Port Tides Turning -- Seattle, Tacoma Rivalry Abates As Growth, Rail Issues Come To The Surface
Seattle Times Business Reporter
To the casual observer, the news of May 3 was a body blow to the Port of Seattle: Hyundai Merchant Marine, the Port's biggest container shipping line, was leaving town.
The Port downplayed Hyundai's decision to enter negotiations with erstwhile rival Port of Tacoma. Business is booming, said Port of Seattle officials, and no space left by Hyundai will be dormant for long.
Tacoma officials were buoyant, saying Hyundai's interest in moving south was a "win-win" situation for the region.
Such pat statements were old hat for the ports. This time, however, they seemed more credible than ones made just a few years ago, when the defection of shipping lines to Tacoma from Seattle caused great crowing and gnashing of teeth.
Have times really changed that much? Yes, said port officials and those who work for maritime businesses. Sea changes in the ocean-shipping industry often mean the Port of Tacoma is a more attractive destination than the Port of Seattle.
Shipping lines have consolidated. Many now prefer to operate "load centers," or centralized operations, in fewer ports of call than in the past. Companies want to relocate near partners with whom they have popular vessel-sharing agreements. In addition, shipping lines are scouting for ways to trim expenses and are re-examining everything from the lease rates they pay to the cost of the stevedoring companies they use.
Tacoma's relative abundance of cheap, undeveloped land compared with the urban Port of Seattle means it can "build to suit" more readily than Seattle can and offer lease rates Seattle can't match.
Now aware that it must share the wealth, the Port of Seattle has experienced an attitude change. Officials here recognize they have their hands full keeping customers happy. They have embarked upon several multimillion-dollar terminal upgrades to do just that.
Meanwhile, the Port of Seattle said it must also address a new and crucial problem: fixing the region's railroad corridors.
Until recently, ports never envisioned being responsible for planning anything beyond their own wharves and piers. Now, on top of their own improvements, they must influence two major railroads - the Burlington Northern Santa Fe and the proposed Union Pacific-Southern Pacific railroad - to upgrade an overburdened rail system so that growing ship cargoes can easily arrive and depart from the region.
It's an issue of dire importance, observers said, and one that will determine the Port of Seattle's future success more than any Hyundai does.
"The Hyundai issue is kind of a little flyspeck in time," said Paul Chilcote, senior director for planning, research and budget for the Port of Tacoma.
The Port of Tacoma has been narrowing the gap in container traffic with Seattle for years, for a time running roughly neck-and-neck with its big-city cousin. In the early and mid-1990s, though, Seattle rebounded strongly. Last year, about 1 million containers passed through the Port of Tacoma, while the Port of Seattle chalked up 1.5 million.
Hyundai accounts for about 200,000 of those containers. The two ports together now constitute the second-largest load center in North America, eclipsing even New York-New Jersey.
Ironically, the Port of Seattle found itself constrained by its own success when trying to retain Hyundai. After more than a year of negotiations, the company decided it wanted to make Puget Sound a load center and began negotiating a 30-year lease for part of Terminal 18 on Harbor Island.
However, Terminal 18 is already under long-term lease to a longtime customer with strong ties to the Port - Stevedoring Services of America. And although a planned $250 million expansion of Terminal 18 would give Hyundai the room it needed for the long term, the shipping company resisted an agreement in which it could not choose its own terminal operator or operate a terminal itself.
But more than the immediate issue of Hyundai's defection, it's the changes in the ocean-shipping business at large that have caught the Port of Seattle's attention. The steamship industry has consolidated and downsized, from 30 or so shippers several years ago to about a dozen today.
The lines that remain are not only larger than they once were, they also have become more ruthless cost-cutters. As a result of these changes, the shipping lines demand parcels of waterfront land that are bigger and free of middlemen such as terminal operators. They want to be near the shippers with which they have vessel-sharing alliances.
"At the same time," said Steve Sewell, marine director for the Port of Seattle, "you look at the future, and you see that eventually we're going to have capacity problems."
Port officials and maritime-industry observers agree that the Port will not end up with space on its hands and hundreds of unemployed dockworkers as a result of losing Hyundai. There are simply too many shippers clamoring to bring their cargo from across the Pacific through the Northwest, they said.
The same growth that has caused lines to look to Tacoma has also spurred the Port of Seattle to ask what else it needs to do to keep pace with its customers' growth, from installing on-dock rail yards to replacing cranes not large enough to unload today's larger ships.
But more importantly, it also has caused the Port of Seattle to look south, to the Port of Tacoma, to gauge how the two can cooperate to ensure the strength of both ports.
Local and regional rail improvements top the list.
"Rail is going to make or break us," said Tacoma's Chilcote.
The reason is simple: Container traffic through both the ports of Seattle and Tacoma is expected to more than double in the next 20 years.
As trade continues to heat up between North America and East Asia, shippers find Pacific Northwest ports appealing because they're closer to Asia and cheaper than their counterparts in California.
Exports leaving Puget Sound also are likely to increase, taking advantage of the connections built to handle the flow of imports.
Although Chilcote suggests the Port of Seattle may lose another customer or two to Tacoma before the shakeout ends, there will be plenty of business to go around, making rail service the pressure point for both ports.
Other trends have helped push rail to the fore. In addition to choosing Seattle and Tacoma as load centers, shipping lines are rapidly investing in vessels that will carry more than twice as many containers as even a few years ago. These loads mean increasing pressure on the rail system that hauls the cargo elsewhere.
Pressure is intensified on Puget Sound ports because more than 70 percent of the containers that arrive in Seattle and Tacoma leave on rail cars for another region, said Craig Hautamaki, director of intermodal for the Port of Seattle. By comparison, about 50 percent of the cargo unloaded at the Pacific Northwest's biggest rival port system, Los Angeles-Long Beach, stays in that metropolitan area.
What this all means is that the Puget Sound cargo business is fast outstripping the infrastructure that it has relied on for years.
Seattle and Tacoma already attract a disproportionately large amount of cargo, relative to their population size. But if shippers encounter problems moving cargo in the Pacific Northwest, little keeps them from sending this "discretionary" cargo to Los Angeles or Long Beach.
As a result, the Port of Seattle has found itself among a few organizations leading the drive for dramatic improvements in the rail system that serves the Northwest.
The two ports exacted pledges from the proposed Union Pacific-Southern Pacific railroad and the Burlington Northern Santa Fe railroad that each would invest in rail improvements throughout Washington state upon merging. The railroads have complied "for the most part," said Hautamaki.
So far, Burlington Northern Santa Fe has spent about $175 million to improve the Central Washington rail line and repurchase the Stampede Pass route over the Cascades, which will give the ports a much-needed third rail line to the east when it opens late this year or next year. One other route extends east through Stevens Pass, while the third runs south, then east along the Columbia River.
The other regional problem is how to increase rail mobility in the "northern corridor" between Vancouver, B.C., and Portland, where populations are growing almost as fast as freight traffic.
Adding to the complexity of the issue is the Regional Transportation Authority's proposal for a commuter rail system, which would run largely on the same lines as freight traffic. The Seattle and Tacoma ports have endorsed the RTA idea, so long as freight traffic is not slowed by the project.
In addition to some new lines that would also have to be laid, there are perhaps 50 or 60 spots between Seattle and Tacoma where rail lines directly interfere with automobile traffic.
"This is a huge dilemma," not just for divided towns such as Auburn or shipping lines whose reputation depends on their speed, said Hautamaki.
Plenty of planning lies ahead for the ports and local and state governments, especially when the question of funding emerges.
No one has yet figured out how the bill would be split for this mammoth undertaking, which would include track improvements estimated to cost $600 million to $700 million. A commuter-rail system could tack on an additional $200 million. Both ports and local governments are lobbying hard to garner federal funding to help pay for the projects because of their "national importance," Hautamaki said.
To drive home the importance of the project, staff from both ports accompanied state legislators to Southern California, where they toured a similar project called the Alameda Corridor. The 22-mile, $1.8 billion corridor is a sunken "expressway" that will whisk rail and truck traffic from the ports to distant rail yards.
Funding problems have caused the project to stumble, but officials said it will be completed by 2001.
Locally, the Port of Seattle wrestles with a smaller version of the region's problem: how to move trains easily from marine terminals to the main lines.
"That corridor that's required to move containers in and out of this city is not there," said an official of a major Seattle container-ship company who asked not to be identified.
On-dock rail improvements at terminals 5 and 18 should help alleviate a good part of the congestion, the Port said. But "at-grade" crossings are another culprit that needs to be dealt with, Hautamaki said.
Near the Port, for example, Burlington Northern Santa Fe's tracks block Royal Brougham Way, which separates the Kingdome from the proposed Mariners ballpark, for about two hours and 20 minutes a day. That delay is expected to more than double by 2010.
The Port is now completing an access study of the North Duwamish area to identify similar rail conflicts and offer solutions. A July report by a California consulting group suggested that the Port look at adding a new track from Terminal 5, which is now being overhauled.
Hautamaki said it's also possible that some roads around East Marginal Way will be closed in the future.
"Plain and simple, it's growing pains," Hautamaki said. But, "It's a good problem to have."
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