The ports of Seattle and Tacoma's decision to work together has provided them more operational flexibility.

SEATTLE — The Northwest Seaport Alliance of Seattle and Tacoma is revamping its container operations to better handle mega-ships and protect its market share of Midwest discretionary cargo that it regained last year from the Canadian ports of Vancouver and Prince Rupert.

Tong Zhu, real estate and international container leader, said the realization of how important the mega-ship era will be surfaced on July 9, 2013, with the arrival of the Zim Djibouti, with a capacity of 10,000 TEU. The Zim Integrated Shipping Services vessel was followed by an 11,400-TEU CMA CGM vessel, and then last year the 18,000-TEU CMA CGM Benjamin Franklin. The mega-ships exposed the shortcomings of marine terminals and cargo handling processes that were designed for 5,000-TEU ships. The Northwest Seaport Alliance knew the future belonged to the marine terminals that can most efficiently handle the big ships. “This is for real,” she said.

The Pacific Northwest ports have always marketed themselves as a reliable and efficient gateway for rapid processing of import cargo not only for local destinations in the Pacific Northwest but also to major population centers from Chicago to New York. Agricultural exporters in the upper Midwest, and in the Pacific Northwest, find Seattle-Tacoma as one of the quickest and most direct routes for the products from the northern tier of the United States to Asia.

However, the emergence of the Canadian Pacific Northwest ports, with their efficient intermodal rail connections to Chicago and the Midwest, has given the Northwest Seaport Alliance an unparalleled degree of competition. Prince Rupert, located 500 miles north of Vancouver, enjoys about a day shorter transit time from Asia along the Great Circle route. Later this year Prince Rupert will open a second berth at the Fairview Container Terminal that will increase its annual capacity to 1.3 million TEU. The Northwest Seaport Alliance in 2016 was able to claw back market share they had lost to the Canadian ports in 2015 during the West Coast labor disruptions, and they want to ensure Prince Rupert’s expansion does not overturn the gains.

The Canadian ports in 2016 handled about 4.4 percent of all US containerized imports from Asia, according to JOC.com sister company PIERS. Since 2011 they have steadily increased their market share in the US-Canadian Pacific Northwest region. According to port figures, Vancouver’s share of containerized cargo volume in the region increased to 48 percent from 44 percent in 2011, and Prince Rupert’s market share increased to 10 percent from 7 percent. Seattle-Tacoma’s regional market share, meanwhile, declined to 42 percent from 48 percent.

CEO John Wolfe said that in order to grow market share in this competitive environment the Northwest Seaport Alliance must have the most efficient operations in the region, and that will require modernizing the terminals and infrastructure to serve today’s mega-ships. “We will re-engineer the gateway,” he said. In the process, the port authority is repurposing some land parcels for ancillary functions that improve cargo handling, and is implementing process improvements such as peel-off container piles, extended gates, and trucker appointment systems.

Seattle and Tacoma, which for decades competed with each other for cargo, in late 2015 launched the Northwest Seaport Alliance. The ports now plan, build, and market the North Harbor (Seattle) and the South Harbor (Tacoma) as a single gateway. This arrangement not only prevents duplication of facilities, but also provides opportunities for container terminal consolidation to accommodate the mega-ships.

Wolfe said the master plan for the port complex is still a work in progress, but it appears that the gateway will focus its international container terminal efforts at the 200-acre Terminal 18 and Terminal 5 in North Harbor and the general central peninsula section of South Harbor that includes Washington United Terminals (103 acres) and Pierce County Terminal (140 acres). “Those locations seem to be best positioned for the big-ship international terminals,” he said. Developments must take place jointly with the terminal operators that operate the facilities. In the case of Terminal 5 in Seattle, which is now vacant, a new terminal operator will be found. Nevertheless, Wolfe said he sees no encumbrances in the way.

The goal of port officials is to have at least four large, deep-water terminals to handle the mega-ships engaged in the international container trades. With the new carrier vessel-sharing alliances that took effect on April 1, the Northwest Seaport Alliance has a weekly string of 14,000-TEU ships headed its way. The big ships require deep water, which the gateway naturally has, super post-Panamax cranes, which are being purchased, and efficient intermodal connectors to the transcontinental rail networks, which the gateway likewise has had for some time.

Although the primary focus is the four sites for the big-ship terminals, the gateway also has five smaller container terminals. The port authority will devote those sites to trade lanes that don’t use big ships, such as the domestic trade to Alaska, which Tacoma dominates, and repurposing some facilities for non-containerized cargoes including break-bulk and neo-bulk.

Bari Bookout, chief commercial officer for non-container and commercial strategy, said the flexibility that derives from having space immediately available enables the Northwest Seaport Alliance to respond to opportunities as they arise. For example, auto-carrier services to Vancouver have encountered a backlog in the Canadian port, so Seattle-Tacoma now receives overflow shipments that are stored there. As space is freed up in Vancouver, car carriers return on subsequent voyages to pick up the automobiles and deliver them to the Canadian port.

Formation of the Northwest Seaport Alliance has also given the port complex, mostly in Tacoma, access to hundreds of acres in the harbor area that are ideal for industrial real estate developments including import distribution centers and logistics facilities for imports and exports. Mike Campagnaro, director of real estate, said that Prologis, for example, is planning on constructing three warehouses totaling more than 1.5 million square feet in a logistics park in Tacoma close to the container terminals.

Last week, Prologis broke ground on a 590,000-square foot three-story warehouse two miles from the entrance to the Port of Seattle. These port-adjacent warehouses enable importers to expedite the first-mile (from the port) and last-mile (to the customer) deliveries in a single facility. They also provide a measure of relief to industrial real estate developers who are crying out for more space in the Seattle metropolitan area where the industrial vacancy rate is 1.8 percent.

Competing with Vancouver and Prince Rupert, which benefit from intermodal rates offered by the Canadian railroads that are $300 to $400 cheaper to Chicago than the US railroads charge through Seattle-Tacoma, requires that every move in the supply chain be as efficient as possible. The Northwest Seaport Alliance established its operation service center to engage in service performance enhancement for beneficial cargo owners (BCOs) and port stakeholders everyday, said Dustin Stoker, chief operations officer. The center, which is integrated with Customs and Border Protection and the state Department of Transportation, disseminates real-time information on conditions at marine terminals and connector roads and enables the port and terminal operators to react quickly to service issues, Stoker said.

The Northwest Seaport Alliance also meets regularly with terminals, carriers, BCOs, truckers, and railroads to plan for events such as the peak-season cargo surge. Last autumn, for example, the port authority worked with its terminal operators to offer extended gate hours during the peak months, most of which was paid for by the Northwest Seaport Alliance. The port also works with individual terminal operators that choose to establish trucker appointment systems and peel-off piles of containers that expedite delivery of inbound containers to truckers.

The key to service enhancements, Stoker said, is to learn from each of the industries the port services what they consider to be their key metrics, and to improve service levels in the terminals and between the terminals and the receiving warehouses. “This is all driven by the industry,” he said.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihsmarkit.com and follow him on Twitter: @billmongelluzzo.

Slideshow: