John Wolfe’s staff at the Port of Tacoma regularly holds stakeholder meetings where it asks terminal operators, longshoremen, carrier representatives and truckers what the port authority can do to make the harbor run smoother. The executive director calls the process “customer care.”
The Pacific Northwest container ports of Portland, Seattle, Vancouver, British Columbia, and Prince Rupert tell a similar story. It’s the ease of doing business there that gives the ports a strategic advantage, said Bari Bookout, director of commercial strategy at the Port of Seattle.
With 50 to 70 percent of their inbound cargo moving on to eastern destinations, the ports in the region have to try harder than their large competitors to the south. The PNW and Canadian ports are gateways for major population centers in the Midwest and eastern Canada, but they don’t have large local populations that generate cargo the way Los Angeles-Long Beach or Oakland do.
Speed and reliability are the advantages Prince Rupert builds on to keep its existing customers and attract new services, said Shaun Stevenson, vice president of marketing and business development. Prince Rupert is located 500 miles north of Vancouver. Virtually all of its inbound cargo leaves the port by rail, so the efficient transfer of intermodal containers from vessels to trains at the port’s on-dock railyard is crucial to its success.
Shipping lines in the trans-Pacific trades are continually increasing the size of their vessels. Ships capable of carrying 8,000 to 10,000 20-foot container units are common in Los Angeles-Long Beach. Wolfe said container vessels up to 6,600-TEU capacity call at Tacoma, but he expects the Grand Alliance carriers — Hapag-Lloyd, NYK Line and OOCL — to deploy 8,000-TEU vessels when they begin calling there this summer.
These large vessels, which cost $100 million or more, must be turned quickly. They don’t make money for the carriers when they’re sitting in port. Mega-ships also place a strain on a terminal’s yard and gate operations. Efficient, congestion-free operations are critical, and the ports in the region have handled the larger vessels without any problems.
Despite their record of performance, however, the U.S. ports in the PNW are struggling to maintain market share on the West Coast. In the first three months of 2012, the Seattle-Tacoma gateway’s share slipped to 16.9 percent from 17.4 percent in the first quarter of 2011. Container volume for the entire U.S. West Coast inched up 1.7 percent during the same period.
The ports know they must try harder to make their gateway more attractive to cargo interests as well as carriers. “The PNW has to continue to make itself relevant,” Bookout said.
While service is important to cargo interests when they choose a gateway, so is cost. Vessel capacity — or in the case of Los Angeles-Long Beach, overcapacity — has worked to the advantage of the Southern California gateway. Carriers enter their newest, largest vessels into the busy Asia-Europe trade lane, and those vessels bump the 8,000-TEU ships to the Pacific Southwest services calling at Los Angeles-Long Beach.
Since the global economic recession of 2009, the steady stream of larger vessels has forced shipping rates down in the Pacific Southwest services. Lower rates attract discretionary cargo destined for the Midwest and eastern half of the continent. Carriers, by contrast, have kept the capacity in the PNW services in line with demand. This allows carriers to charge higher rates, but it results in a loss of some discretionary cargo from the Pacific Northwest.
Seattle and Tacoma also face internal competition as they go after each other’s tenants. Over the past year, Maersk Line moved from Tacoma to Seattle, and NYK Line and its Grand Alliance partners announced they are leaving Seattle for Tacoma.
This isn’t a new trend. The ports have lured each other’s tenants for years, but Bookout said it’s detrimental to both ports. “It’s a race to the bottom on rates,” she said.
Wolfe said Tacoma isn’t poaching tenants from Seattle, nor vice-versa. Rather, the terminal operators are competing for business. “We lease our properties to the terminal operators. They compete in a free-market economy,” Wolfe said.
The chief reason for the loss of market share in Seattle-Tacoma has nothing to do with their business strategies. When Prince Rupert opened its Fairview Container Terminal in October 2007, the Canadian port lured discretionary cargo away from all West Coast ports, but Seattle and Tacoma were hit the hardest.
This was evident last year when China Ocean Shipping Co. and Hanjin Shipping each started a weekly service from Asia to Prince Rupert, doubling the port’s business to four weekly services.
As a result, while volumes at Seattle and Tacoma have lagged, Prince Rupert’s numbers are soaring. Prince Rupert’s container volume in April was up 103 percent from April 2011. Its year-to-date volume increased 97 percent.
Since the new Cosco and Hanjin services began in May 2011, Stevenson said the year-over-year triple-digit gains would moderate in the coming months. Still, he expects Prince Rupert’s numbers to remain strong all year, because of various factors. Canadian exports to Asia are increasing, and Prince Rupert will continue to benefit. The port also is proving to the trade community that it is an important gateway for Canadian imports. Industry analysts in 2007 said Prince Rupert would serve almost entirely as a gateway to the U.S. Midwest, but about one-third of the port’s cargo now moves to or from eastern Canada.
Stevenson said industry pundits may be surprised by the development, but Prince Rupert’s leaders always had a plan for serving Canada. “This is not a surprise to us,” he said.
Portland is another gateway showing solid growth in what is considered a rather unspectacular year in the trans-Pacific. Portland’s total container volume is up 13.9 percent year-to-date, and the growth is evenly balanced between imports and exports.
February marked the one-year anniversary of the contract with International Container Terminal Service Inc. to operate Portland’s Container Terminal 6, Sam Ruda, director of commercial development, said. Philippines-based ICTSI is a global operator with connections in a number of trade lanes. ICTSI and the port are working to attract new services in several trade lanes, including Japan and the rest of Asia, Ruda said.
Portland is marketing its Rivergate industrial park as a location for warehouse distribution and transloading operations. The industrial real estate market nationwide went dormant during the economic recession, but Portland is “starting to show positive absorption,” Ruda said.
The entire region from Portland to Prince Rupert is bullish on industrial real estate. The ports see distribution and transloading services as one of the factors that will solidify their position in the “four corners” strategy national retailers deploy in serving their distribution needs. The other corners are Southern California, the Southeast and New York-New Jersey.
Developing support services such as distribution hubs is one of the action points in Tacoma’s recently released strategic plan, Wolfe said. Tacoma has access to acreage close to the port ideal for logistics operations, and developers are showing interest in the area.
Attracting logistics hubs is one of Seattle’s main goals. “The industry’s business model is changing, so the port must change, too,” Bookout said. National retailers, third-party logistics companies and importers that benefit from foreign trade zone operations are looking to ports to help facilitate regional logistics hubs, she said.
Port Metro Vancouver set job creation as one of the goals for 2012, and expansion of the already vibrant distribution scene is expected to play a role in attracting jobs. Unlike Prince Rupert, which looks to the U.S. for about two-thirds of its cargo volume, Vancouver is primarily a Canadian port. The U.S. accounts only for about 6 percent of its container volume. Vancouver’s logistics parks serve Canadian exporters as well as importers.
Prince Rupert also sees logistics hubs in western Canada serving as dual-purpose developments. Western Canada is rich in resources, and the export of those resources to Asia is a major driver of the port’s growth. The transloading of imported merchandise from marine containers to domestic equipment frees up the empty containers to carry Canadian exports to Asia, Stevenson said.
All of the ports in the region are developing marine terminal and inland infrastructure to prepare for the arrival of bigger vessels. Although they are talking to their marine terminal tenants about automation, the ports don’t anticipate a rush to automation such as is occurring in Southern California.
For example, the Port of Long Beach and Long Beach Container Terminal together will spend $1.5 billion in the coming decade to redevelop the Middle Harbor facility into the most automated container terminal in North America.
Until container volumes in the PNW and Canada reach the level to warrant such a huge investment, ports in the region will concentrate on adding density to their operations and on purchasing larger, more efficient cranes.