The ports of Seattle and Tacoma made a big splash last week with the announcement that they were pursuing the creation of a Seaport Alliance — a coordination of container services between the two ports.
The Seaport Alliance will include the two ports' marine cargo business, guided by Port of Tacoma CEO John Wolfe. Other lines of business like cruise ships, the airport, Fishermen’s Terminal and real estate will remain under the sole control of each port. If all goes well, this new coordinated model will start in April of 2015.
From my role with the Pacific Merchant Shipping Association, representing marine terminal operators and vessel lines, I've watched leaders talk about container port consolidation for years. Legislative sessions of the last few years have included at least one proposal to merge the ports. (Though none had much chance of passing.) And ports in Washington state are not alone. In Southern California, talk of merging the ports of Los Angeles and Long Beach surfaces every couple of years as well.
The big news here is that Tacoma and Seattle’s commissions have finally acted on these conversations, getting together to develop a plan to create what I call “consolidation lite”.
Elected leaders and the media have talked a lot about the reasons for this change, namely that it makes no sense for the ports to compete with each other when the Northwest is losing market share to other West Coast ports. There are also huge changes in the industry that make port competition more intense. Shipping lines are forming alliances and sharing vessel slots for cargo on ever-larger ships, which means fewer port calls with higher cargo volumes. The ability to move cargo quickly and efficiently in a cost effective manner is more important than ever. And as a gateway with significant volumes of discretionary cargo, the Pacific Northwest has to compete even harder.
This is an issue with huge economic implications. Businesses and communities throughout our region depend on our ports for jobs, the access they provide to foreign and domestic products and markets and their investment in critical infrastructure, like port facilities, roads, rail and bridges. A study released by both ports two weeks ago showed that $138.1 billion of the state’s economic activity is connected to cargo operations at the two ports. That's a full one-third of Washington’s total GDP.
If import cargo is diverted from our ports, local exporters will have a tough time accessing overseas markets other than trucking products to Canada, Oakland or Southern California.
The fact that Seattle and Tacoma have come together to agree on a shared strategy speaks to the seriousness of this challenge. The thinking of the two commissions appears to be that a new coordinated Seaport Alliance could better manage marine cargo assets and overall terminal capacity to improve financial returns and reinvest in port infrastructure. Together, the two ports hope to better market the Pacific Northwest Gateway to customers and align state and local government policies to improve its competitive standing on the West Coast.
The meetings between the commissions must have been sobering affairs for both sides and credit goes to both for setting aside past rivalries to do what is best for the people they represent and the region as a whole.
The process they settled on is promising, but will have to deal with a number of challenges — some political and some technical. The new CEO of the Seaport Alliance will have 10 commissioners to answer to, no small challenge, and will manage staff in both Seattle and Tacoma.
And then there are the two very different political cultures in Seattle and Tacoma. Local and county officials in both Pierce and King Counties will likely have many ideas and concerns for Mr. Wolfe to address. He will be a busy man.
The Legislature could pose another challenge. The 1911 Washington Public Ports Act initiated a process to create port districts around the state. The Port of Seattle was the first. Will the Legislature want to weigh in on this new partnership in some way? Although the Seaport Alliance is permissible under existing state law, the process will be closely watched by state legislators.
In the long term, the alliance could actually help the Legislature focus on the value of our trade sector and build support for an aligned port strategy by providing a combined voice on port matters in Olympia. Canada has been successful in aligning investments and policies to support their Gateway Strategy. The hope is that the new Seaport Alliance can answer the competitive call from the north.
The most complicated part of this process will be, as is usually the case, financial. Both ports have investments in marine terminal equipment and infrastructure that must be accounted for in the alliance — a sort of maritime pre-nup. The sharing of returns on investments through the Seaport Alliance will have to be carefully monitored and processes put in place to ensure public confidence in expenditures and returns.
This makes the transition a critical time for setting expectations, defining the involvement of the public, setting matrices to measure success and developing the ten year plan called for in the Inter-local Agreement.
These and many other questions will have to be worked through in the next six months, which have been set aside as a due diligence period. The port of Seattle’s new CEO, Ted Fick, will also play an important role in this process as he puts in place his management team. His experience in the private sector will come in handy with brokering deals between the two ports.
It’s not a given that the Seaport Alliance will work, or what impact it will have on port competitiveness, but those of us who see the value of this gateway are pulling for its success. And gauging by the media, industry and elected official response to the two ports’ announcement, we are not alone in that opinion.