Who’s really eating the PNW’s lunch?

There’s been no shortage of turbulence on the West Coast lately, and more is in store with the midnight June 30 expiration of the ILWU contract. In addition, there has been mounting pressure on Pacific Northwest ports, seemingly caught in a vise between the western Canadian ports to the north and California to the south.

There’s been a lot of focus on diversion of cargo from the PNW north to Vancouver and Prince Rupert, British Columbia, and a lot of discussion about what factor the harbor maintenance tax has played.

An examination of containerized imports handled by the three regions illustrates the problem. Five years ago, the PNW ports of Seattle, Tacoma and Portland held a 12 percent market share of inbound international containers hitting the U.S.-Canada west coast (based on the three-month moving average). This was behind the 12.5 percent share of western Canadian ports (Vancouver and Prince Rupert), while the major California ports (Los Angeles, Long Beach and Oakland) enjoyed a dominant 75.4 percent share.

Fast-forward to April 2014, and the PNW share was down to 10.9 percent, while western Canada had increased to 14.1 percent and California ports to 75 percent. So, there is an indication of a problem, but the analysis is incomplete. It doesn’t tell us how much of the change is due to diversion of imports transiting the port bound for interior points — traffic that can be diverted from one routing to another relatively easily.

West Coast to Midwest intermodal volumesWest coast-to-midwest intermodal volumes: market shares, 2009-2013

One of the major battlegrounds among the ports is import traffic bound for the U.S. Midwest. I used data from the Intermodal Association of North America to take a look at the trends. When examining the number of revenue movements of ISO containers (20-, 40- and 45-footers) that originated in IANA’s Southwest, Northwest and western Canada regions, corresponding to the port regions of California, the PNW and western Canada, the presumption is that all such revenue movements are intact moves of import cargo that traverse the port and then hit the rail.

In May 2009, with intermodal in the first year of economic recovery, the Northwest-to-Midwest routing accounted for 30.3 percent of such movements (based on the three-month moving average). The lion’s share, 62.7 percent, moved through California ports, while western Canada ports were a minor factor at 7 percent. The PNW then enjoyed a burst of strength that reached a high point during peak season 2010, when about 40 percent of the import containers bound for the Midwest came in via the PNW. An equally rapid decline in PNW use followed, with volume switching back to California, while western Canada remained relatively static.

It was only in mid-2011 that we begin to see a big rise in the share of western Canada, as the Canadian railroads introduced competitive intermodal services to the Midwest, and Prince Rupert ramped up. Interestingly, the PNW’s share held constant and even improved during this timeframe, and it appears California took the brunt of the diversion.

The current slide in the PNW’s share appears to have started at the end of 2012 and continued for the next year before stabilizing in 2014. The primary diversion was to California. Western Canada’s share didn’t start to increase until the second half of 2013.

This analysis doesn’t tell us directly what is causing the diversion, but it does tell us some things that aren’t primary causes. It indicates the PNW’s troubles aren’t directly related to the recent operating difficulties on BNSF Railway’s northern tier line, because the PNW’s share has held relatively stable since the beginning of the year.

Canada isn’t the chief culprit, either. Of the 9.3 points of Midwest-bound market share forfeited by the PNW since November 2012, western Canada accounted for a bit more than a quarter of the loss, rising 2.6 percent. Almost three-quarters of the loss, 6.6 percent, went to California. And this doesn’t even count the effect of transloading, which occurs primarily in Southern California and not the other regions.

Summarizing, the slide in PNW-to-Midwest market share far exceeds the decline in the ports’ total share of imports. The majority of the recent shift has been to California ports. It could be a function of rates (ocean and/or rail), service speed (ocean transits, sailing frequency, train schedules, train speeds), and/or reliability (port congestion, variability in ocean/rail service). But it won’t be solved simply by a change in the harbor maintenance tax or the spring thaw.

Lawrence Gross is president of Gross Transportation Consulting in Mahwah, New Jersey, and a partner at FTR Transportation Intelligence. A veteran with 34 years in the transportation business, he covers freight transportation, concentrating on the intermodal and trucking sectors from a transportation and equipment perspective. He is a frequent speaker at industry events. Contact him at ljgross@optonline.net and follow him on Twitter: @intermodalist.