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Originally published Sunday, September 28, 2008 at 12:00 AM

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Puget Sound ports facing challenges

The U.S. economic slowdown has cut the demand for Asian imports, reducing container traffic, and competition from other West Coast ports is heating up.

Seattle Times business reporter

Puget Sound ports

Port of Seattle Port of Tacoma
2007 container volume 1,973,505 TEUs 1,924,934 TEUs
Workers at port facilities 9,700* 10,000
Fiscal 2007 operating revenue $461.1 million** $97.8 million
Property tax collections, 2008 $75.9 million

(22.5 cents per $1,000 of assessed value)

$16.5 million

(18.59 cents per $1,000 of assessed value)

Source: Port of Seattle, Port of Tacoma

* Cargo jobs only — excludes fishing, cruise, marina.

**Includes airport operations

Like one grazing brontosaur after another, the giant cranes lined up at the ports of Seattle and Tacoma to pluck multicolored shipping containers from massive cargo ships. The steel containers, filled with everything from electronic gadgets to running shoes, are as likely to travel to Chicago as Chehalis; once they're gone, hundreds more sitting in nearby yards will be loaded and shipped the other way, to Asia.

By year's end, nearly 4 million TEUs of cargo will have moved through the ports of Seattle and Tacoma. (TEU stands for 20-foot-equivalent unit, a standard measurement of containerized cargo; one TEU can hold 43,500 apples, 8,928 frozen chickens or 616 Christmas trees.)

Together — which is how people in the shipping business often think of them — the two Puget Sound ports are the third-largest container center in North America, and the second-largest on the West Coast.

But the activity is deceiving. The two ports face both immediate and longer-term threats to their plum positions in West Coast shipping — and to the thousands of well-paying jobs each port directly and indirectly supports.

The near-term issue is the sputtering U.S. economy, which has slashed demand for Asian imports. Container traffic at both Seattle and Tacoma this year is down from 2007, which was down from 2006, which was down or flat compared with 2005.

Global Insight, an economic-research firm based in Waltham, Mass., forecasts that total U.S. container traffic will grow just 2 percent this year, versus 4.5 percent growth last year, as falling import volumes overwhelm an export boom.

Still, cargo traffic is predicted to pick up once the overall economy does; Global Insight predicts a near-doubling of container volume between now and 2020.

But the Seattle and Tacoma ports face intensified competition for the trans-Pacific slice of that trade — from other West Coast ports in the U.S. and Canada (and possibly even Mexico), and, thanks to a Panama Canal expansion project, from East Coast ports as well.

That competition already has trimmed the two ports' combined share of West Coast traffic to less than 16 percent, from a peak of 18.1 percent in 2005. And, observers say, it inevitably will force Seattle and Tacoma to decide just what they want their ports to be.

The question, said Paul Bingham of Global Insight's global trade and transportation practice, is: "How much do we really want to play in this game? How much do we want to use this land for container shipping versus other uses?

"Part of the competition," Bingham said, "is within the community itself."

So far, the Puget Sound ports are responding in markedly different ways. Tacoma, which has vacant land to spare, is building new terminals; Seattle, which doesn't, is banking on a series of tweaks and fixes to stay relevant.

Even so, Port of Seattle CEO Tay Yoshitani is keeping his expectations low. He wants the Port to stay relevant to shippers, but recognizes even that will be a tough challenge.

"I'm a realist," Yoshitani said. "We know we can't expand. There are a lot of little things we can do, but given our situation, it makes no sense for us to aspire to be the biggest port on the West Coast. It's just not in the cards."

Competition intensifies

The Chinese machine parts, Thai toys, Cambodian clothing and other imports that pass through the Puget Sound ports mainly are headed inland, to major distribution centers that serve the U.S. population centers in the Midwest and East.

The local ports' primary competition comes from the massive twin ports of Los Angeles and Long Beach; Vancouver, B.C., and Oakland are lesser competitors. L.A./Long Beach, while chronically congested, permit shippers to supply tens of millions of Southern California customers while getting their goods to the rest of the country.

Over the years, Seattle and Tacoma have established themselves as the main alternatives to the Southern California ports, largely because they're at least one sailing day closer to Asia. In 2005, when L.A. and Long Beach were bedeviled by bottlenecks and operational glitches, shippers shifted their cargoes north; that year, container traffic at both ports topped 2 million TEUs each.

Since then, though, traffic at both ports has fallen off. Last year it was down 6.9 percent at Tacoma, 0.7 percent at Seattle; so far this year, Seattle is off more than 10 percent and Tacoma is down 1.7 percent.

To be fair, all major West Coast ports — with one notable exception — are down this year. The exception, Vancouver, B.C., mainly serves the Canadian market, and Canada's economy has been outperforming the United States'.

Vancouver, though, could become more of a direct competitive threat to the Seattle and Tacoma ports in the near future.

The Vancouver port — which merged with two smaller Lower Mainland ports in January — wants to capture nearly 5 million TEUs of future container-cargo growth over the next two decades. To do that, it has upgraded its Burrard Inlet terminals and plans to more than triple capacity at its Roberts Bank facility (near the car ferry to Vancouver Island).

Gordon Houston, CEO of the Vancouver Fraser Port Authority, said the expansion's primary goal is to serve future growth in Canada. But, he added, "After that, if there's an opportunity to go after the U.S. market, we'll take it."

Some 480 miles north of Vancouver, another competitor is taking shape. The federal and provincial governments, along with Canadian National Railway and the port's private operator, have spent $170 million (Canadian) to build a state-of-the-art container terminal at Prince Rupert, a tiny town near the Alaskan border that historically exported coal, grain, logs and other bulk goods.

The first phase of the Prince Rupert terminal, completed last year, can handle 500,000 TEUs annually. The second phase, expected to be completed in late 2010, will increase container capacity to 2 million TEUs — about what the ports of Seattle and Tacoma each handle.

Why build such a big port in such an out-of-the-way place? Prince Rupert has three big advantages: a deep, ice-free harbor; a direct rail line to Eastern Canada and the U.S. Midwest; and a location closer to key Asian trade centers such as Shanghai than any other North American port.

Glenn Pascall, a Seattle economist and consultant, said Prince Rupert "scoops our argument for being two sailing days closer to Asia than L.A./Long Beach, because they're a day or two closer than we are."

So far, Prince Rupert is more potential than reality. Only two container ships a week call there, and in the first half of this year the port only moved 64,595 TEUs — what Seattle or Tacoma handles in a couple of weeks.

Tim Farrell, executive director of the Port of Tacoma, is keeping a watchful eye on Prince Rupert, as well as Mexico's stated intention to build a $4 billion seaport at Punta Colonet on the Baja California peninsula. But he's not too worried yet.

"Competition is nothing new in our business," Farrell said. "You could drive yourself crazy trying to figure out where the next competitive threat is coming from."

Part of Tacoma's response: By 2014, it plans to build out much of its vacant land between the Blair and Hylebos waterways, including a terminal for Japan's NYK shipping line and an expanded terminal for Totem Ocean Trailer Express. The Puyallup tribe and SSA Marine also plan to build a terminal on tribal-owned land on the peninsula.

Farrell is counting on that added capacity, along with Tacoma's extensive intramodal rail system, to keep the port competitive.

"This is the most efficient operation on the West Coast," he said. "You go from the ship to the train and off you go."

Hemmed in

Seattle's port, hemmed in by downtown and nearby sports stadiums, doesn't have the option of adding several new terminals. The port is moving Alaska cruise ships to Terminal 91 in Magnolia, at a cost of $120 million, so container ships can return to Terminal 30 on the downtown waterfront. But there's not much more ship-juggling that can be done.

Instead, port chief Yoshitani is pinning his hopes on smaller moves, such as negotiating to set up off-dock storage yards for cargo, to free up more space on the docks. "It's not quite as good as building 200 acres, but it helps," he said.

Yoshitani also hopes his efforts to "green" port operations will help Seattle stand out: "Companies in this day and age are looking to do business with partners they feel are doing the right thing from an environmental standpoint."

Such actions by themselves aren't likely to drive a lot of cargo Seattle's way, he acknowledged. "I don't see us taking business away from other ports," he said. "I do expect us to be competitive enough to get our fair share of the new cargo."

Those modest aspirations drive people like Bruce Agnew batty. Agnew, director of the Discovery Institute's Cascadia Center for Regional Development, said the Seattle port risks sliding into irrelevance without concerted effort to keep it competitive.

"The British Columbians are nimble, directed and are making huge investments for the Olympics and their Pacific Gateway program, and we can't even come up with $25 million to unclog Stampede Pass," he said.

Agnew was referring to a BNSF railroad tunnel through the Cascades. The tunnel is too low to permit double-stacked containers; that leads many freight trains heading to or from the Port of Seattle to go through Snoqualmie Pass or the Columbia River gorge, adding several hours to their trips. Heightening the tunnel would cost around $100 million; the railroad has said it's unlikely to undertake such a project without a $25 million contribution from the state.

The core challenge for Seattle's port, Pascall said, is that the land surrounding it is worth far too much as building sites to justify using it for cargo. Given that, and the fact that other ports from Tacoma to Prince Rupert do have room to grow, it's almost inevitable that they will capture most of the incremental growth in container traffic.

But that doesn't have to be a bad thing for the city, Pascall said, citing the case of San Francisco. Decades ago, he noted, San Francisco was a major West Coast port, but over time development pressures pushed nearly all cargo activity across the bay to Oakland.

"The brutal truth is, it has not hurt the economy of San Francisco to not be a cargo port, even as it has helped the economy of Oakland to be a cargo port," Pascall said. "The real question is, will we go the way of San Francisco? But that's a big way down the road."

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com

Copyright © 2008 The Seattle Times Company

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