The Northwest Seaport Alliance (NWSA), a marine cargo operating partnership of the ports of Seattle and Tacoma, like most of the West Coast, had a good 2018 but they are facing significant challenges ahead and building Terminal 5 is the key.
2018: A Good Year but Looking for More
Undoubtedly, the NWSA’s good fortune occurred because shippers were in a rush to beat the anticipated higher tariffs (and retaliatory tariffs). This trend was clear in the robust December 2018 container volumes which hit nearly 350,000 TEUs, an 11.6% increase over December 2017. The run continued into January (2019) when the NWSA posted a remarkably 32.8% (31,793 TEUs) gain over January 2018. December also included the arrival of the YM Wondrous at Terminal 18 in the North Harbor. At a capacity of 14,080-TEUs, the vessel is the largest Yang Ming Line containership to ever call a U.S. port.
Quayside: Terminal 5 is the Key
Which brings up the issue of Terminal 5. The NWSA has been the recipient of additional attention from Trans-Pacific carriers because of the congestion issues in the San Pedro ports and Oakland. But there’s a worrying trend threatening the port alliance’s future.
As TEUs and containership tons continue to increase, the number of ship calls continues to fall. In short, as the containerships get bigger, there are fewer ship calls. And the ships are getting very big with line haul vessels touching 18,000 TEUs-20,000 TEUs.
The rub is if the NWSA’s ports can’t handle – or can’t handle efficiently – the larger line haul vessels on the Trans-Pacific routes, then the ocean carriers may begin dropping calls or outright eliminating the NWSA call altogether. This is more of a threat today than in the past as the number of ocean carrier alliances and agreements has effectively cut the number of potential carriers considering a call in the NWSA ports.
Additionally, it might not have been as practical a recourse for the carriers as the combination of location and the relatively balanced ratio of inbound to outbound more than offsets the relatively modest immediate market region of metro Seattle/Tacoma. It is the reach to the North American interior (courtesy of fortuitous rail connections of the BNSF and UP) that is the NWSA’s competitive calling card.
But as the California ports prepare for larger ships, a more immediate threat to the NWSA lies to the North in British Columbia. Vancouver BC and Prince Rupert – the port broke the million TEU barrier in 2018 - with their arguably cheaper inland rail connections via CP and CN to the U.S. heartland and the ability to handle larger vessels, poses a greater threat to the long-term success of the port alliance. The strategic remedy for NWSA is to improve their facilities – basically build for the line haul boxships – and to reduce costs.
So, when the authorization for Terminal 5 came up for a vote in early April, it was no surprise that the managing members voted in favor of the expansion project.
Stephanie Bowman, Port of Seattle commission president and co-chair of the NWSA outlined what the $300 million project means to the Alliance and Washington State when she said, “The modernization of Terminal 5 represents a transformative investment in our region to support our state’s economy.”
Time will tell whether it is “transformative” for the State but unquestionably the Terminal 5 project is transformative of the Port of Seattle and the NWSA as it will reshape how the boxship business is handled in the foreseeable future as well as altering the landscape for other port businesses.
A Transition to Transformation
The proposed realignment of terminal assets in Seattle harbor will shuffle a number of different services around to enable Terminal 5 to handle the international trade and to become the port’s centerpiece:
• The approved Terminal 5 lease grants SSA Terminals (Seattle Terminals), a joint venture entity owned by SSA Terminals and Terminal Investment Limited Sàrl (TIL, parent company of Total Terminals International) to begin operating there after phase one construction is complete in 2021;
• The current lease at Terminal 18 will be amended to introduce conditional consent for the lease to be assigned to the new joint venture (SSA Terminals and TIL) and waive a rail yard fee;
• The current Terminal 46 lease with TTI will terminate early, allowing international container cargo to be realigned to Terminal 18. This presents the opportunity for Port of Seattle to operate a cruise berth on a portion of the property with breakbulk or project cargo on the remaining, larger section of property;
• Matson’s Hawaii service will relocate to the south berth at Terminal 5 while the north berth is under construction, creating additional room at Terminal 30 for international container cargo.
Overall the Terminal 5 project including a future Phase II commitment, represents approximately a half-billion dollars in private and public investment.
The Asian Connection
For the NWSA the Terminal 5 project is about keeping their Asian connection open. It takes only a cursory glance at the NWSA’s stats to understand the importance of Asia, especially North Asia, to the port alliance and Washington State itself. For example, in 2018 Asia-Pacific accounted for over $70 billion in freight (inbound/outbound) or about 91% of the total dollar value of the ocean cargo handled by NWSA. China was both the top inbound at just over $30 billion and top outbound at $3.3 billion followed by Japan at $12.4 billion and $3.2 billion and South Korea at $3.18 billion and $2.23 billion.
Drilling down to China itself, in terms of volume the NWSA handled 924,210 TEUs inbound and outbound 168,770 TEUs. A typical gateway inbound imbalance. However, the case with Japan is a little different with 98,751 inbound boxes as compared to 173,025 outbound.
It all adds up to a very large stake in the North Asia trade and especially with China, Japan and South Korea, making Terminal 5’s $300 investment look like money well spent.
