Full Steam Ahead For Ssa -- Expansion Deal With Port Shows How Business Is Done In A World Of Shared Interests

From a modest headquarters crusted with dust from passing trucks, Ricky Smith's company wields so much power on Seattle's waterfront that the harbor is sometimes called the "Port of Smith."

Practically anyone here who flies in a Boeing 777, buys a Nissan car, eats an imported apple or buys clothing made in Asia has indirectly paid for his company's services.

Stevedoring Services of America handles an estimated 40 percent of Seattle's container traffic - aircraft parts, electronic equipment and other goods carried on ships coming from just about everywhere else in the world. And SSA is about to get even bigger.

One of the nation's largest employers of the union longshoremen who load and unload ships, SSA will soon increase its presence here with a Port of Seattle-financed $300 million expansion and improvement of Terminal 18 on Harbor Island, the company's home. That's the rough equivalent of a new Mariner stadium or what the Seattle Public Schools will spend on capital needs through 2001.

With practically no debate or public opposition, the Port on Wednesday signed a 30-year lease that solidifies SSA's hold on Terminal 18, Seattle's largest container-shipping terminal, which the company has controlled since 1984.

The deal triggers public spending on new container cranes, on-dock rail facilities and the costly relocation of 60 businesses in the path of the development, which will significantly improve SSA's ability to attract cargo to Seattle and away from competitors.

The Port, which is subsidized by King County property taxes, is considering different methods to finance the expansion.

In one approach, bonds would be sold through an industrial development corporation, which would allow SSA to manage construction of the project free from laws governing public contracting and save some costs. In that scenario, SSA would not have to accept the lowest bid, pay prevailing wages or give preferences to minority or women-owned companies.

Under the current and new lease, SSA pays for use of the land and Port-owned cranes. SSA currently pays about $9.6 million for those charges. The current land rent of $50,000 an acre per year would jump to $67,000 an acre per year when the expansion is completed and the new lease goes into effect. Rent would increase over the 30 years. The rent would cover the project's cost and produce a profit of 6 percent to 7 percent over the 30 years, the Port says.

The expansion, the Port says, will generate more than $290 million in new business revenue and will directly create 1,300 high-paying jobs for longshoremen, freight forwarders, truckers and others.

At the same time, the deal also provides a telling example of how business is done on the waterfront, where the Port and private interests negotiate quietly, in a world of shared interests and, frequently, old friendships, ostensibly to benefit the economy.

Mic Dinsmore, the Port's executive director, says the Port looked carefully at the future of Terminal 18 and considered several possibilities, including leasing the land to a steamship line. Ultimately, however, the choice went to SSA because of its competitive strength, global presence, financial stability, historically good relationship with the Port and its commitment to Seattle.

By all accounts, SSA is one of Seattle's great entrepreneurial success stories. Forbes magazine estimates its annual revenue at $700 million. With 10,000 employees, it ranks among Washington state's largest private companies. It is so big that an attorney for the Port of Los Angeles once called it "a virtual West Coast monopoly."

Like Starbucks, Microsoft and Boeing, SSA in its niche dominates because of hard work, vision, service and guts. But unlike its glamorous business brethren in Seattle, SSA has steadfastly ducked the limelight.

Its corporate headquarters is equally low key, a drab, concrete structure on Harbor Island surrounded by the din and movement of the harbor's brute commerce: Trains bellow warnings of their movements, dented six-wheelers rattle through muddy potholes, and giant cranes lift endless steel boxes from ships as big as aircraft carriers. Close by, men in sweat- and rain-soaked clothing inhale half-pounders at the Chelan Cafe, whose bar opens at 6 a.m. This neighborhood might not appear in glossy national magazines celebrating Latte Land, but it remains a vital part of the region's economy.

From this grimy base, SSA has embraced modern technology and globalism. Beginning in 1982, the former Seattle Stevedoring expanded into Oregon and California, then elsewhere in the United States and throughout the Pacific Rim.

Waterfront clubbiness

SSA's early growth would not have occurred without the close cooperation of the Port of Seattle, which decides who gets valuable terminal leases and which terminal gets multimillion-dollar improvements. Such improvements can vastly improve a company's business prospects and even act as a stimulus for the entire network of entities that provides services for maritime commerce, from transaction lawyers to Teamsters.

Nevertheless, decisions by the Port rarely get publicly debated, much less criticized by industry players. Other businesses that rely on the Port fear how officials would react to criticism. There's an inherent clubbiness on the waterfront, where relationships go back generations, companies are competitors here and allies elsewhere, people move frequently among companies, and disputes flare and subside privately.

Ricky Smith, for instance, enjoys a close friendship with Port Commissioner Jack Block, whose father was a friend of Fred Smith, Ricky Smith's father. Fred Smith helped Block through the four campaigns it took him to get elected. Ricky Smith has taken Block on fishing trips using the company's jet.

Block is not just a friend of the Smiths but often has been an employee, as a longshoremen foreman. SSA picks workers from a list of members of the International Longshoremen's and Warehousemen's Union supplied by the industry's Pacific Maritime Association.

Among Block's votes for many terminal projects, he has vigorously supported multimillion-dollar programs that benefited terminals used by SSA, but he has insisted that his actions have followed ethical guidelines and pursued the public's interest. Nonetheless, Block has acknowledged that employers watch his votes and quietly show their displeasure. In 1988, he says, he lost work from two employers, Jones Washington Stevedoring and American President Lines, as punishment for his vote. Both denied the allegation.

An inside look

The public got a rare look at conflicts within this closed world in 1982, when the Port decided to expand SSA's use of Terminal 18's 110 acres, which the Port had previously operated. The lease remains the one time the Port has assigned a terminal to an independent stevedore. Typically, ports prefer to rent directly to steamship lines or their subsidiaries since they, not stevedores, bring the cargo.

Critics say leasing to stevedores diminishes a port's authority, including a say in what steamship lines use a terminal. "You hold none of the chips" was how one steamship-line official recently described the Port's position at Terminal 18.

When SSA got the lease for Terminal 18, rival bidder Clayton Jones, owner of Jones Washington Stevedoring (now Jones Stevedoring), publicly protested that the agreement would create a "virtual monopoly of stevedores on the waterfront." He described Terminal 18 as the waterfront's cornerstone, whose control, some argued, gave SSA an enduring strategic advantage over competitors.

Then and now, SSA says the Port simply went with the better deal. SSA offered to put up more money and take the risk on a long-term lease, says Smith, SSA's chief executive. Fourteen years later, Jones declines to speak publicly about what happened or even comment on the deal for Terminal 18.

Some, however, argue that the deal at Terminal 18 has been good for the Port of Seattle.

"I'm now a competitor of SSA, but I have to say they've done a good job. They've brought more business to the port than the Port has," says Ed McKinnon, the Port's former manager of marine marketing and now an executive with Marine Terminals, which provides stevedoring and other terminal services.

Review of relationship

Lingering suspicions about SSA and the Port sparked a formal review in 1990, when a now-defunct company called Seacon Terminals filed charges with the Federal Maritime Commission.

Seacon accused the Port of acting "so that SSA increased its monopoly and dominance" on Seattle's waterfront. Seacon claimed that it was forced out of a spot at Terminal 25 in a complex scheme to benefit SSA.

With commissioners and Port staff under oath, the proceedings revealed that SSA had indeed become the Port's alpha dog at three terminals, using almost 55 percent of the Port's acreage for container cargo.

Frank Clark, then the Port's real-estate manager, testified that the commissioners themselves had asked staff "whether SSA had too much terminal area under their control. (But) after that issue was discussed with commissioners, they recognized that that in fact was not the case."

Seacon tried to show that SSA was cozy with Port managers and commissioners. For example, it brought up that former commissioner and lawyer Henry Aronson had allegedly solicited business from SSA in 1988, during a period that the company was pressing the Port to finance a $3.5 million rail facility at Terminal 18.

For all its allegations of insider deals, however, Seacon failed to convince the judge, who ruled that the Port had acted properly and that Seacon had lost for simple business reasons. There was no evidence that Aronson, who never got legal work from SSA, had influenced events that went against Seacon, the judge said.

"SSA has no monopoly in Seattle. . . . SSA has been willing to invest in long-term leases and to undergo risks of its investments," the judge said.

That, however, did not end talk of the "Port of Smith." If anything, SSA's recent international growth has made it more important to the Port of Seattle. SSA's extensive international presence and marketing hustle are seen as helpful to bringing business to Seattle.

But appearances were not helped when Clark, who became the Port's marine director, retired in 1993 and wound up working at SSA as vice president.

Clark had represented the Port in the earlier negotiations with SSA on Terminal 18. Now Clark is negotiating with his former subordinates, including Keith Christian, manager of the Port's container business.

Dinsmore says Clark knows better than anyone both sides' needs and as such can help craft a deal that's right for both parties.

"If the agreement does not work for both sides, it's not a good agreement," he says.