PORTLAND, Ore. (Portland Tribune) — Hoping for much more container service at the Port of Portland is whistling in the wind.
Those long metal boxes that can go by sea, road and rail and carry all our consumer goods disappeared from Portland Terminal 6 in 2016. A trickle of them has returned as the first once-a-month ship from Swire heads our way, to call here on Jan. 19 or 20.
Consultants hired by the Port laid out the picture in stark terms on Wednesday: Terminal 6 had better diversify if it wants to be sustainable (and that’s sustainable in the stay open sense, rather than the corn starch spork sense.)
At the Port’s regular commission meeting, Nolan Gimpel, project manager and principal consultant of the consultant team Advisian Worley Parsons, presented the finding from a business study of how Terminal 6 can survive.
Advisian and its subcontractors (IHS-Markit and The Beckett Group) concluded that mixed-use is the way to go: the container part of the terminal’s 419 acres footprint should be reduced, and the rest given over to a mix of cargo uses (intermodal rail, breakbulk, autos).
Gimpel talked about larger trends in shipping that dwarf Terminal 6. One is ship size: Portland’s shallow Columbia River can only handle ships up to 7,000 TEUs (twenty-foot equivalent container units). But most Transpacific carriers buy ships larger than 10,000 TEU. Gimpel reported that nearly 85 percent of current orders are for vessels above 10,000 TEU and almost no ships of the 5,000-7,000 TEU size are being built.
The other factor is consolidation. Shipping lines have been merging so there is less competition and less leverage for a small Pacific port like Portland to negotiate things like changes in which ports to call at and when. For example, three Japanese shipping lines have become one, the Ocean Network Express. Cosco merged with China Shipping and is trying to buy Orient Overseas and maybe the French company CMA CGM.
Alliances control 87 percent of the transpacific freight.
Teresa Carr, the Port’s Terminal 6 business study project manager and business development and properties director, introduced Gimpel as perfect for the job because he has been a former executive of a stevedore service, asteamship line, a port authority, a ship’s officer. He graduated from New York State Maritime College and studied strategic marketing management at Harvard.
Gimpel said the key word in their enquiry was sustainable. “We had difficulty taking a pure container operation and coming up with model which was sustainable,” he said. “We had to find what we could do to prop up the container business to make it sustainable.”
The Port only made a profit on containers for two years, in 1996 and 2000. The recommendation was the Port find a stevedore company to manage container service, since that is not its expertise.
“Portland is not a Pacific Maritime Association member and does not want to be a member. It has lost a lot of its operating capabilities.”
The more control it gives up, the less risk there is, and for a publicly run body like the Port, the less risk the better.
Gimpel called Portland “a significant” market, but it’s still the smallest direct call port on the west coast. Shippers have other options, and Seattle-Tacoma has been taking Portland’s work since the decline at Terminal 6.
100 miles inland
Another drawback of Portland is the cost of navigating the Columbia River, which adds four days to a schedule, slowing down a sweep up the coast.
During the break in container service out of Portland, companies have found other ways to ship, and have set up different supply chains which won’t be easy to break. “They have to believe in the sustainability of the Port’s operation. The ramp up costs to get to break even will be high,” Gimpel warned.
“None of this is a this is a panacea,” he added. He pointed out that the port of Philadelphia gets tremendous state government subsidies, $400 million for dredging, plus infrastructure investment. “It’s the same in King County, where I pay taxes. I support the port whether I want to or not.”
Shuttle to Seattle
The new BNSF rail shuttle, which brings containers from Portland to Seattle, is a good move, but it’s just one piece of reviving the container service. “It’s a nice complement to starting up container service, you can defray some of the costs in the startup.”
Gimpel kept coming back to one point: getting enough container traffic through the Port to break even is “not an easy task” and it will have to be subsidized by other activities, such as break bulk, including steel.
To break even as a dedicated container terminal, Terminal 6 will need 197,000 vessel movements, which it has never achieved. It could make do with 148,000 vessel moves (which it peaked at in 2008) if it were supplemented by other cargo activity.
“That’s certainly a very doable number. But having Swire once a month is not going to get you where you need to be.
Commissioners asking questions
Keith Leavitt, the Port’s chief commercial officer, reminded the room that when the lease with port operator ICTSI was terminated last March, the Port received a termination settlement of about $11 million. “That payment is our working capital. We’ve been getting the infrastructure in place, we got new equipment, we’ve been getting it operationally ready,” Leavitt said.
Port commissioner Jim Carter said if the mission of the Port is important to the economy of the state, “I’m not sure how much time we spend thinking about just the container business.” He said containers are part of the bigger business of market access.
“We need to convince the public how important the business is, not just the container business. If not we’re just a small port that can barely survive, like Pendleton is a small airport.”
Commissioner Michael Alexander asked if there were other small ports who had seen the changes in the shipping industry coming and reinvented themselves. “Maybe there’s a disruption strategy we can consider? Who’s made lemonade out of lemons and who’s just standing there?”
Gimpel replied that they had looked at niche ports around the U.S., including Philadelphia and San Diego.
Commissioner Linda Pearce said “When I became a commissioner, there were a lot of issues with Terminal 6, so to get to this point feels like a victory. We now have data to make good decisions.”
Commissioner Tom Tsuruta asked if it would take five years to break even. Leavitt replied that the volume or 148,000 vessel moves may not be reached in five years, but that “we should be moving toward that number.” Within three years, Port managers “will know if the market has passed us by.”
No new taxes
Run as a private business but with a state mandate, the Port and its general fund has to stand on its own two feet.
Port of Portland’s Executive Director, Curtis Robinhold, made it clear that the airport cannot fund containers. “We don’t have a cash cow to subsidize it. It’s just what can we do in these 400 acres? When we pull on our big boy and big girl pants, we admit we can’t do that on boxes (containers) alone.”
Asked if there were any other sources of money, Robinhold pointed out that the Port of Vancouver gets more subsidies than POP, and Seattle gets $70 million in taxpayer money.
“We’re not going to get that. We have not set out for closing the gap with a subsidy.”
Brenda Barnes of freight forwarding company George S. Bush said “Intermodal rail is a great move, it allows the gate to be open and will help the container business sustain and grow.” She said road congestion around (Puget Sound) ports was a real problem, and that truckers do not like the new law about having to use electronic logging devices. “Truckers will tell you this is going to hurt.”
