Ports Start to React to Liner Alliances

Photo Credit: Port of Seattle image by Don Wilson

In a ground breaking move which could be copied by other ports, Seattle and Tacoma have applied to the US’ Federal Maritime Commission (FMC) for permission to share information and discuss matters such as rates of return, planning, utilization, operating costs and charges. But with each port having a number of terminals run by private operators, many of whom are carrier affiliated, consolidation of terminal ownership will likely be a pre-requisite for success.

As with other US west coast ports, Seattle and Tacoma have to live with the legacy whereby each major carrier tended to have its own terminal. This made sense when carriers were smaller and more independent, but with today’s mega carriers and alliances, the fragmentation of terminal capacity makes it harder to accommodate the growing needs of the likes of the P3, G6 and CKYH alliances.

Each of the Puget Sound ports handles less than two million teu p.a. yet Seattle has four container terminals and Tacoma five (see Table 1). Greater cooperation between the two port authorities, if approved by the FMC, will certainly help to better manage the situation but, in the short term, it will not change the nature of their physical assets. Nor will it allow individual terminal operators to cooperate – even if they wanted to.

For this to happen, separate applications made by the terminals to the FMC will need approval (like, for example, the one submitted jointly by the Seattle port authority and its three terminal operators in late 2013) – or there needs to be some merger and acquisition activity. Given carriers’ current need to raise cash by selling assets such as terminals, this is perhaps the more likely option but it will take time.

In the more immediate term, Seattle and Tacoma port authorities could improve their competitive position by seeking to co-ordinate berthing windows between the two gateways, or by dovetailing intermodal rail services, for example.  However, whilst each port authority could naturally perform a facilitating role in this respect, they would need the involvement of the terminal operators as well, and other parties such as railroad companies, with attendant regulatory approval implications.

Table 1
Container Terminal Ownership – Seattle and Tacoma

Figure 1

For Seattle and Tacoma, it makes sense to work more closely together, especially as the two ports ultimately share the same owner, Washington State. Significantly though, they have ruled out any talk of merger, and have also excluded the ability to take any collective action. Located just 30 miles apart, they have seen their respective share of Puget Sound volumes ebbing and flowing with increasing volatility in recent years – but with overall volumes virtually unchanged from 10 years ago.

Meanwhile in the wider Pacific North West region, Canadian ports such as Vancouver and Prince Rupert have been steadily winning overall market share from the two US ports, muscling in on the discretionary US and Canadian intermodal traffic (which makes up over 70% of Seattle-Tacoma’s volumes).  It is this challenge which is also motivating Seattle and Tacoma’s move, as much as the bigger ships and bigger alliances issue.

Table 2
Development of Seattle and Tacoma Container Volumes, 2004-2013 (million teu)

Table 3
Development of Volumes at Main Pacific North West Container Ports, 2004-2013 (million teu)

The steps being taken by Seattle and Tacoma also raise a wider question of whether other ports in the US and elsewhere may also seek to work more closely together in the face of growing ship sizes and alliances. In countries where there is a prescriptive national ports policy or national ownership of ports, this is of course a given. In places where this is not the case, many challenges exist. Seattle and Tacoma are located in the same country and the same state, giving a high degree of common interest – although local politics will always play a part. Los Angeles and Long Beach are physically adjacent ports and could perhaps seek to work more closely together, but have similar issues in terms of numerous carrier interests in their terminals.

Further afield, the North Adriatic Ports Association (NAPA) is a cooperation agreement between the ports of Trieste and Venice (Italy), Koper (Slovenia) and Rijeka (Croatia) with the aim of competing more effectively with North European gateways to Central Europe. This grouping faces the challenges not only of fragmentation of volumes and capacity, but also has ports in three countries to balance the needs of, and national interests present a multitude of vested interests.  So whilst it might just be conceivable that, for example, the ports of Hamburg and Bremerhaven work more closely together in future, it is far less likely that Antwerp and Rotterdam will.

Overall View

Assuming it is approved by the FMC, the move by Seattle and Tacoma ports is a logical one. The common ultimate ownership of the port authorities gives Seattle and Tacoma more chance of success than other possible port authority co-operation agreements around the world. Fragmentation of terminal capacity in the two ports will make the task more complex and difficult though, and consolidation of terminal ownership will most likely need to be part of the solution.