tirschwell is senior vice president of strategy at UBM Global Trade. Contact him at ptirschwell@joc.com, and follow him at twitter.com/PeterTirschwell.

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