Seattle and Tacoma ports: Compete or merge?
In a small control room atop a six-story tower above the docks at the Port of Tacoma, Rob DeYoung, foreman in the North Intermodal Yard, manages about a dozen other members of the International Longshore and Warehouse Union (ILWU) Local 23, unloading two container ships that arrived at the port earlier in the day.
Below him, the workers drive around in huge orange cargo-handling trucks called straddle carriers, picking up containers from the docks and loading them onto rail cars on railroad tracks built into the dock surface. The tall “H”-shaped carriers look like giant orange insects scurrying around the docks in seemingly random fashion.
But DeYoung holds up a color-coded work sheet that shows how the various containers are coming off the ship, where they will be stacked and how they will be placed on rail cars. The rail cars will become trains headed to the Midwest, Portland and other destinations. Tacoma was one of the first ports on the West Coast to have intermodal operations, with rail lines on the dock to speed operations. The first train will leave the port barely 12 hours after the ship docked.
“That’s huge,” said John Wolfe, port chief executive officer. “It is one of the advantages that makes this port work.”
Speed, efficiency and timing are the keys to success. And, for nearly 95 years, the Port of Tacoma has been a success, though often in the shadow of the Port of Seattle, about 30 miles to the north. So much so that there are recurring calls for the two ports to merge, creating a Port of Puget Sound. Just recently, the Seattle Times editorial page called for such a merger, citing efficiencies and capital spending as key reasons.
The two ports are competitors, there is no argument about that. A year ago, Tacoma was accused of “swiping” a key Port of Seattle customer, the Grand Alliance consortium consisting of the three shipping lines of NYK Lines, OOCL and Hapag-Lloyd. The move could mean as many as 400,000 more containers would unload and load at Tacoma instead of Seattle. In 2012, the two ports were nearly equal — Seattle about 1.87 million container units; Tacoma about 1.7 million.
Still, some major differences remain. The biggest is that Seattle also manages the Seattle-Tacoma International Airport. Preliminary 2012 financial results show that the airport presents almost three quarters of the Port of Seattle’s operating income, while the seaport operation is about 20 percent. It also has a large commercial fishing fleet facility, unlike Tacoma.
Tacoma’s revenues are focused on seaport operations, including containers, bulk cargo and vehicles and it has two shipping companies that serve Alaska, Horizon Lines and Totem Ocean Trailer Express (TOTE).
During a recent visit to the Tacoma port, officials there acknowledged the conversations about mergers, but also begged to differ on the wisdom of combining the two. Seattle and Tacoma are so different in potential, operations and culture, they say, that a combination does not make sense.
Standing on that control tower above dock operations, one port official pointed out that the view provided a good example of one key difference: The Port of Tacoma is in a stand-alone industrial area in the Tacoma tideflats, with room for warehouses, manufacturing and transportation. South and off in the distance is downtown Tacoma. To the north, a steep hillside features ridgetop residential areas and to the west are the waters of Puget Sound. East includes rail lines, I-5 and the commercial district that has grown up along the freeway.
“We have a good idea of where to live, work and play,” said Don Meyer, one of five port commissioners and the president this year. It was a not-so-subtle dig at the Port of Seattle’s concern about a new basketball/hockey arena in the Sodo area of Seattle, with its implication for Port of Seattle operations.
And it points to one of the big advantages Tacoma’s port has over Seattle — land. Tacoma has more than 5,000 acres with about half still undeveloped. There is also adjacent land that could be used for additional warehouses, providing nearby operations for customers. Rail is another advantage. Tacoma was one of the pioneers in intermodal operations, adding rail lines on the docks. Wolfe, the port CEO, said the port now is able to put together trains that are as long as 7,000 to 8,000 feet — more than a mile. It will soon have the capacity to meet new demands that will require trains as long as 10,000 feet.
Tacoma has a variety of operations Seattle does not, most of them driven by the availability of land. It is the import center for about 150,000 cars and light trucks each year. Its bulk cargo operations include many high-end items such as imported farm equipment and exported products from manufacturers such as Caterpillar. It is an important distribution center for Alaska, with nearly $3 billion in goods moving across the docks. There is lots of talk about coal trains, but the port expects to have a liquid petroleum distribution center in 18 months.
“Water, rail, roads. We need all three,” said Wolfe. “If we miss on any of those we’d be a second-class operation.”
The Tacoma port also has strong connections with both city and county governments. “I meet with the mayor at least once a month,” Meyer said. Discussions usually center around how the city can help.
In Pierce County, the port is much more of an economic engine. The latest economic impact data is a bit dated, from 2004, but that study said that more than 43,000 family-wage jobs in Pierce County and 113,000 jobs across Washington state are connected to Tacoma’s port activities. A port spokesperson said the study was a few years before the port hit its peak cargo volumes, so the numbers might not be as dated as they sound.
Asked about Seattle’s decision to raise port commissioner salaries, Meyer said the Tacoma Port Commission is more interested in doing something about the county unemployment rate than worrying about salaries. In January, the unemployment rate in Pierce County was 9.4 percent compared with 6.3 percent in Seattle. “We have a good group of commissioners, who all care about the port and have an interest in the community,” Meyer said.
Commissioners are paid $500 a month plus $12,500 in per diem expenses and full benefits, totaling nearly $22,000 a year. The port estimates total “compensation” for commissioners is a little more than $40,000 a year.
Meyer said Tacoma wants both ports to be successful, pointing to cooperation between the two ports on opposition to the Harbor Maintenance Tax, a federal tax on shippers based on the value of the goods being shipped through ports. The revenue is placed in a trust fund for maintenance dredging of federal navigational channels. Puget Sound ports, with naturally deep harbors, have little use for the tax and it often goes to dredge East Coast and Gulf Coast ports, which are increasingly becoming competitors.
But he also says that the “culture” at the Port of Tacoma is different. “The ports are two separate entities,” Meyer explains. “There are five [main] ports on Puget Sound. Is five better than two? Across the state there are what, 75 ports in 33 counties out of 39 counties.” At the mega port in Southern California, he said, you cannot tell where the Port of Long Beach ends and the Port of Los Angeles begins.
“There is competition there and competition is good,” Meyer said. “I can’t get into the merger. We’d lose our entrepreneurial spirit.”
“It is about our culture,” said CEO Wolfe. “Our structure, our culture would change. If the port would be better [in a merger], OK. If not, why look at it?” He said the port commission is focused on the staff, the port and a new 10-year strategic plan. “We’re already outperforming that plan,” he said.
One advantage to any merger would be the much larger tax base in King County, but Meyer said the port has a much different view of its ability to tax. “Maybe the challenge should be to reduce our subsidy [from the property tax]," he suggested. He said the Tacoma port pays special attention to its financial discipline since the operations — and potential growth — are such capital intensive endeavors.
In a story in the Puget Sound Business Journal this week, Meyer expanded on his opposition to pay raises saying that “it just doesn’t work. If we’re asking the citizens of the state to dig deep in their pockets, this is not the time when we should be increasing compensation dramatically [referring to requests for transportation funding from the Legislature]. I think the timing is terrible.”
For the Tacoma port, one vital link in its future is the extension of Highway 167, sometimes referred to as the Valley Freeway. It currently ends outside Puyallup, about two miles from the port. An extension of the highway would provide the port with important freight mobility, especially to the growing number of large-scale warehouses being established in the South Sound area. A port map shows a cluster of warehouses in its natural service area, including IKEA, Target, Costco, REI and Fred Meyer.
The Port of Tacoma faces many of the same challenges as other ports. What will be the impact of a wider Panama Canal? Why are ships increasingly using the Suez Canal as an alternate route? The price of fuel and added capacity has allowed cargo ships to travel more slowly, saving fuel, but at what cost to Pacific Northwest ports and their long-standing advantage of being one-day sailing closer to Asia? Canada and Mexico are both ramping up their port operations, adding to the competition.
Tacoma is off to a good start this year with container cargo up more than 35 percent, hitting 149,000 in January vs. 109,000 containers last year. Seattle is down 14 percent at 136,000 containers compared with 160,000 in January 2012.
Merger? It is not going to happen. The ports are too distinct and headed in different directions and with different strengths. Seattle perhaps would do best concentrating on people, with an airport, cruise ship center and commercial fishing. Tacoma could focus on cargo — containers, bulk, cars, logs, scrap metal — and the nitty gritty of business operations.
The Port of Tacoma, along with the military, is a central driver of Pierce County’s economy and respected politically. The Port of Seattle struggles with political divisions and is something of an orphan in the governmental family.
For both ports, the future of waterborne commerce is anything but rosy. The main reason for many of the merger proposals is that, to be fully competitive, the ports must change as the Panama Canal, Canada and Mexico change the business. The fear is merge or watch the traffic go elsewhere.
In his book the Seattle area, Century 21 City, Michael Luis raises the question of two competing ports within 30 miles of each other. “Every time a shipping line shifts from one port to another, outside observers shake their heads, wondering why the ports compete with each other when the real competition is up and down the West Coast,” Luis writes. “But like most regional governance questions, this one never gets any traction. We may be one big metropolitan region, but some things just don’t cross Hylebos Creek very well.”