Overview of Pacific Northwest Ports

The Pacific Northwest Ports are being impacted by events as diverse as Bakken oil field production, labor issues and new container operator alliances. Ports of British Columbia: Port Metro Vancouver

The year 2014 started out well for Canada’s largest port with record volumes of containers and bulk having been handled in 2013. In total the port moved 135 million tonnes of cargo, which represented a nine percent increase over the previous year. In fact, the port’s performance encouraged President and CEO, Robin Silvester, to say: “Looking to the future, we remain firmly committed to facilitating Canada’s trade, environmental stewardship, improved reliability, enhanced customer value, and improving the quality of life of British Columbians and Canadians through enabling economic activity.” However, early in the year the port’s plans for a second major container terminal, equal in size to Deltaport (Canada’s largest) suffered a setback when port management was told by Ottawa that prior to construction the plan would have to undergo an environmental assessment by an independent review panel before construction could begin – a process that could take two years to complete. In a description of Terminal 2, published in 2013, the port said: “In 2012, almost 3.3 million TEUs transited the Canadian West Coast, of which 2.7 million TEUs moved through terminals within PMV’s jurisdiction. Annual third-party forecasts show that West Coast container traffic is expected to double over the next 10 to 15 years and triple by 2030 (Worley Parsons Canada and Seaport Consultants Canada Inc., Ocean Shipping Consultants, July 2013). However, one point worth considering in making these guesstimates is the fact that Canada, together with Mexico, officially joined the Trans-Pacific Partnership in October 2012 and, at that time, Canada’s Trade Minister said: “Joining the TPP is an important step forward in our government’s active and growing presence in the Asia-Pacific region. The region is a priority market for Canadian businesses, offering enormous opportunities to our exporters.” Also, recent success in reaching a free trade agreement with South Korea, one that could boost Canadian exports to that country by 32 percent, equivalent to C$1.7 billion a year and imports by 20 percent a year, or around C$1.3 billion, is only the tip of the iceberg and a sign of what is on the horizon for Canada’s West Coast over the next few years. Given the fact that a federal election in Canada will intercede before the two-year decision-making period for the panel is concluded, the work of the environmental panel could be seriously postponed or scrapped entirely, depending upon the outcome of the election, and given the fact that when the proposed terminal is approved – assuming it is approved – it is likely to come with a long list of environmental requirements that will not only add to the construction costs, but also slow construction - meaning the second terminal could come on stream later than planned. It could be that Ottawa’s decision could end up opening the door on a port that remains too congested to accept the increase in Asian traffic.

Adding yet another black cloud to the port’s horizon was the fact that even though the last round of negotiations with port dockworkers (ILWU) brought with it an agreement promising eight years of labor peace on the waterfront, container truck drivers were not involved in that settlement and, in March/June, roughly 1600 independent and unionized drivers combined walked off the job, complaining about long waits at Vancouver terminals, shutting down road cargo bound for both domestic and PNW destinations and, once again, seriously tarnishing the port’s international reputation for reliability. The truckers returned to work March 27 after an agreement was signed providing a 12% increase in trip rates compared to 2006, increased minimum rate for all hourly drivers “anticipated to be” initially instituted at $25.13 on hire and $26.28 after one year of service and a Waiting Time Fee paid at $50 per trip for time spent waiting at Port terminals after ninety minutes of waiting time. At two hours of waiting time, an additional $25 fee will be paid per trip. At two and half hours of waiting time, an additional $25 fee will be paid per trip. Each additional half hour will be paid at a rate of $20.” Port of Nanaimo While the Vancouver container trucker strike created mayhem at Port Metro Vancouver, the Port of Nanaimo on the West Coast of Vancouver Island actually benefited from the movement of box shippers looking for an alternative route and vessels that tied up at port anchorages waiting to unload. Doug Peterson, Manager of Marketing for the port, said the increase in container traffic, managed for the port by DP World, together with continuing strength in the lumber and log sectors, have 2014 off to a good start. The arrangement between DP World and the port was entered into when the port and the global container firm signed a three year agreement that awards DP World Vancouver the right to operate the Port of Nanaimo’s facilities, including the general cargo Duke Point facility and Assembly Wharf in the city’s downtown area. The two parties are interested in diversifying and pursuing commodities with short sea shipping of containers to and from Vancouver Island. As well, Peterson said there is growing interest in attracting project cargo and high and heavy cargo to the port to facilitate the movement of materials to the reconstruction of the John Hart Dam project near Campbell River and a possible LNG project on the Island. To date the port has handled various pieces of project cargo, including equipment for a large wind farm on the island. “What we see right now from the number of queries we’re getting that there’s an enormous amount of project work going on in British Columbia for a number of years to come and that’s a combination of both the LNG plants and the dam.” He also said the trucker’s strike in Vancouver benefited the port mostly due to the fact that shipping lines and shippers that were searching for alternatives to Vancouver became aware of the new, and growing, capabilities of Nanaimo. Port of Kitimat Located on Canada’s West Coast between Vancouver and Prince Rupert the Port of Kitimat is like an expectant mother waiting for the big day. And people have already begun arriving for the delivery, so much so that a cruise ship has been brought into the harbour to house crews working on the Rio Tinto aluminum smelter expansion that will increase production capacity more than 48 percent to 420,000 tonnes per year, or preparing and/or surveying sites for a variety of proposed LNG plants as well as a possible terminus for a major oil pipeline - the second on the West Coast - that would deliver crude oil (bitumen) from the Alberta oilsands to Asian markets. Rose Klukas, the community’s Economic Development Officer told AJOT that interest by both Canadian and foreign corporations has been strong since Kitimat became a story in the international media as a possible oil and gas port due to the fact that it sits in a long, broad valley suited to both pipeline and additional rail construction, all expressing an interest in other shipping opportunities at the port. “In our heyday, when we had three industries running we did have traffic counts of 350 vessels a year,” Klukas said. “Now, a project like Shell (LNG plant) could see one LNG ship a day coming in and Chevron (LNG plant) one every two days – so we’ll see an increase. Transport Canada has deemed our harbor safe for vessels of over 320,000 dwt. When you compare Kitimat with some of the major ports in the world where traffic is exponentially greater than what is here and their space is smaller than what we have, we don’t think that there’ll be a problem.” Port of Prince Rupert Business this year through the port is down slightly according to Shaun Stevenson Vice President, Trade Development & Public Affairs who attributed the decline to severely cold weather and the effect it has primarily on rail transportation by reducing the length of trains that can be handled. However, the good news was that the number of loaded export containers increased compared to the same period last year mainly due to resource products such as lumber and specialty grains being shipped in boxes returning to Asia. Developments on Ridley Island are moving closer to becoming an industrial park, with construction of an access corridor for road, rail and utilities about 60% completed according to Stevenson. Once completed the corridor will provide access to the island where permits have been approved for a major potash terminal to be built by Canpotex and LNG terminals to be built by B.G. Group and Progress Energy Canada Ltd. that is also proposing to have a pipeline constructed from Canada’s Hudson’s Hope gas fields to Prince Rupert. The port’s coal loading facility, Ridley Terminals, is also well into a capacity expansion project scheduled to be completed this year, doubling the previous coal loading capacity to 24 million tonnes per year. Stevenson said, the port authority has been approached by operators, interested in handling project cargo and high and heavy loads, and is in the process of assessing their proposals. “With Western Canadian industrial expansion, whether that be in Northern Alberta, the mining sector in British Columbia or the natural gas sector; it’s going to depend upon how well we can create solutions for that project cargo and create a ‘Made in Canada’ solution to support the expansion,” he said. Even though Stevenson said the port is “almost fully subscribed” for space at the Ridley Island site proposals keep coming in, for example a dry dock to service the fishing industry, ferries and tugboats, as well as a loading facility to handle HBI, a transportable form of direct reduced iron that would be destined to Asia and delivered from mines in Ontario. Ports of WA State: Port of Seattle The Port of Tacoma pulled significantly ahead of the Port of Seattle in container counts during 2013 largely a result of the move of the Grand Alliance from Seattle to Tacoma that is still dragging down the Port of Seattle’s numbers with 1.57 million TEUs moving over the port’s docks in 2013 compared 1.89 million at the port of Tacoma. In a statement port management said: “Seattle Harbor container volumes were down 20.4% February 2014 vs. 2013 and down 16.4% YTD. The decline was mainly due to the suspension of the New World Alliance’s PS1 Service in November 2013.” However, Peter McGraw, port spokesman, said this year Seattle is beginning to recover from what was a major blow to the port. The move of the alliance represented one of the new realities in the shipping business where shipping lines are consolidating, launching increasingly larger ships (now reaching 18,500 TEUs for the first time) and gradually reducing the number of port visits. And, Puget Sound is one region that has been suffering in recent years. In response to this global trend, the increasing competition from ports in Canada and Mexico and the changes that will result from the widening of the Panama Canal, Seattle and Tacoma filed a “discussion agreement” with the Federal Maritime Commission (FMC) on January 17 that, according to a statement, will permit “the two ports, with appropriate legal oversight, to share information about their respective operations, facilities and rates. These discussions are aimed at increasing our collective market share and generating more container cargo moving through Puget Sound, the nation’s third-largest container gateway,” the document says. With the permission of the FMC the two ports will attempt to reach a strategy to counter the impact of alliances such as the P3 alliance between container lines Maersk Line, Mediterranean Shipping Company, and CMA-CGM. While the ports face some challenges, their strengths a deep harbour, strong rail and road connections and offering the West Coast’s second-largest cluster of warehouses and distribution centers will have to be leveraged with an eye to operating in tomorrow’s world of consolidated, big box chains where one or two customers could provide a port’s only container traffic. Bari Bookout, Director of Commercial Strategy for the port told AJOT the discussion between the two ports are just beginning and are aimed at preparing the Puget Sound ports for unprecedented changes that appear to be coming in the future such as shipping alliances and increased competition. “That would be something both ports would be looking at together,” she said. Port of Tacoma

Last year the Port of Tacoma handled 1.89 million TEUs in 2013, returning closer to the 2 million container cargo mark it first reached in 2005. “Double-digit growth in imports and exports, along with 16% more vessel calls, contributed to the 10.5% gain,” said Tara Mattina, port spokesperson. She said full containerized exports improved nearly 16% to 529,255 TEUs, and imports were up 14% to 695,748 TEUs. The Port of Tacoma continues to work with the Port of Seattle and other Washington ports to hammer out plans to, among other things, find ways of increasing maritime business for the Puget Sound area. “The industry remains fiercely competitive. Shipping lines continue to introduce new, larger vessels into the trade. They also are consolidating into a handful of global shipping alliances, which puts increased pressure on terminal operators and ports, knowing that there will be fewer vessel port calls at fewer terminals,” said Mattina. “Ports must make significant capital investments in terminals in order to be prepared to handle the larger vessels entering the trade. They also must consider new business models, including reducing terminal capacity, exploring new joint venture relationships with terminal operators and making selective strategic investments that drive efficiency and higher levels of productivity within the terminals. “We continue to work with the Port of Seattle and others within the State on transportation investments, Harbor Maintenance Tax reform, environmental initiatives and security issues,” she said. “We are taking the further step in 2014 to share information about our respective facilities, operations and rates to explore possible ways to attract more container cargo to the Puget Sound region.” The port recently launched a planning initiative that will build on Tacoma’s naturally deep water and well-developed container terminals that are big-ship ready. Mattina said the strategic plan will have measurable targets built into it that measure cargo diversity, financial returns, environmental stewardship/responsible growth and job creation. Several major projects are underway or recently completed at the port including: • Completion of the near-rail, deep-water East Blair One terminal to support breakbulk operations. The 22-acre terminal features a 1,200-foot pier with a 120-by-119-foot heavy-lift pad rated at 2,000 psf. Rail connections, will be completed by fall 2014. • Construction to strengthen a pier and installation of a 100-gauge crane rail at Husky Terminal to accommodate larger cranes in the future. The project, expected to cost about $20 million, should be complete by fall 2014. • The port has partnered with the City of Tacoma to obtain grant money to cover 86.5% of the $496,000 design cost to rebuild Port of Tacoma Road, the main arterial route into the Port’s industrial area. • Proposals for the 90-acre former Kaiser Aluminum site are being evaluated. Environmental cleanup of the site was completed late last year and the port is expecting to secure an agreement with a developer in 2014. Plans for rail access to the property are also underway. Port of Quincy As big city ports become more congested and industrial land prices skyrocket growth industries are looking to locate in smaller communities with a strong, local workforce and, in most cases, excellent, uncongested road, rail and sometimes air freight connections. The inland port of Quincy, WA, located on the BNSF mainline half way between Seattle and Spokane, next to I-90 and with a major airport less than 40 miles away, is just such a community. For a variety of reasons, including low cost electricity, the port promotes itself as a least-cost location for establishing an office building or distribution operation. And, it seems to be working. Curt Morris, Commissioner for the port told AJOT: “In 2010 we shipped our first container and we were running at one or two containers a week. Now we’re more like 150 to 180 containers a week and, hopefully, we’ll jump that up to 250 containers a week next year.” A cornerstone industry of the port has been Cold Train, recently acquired by Michigan based Federated Railways, Inc., that provides the Cold Train Express Intermodal Service in partnership with BNSF Railway from the Port of Quincy Intermodal Terminal to distribution centers in Chicago and the Midwest and U.S. East Coast areas.. In a statement the company says: “In addition to shipping Washington State and Oregon fresh produce and frozen foods eastbound to 20 states and one province, Cold Train hauls frozen and refrigerated foods and some dry goods back from the Midwest and East Coast to Washington State and Oregon. In other words, Cold Train ships loaded or full containers both directions to maximize utilization of equipment, which helps to reduce costs and provide both an inbound and outbound service for shippers and receivers.” Other firms that have chosen the Port of Quincy as a location include: Microsoft, Diamond Logistics, Amway-Nutrilite and Vantage Data Centers. Port of Everett The Port of Everett’s anchor customer is the nearby Boeing Corp Plant that ships dimensional cargo through the port and has encouraged the port to purchase the necessary equipment and develop the expertise for moving breakbulk cargo, including high and heavy shipments. According to its plans outlined for 2014 the port will concentrate on supporting the local aerospace industry’s plans to secure contracts for the Boeing 777X and promote the port as a gateway for energy, forest products, manufacturing and construction cargoes. At the time of writing the Boeing’s Everett plant was competing against Boeing’s Frederickson site for the construction of the 100 foot-long 777X wings that will be built with advanced carbon fibre technology. The location where the wing is built could become a future center for carbon fibre technology for Boeing and a hub for other carbon fibre manufacturing enterprises for years to come. The Port of Everett, with its proven breakbulk handling facilities, is doing whatever it can to help the Everett plant obtain the work.

Another sustaining piece of traffic is the movement of heavy mining equipment used for extracting gold at Kinross Gold Corp. mines in the Russian Far East. “It’s mostly lift-on-lift-off machinery,” Walter Seidl, port Marketing Director, said. The business tends to be seasonal, depending upon the condition of permafrost in Siberia. Another is agricultural equipment, such as harvesters destined, for China, which is RO-RO traffic and also tends to be seasonal. In the energy sector, while oil trains are becoming a concern for environmentalists and residents of the City of Everett who fear re-routing plans by Burlington Northern Santa Fe could send oil trains through the city’s downtown area, Seidl said. “We’re very interested in the oil and gas business, both in the United States and Alberta, as well as drilling in Alaska,” he said. “Some of those are exciting projects, but we’d need a lot of land and, in that case, we wouldn’t have the space for additional warehousing, we’d need it for project cargo.” In November of 2013 Austral Asia Line, a subsidiary of Scholler Holdings, specializing in breakbulk and heavy lift project cargoes began calling at the port. “This offers customers the ability to go straight to China, rather than having to re-handle the cargo at other ports,” he said. “I would say 2014 will be good year,” he said. “However, any major increase will have to come as new business and probably as project cargo.” Port of Olympia In 2013 the lion’ s share of traffic through the Port of Olympia was logs that were delivered from logging operations within 50 miles of the port, however this year logs have, so far, represented only 50% of handlings while ceramic proppants, sometimes referred to as fracking sand, have made up the other 50%. “Our imports are up considerably,” said Jim Knight, Director of the Marine Terminal. “A lot of it is due to the imports of proppants into the U.S. for Bakken (oilfields).” Knight said the port is not interested in handling oil since the rail lines that would deliver the oil would come through the downtown area of Washington State’s capitol city. “We’re strictly a breakbulk port. We don’t do containers. We could do bulk but currently we do not. “Ceramic proppants come on breakbulk ships moved in 1 1/2 tonne super sacks. They come off the vessel approximately 20 - 22 at a time. We drop them onto trailers and drive them into our warehouse. What makes it unique is that we dump the bags into a hopper and the hopper loads closed-top hopper cars that are moved to North Dakota,” he said. The other types of breakbulk handled by the port include project cargo that is shipped by barge to Alaska “For a little port we’ve been pretty busy,” he said. “When I first got here seven years ago the port was doing two or three ships a year. Last year we did well over 40 ships.” Projects underway include the construction of another 50,000 square-foot warehouse and there are plans for a new headquarters building. As well the port has carried out a large dredging project that provides a 40-foot depth alongside the berth at medium/low tide. Port of Grays Harbor The big news in Grays Harbor has been proposals by two companies to expand their oil handling facilities to handle crude oil that would arrive by rail. To accommodate this increase in rail traffic Gary Nelson, Executive Director, said the port’s rail facilities will have to be expanded as well. Proposals have been made by Westway Terminal Company and Imperium Terminal Services to expand their cargo handling capacity. Westway Terminal is proposing to expand its existing plant to receive, store and ship crude oil by oil tanker and barge. At present the plan is to develop the facility to receive roughly 9.6 million barrels of crude oil per year and store 800,000 barrels. The plan was to begin construction this year, but the expansion has been met with some resistance. Imperium is also planning to expand its renewable liquids plant to accommodate nine tanks with a capacity totalling 720,000 barrels of biofuels products or petroleum. The additions to the plant will include offices and a laboratory as well as a 6100-foot expansion of rail trackage. Grays Harbor Rail Terminal is proposing to construct a rail yard that would handle up to 50,000 barrels per day with one, 120-car unit train, delivery about every two days. Ship calls will range from 45-60 per year, depending on vessel size. Of the product shipped through the port, 91% were for export and 70% of the traffic came into the port by rail. Washington ports of the Columbia River: Vancouver, USA Alastair Smith, Senior Director of Marketing and Operations for the port told AJOT there is a fair amount of optimism at the port this year. Steel, pulp and automobile traffic are up considerably, several new projects are on the horizon and the port is well into building a new grade separated rail entrance into the port that will reduce congestion by roughly 40 percent. It’s a project Todd Coleman, CEO, said in a statement will prove to be a “game changer” for the port that will allow cargoes such as wheat, steel pipe, wood pulp and autos to move into and out of the port more efficiently when completed next year. The project, designed by Portland-based Engineering Inc. will include roughly 1,400 feet of new rail that will connect with the port’s growing rail corridor

One of the large scale industrial projects on the horizon is a new export potash terminal to be constructed by Australian-based BHP Billiton that is now building a new mine in Saskatchewan, Canada. Once on-stream the new $2.6 billion terminal is expected to ship about eight million tonnes of potash annually through the port, which will be a significant increase compared to the port’s present throughput of roughly five million tonnes. BHP Billiton owners have said publicly that they do not intend to join Canpotex, the potash mining cartel that controls the marketing and pricing of the crop nutrient and ships through the ports of Portland, Vancouver (Canada) and Thunder Bay. The other major project is a planned 120,000 bpd crude-by-rail unloading facility to be built by Tesoro Corporation and Savage Companies that will provide a hub for the distribution of North American crude oil to West Coast refining centers. Plans for the facility are still wending their way through the legislative process and, particularly, House Bill 2347 that would tighten rules for oil tankers on certain state water – such as the Columbia River - and stiffen penalties for oil spills that result from negligence or recklessness. Smith said that the two projects combined could increase the port’s five million tonnes of business to about 20 million tonnes by 2020. Another piece of traffic Smith said the port is pursuing is the oil industry in the State of North Dakota where roughly 200 wells are being drilled per month, with each well requiring about 250 tonnes of pipe. At present this pipe is being supplied primarily by Taiwan and Korea and he said the port is working to convince these suppliers of the economies that could be gained by using the West Coast as the point of entry and that the delivery of pipe should be provided by ports such as the Port of Vancouver, USA, rather than Gulf ports. The cost per railcar by using the Port of Vancouver, USA would be roughly $1,000 cheaper due to the shorter distance and the time saving in shipping would be roughly 20 days Port of Kalama As with several other ports on the Columbia River, the Port of Kalama is being considered for the construction of a large Petro export facility, in this case a $1 billion methanol plant by Chinese investors that would be fed by natural gas delivered by pipeline. A second methanol facility is also planned for Port Westward, about 50 miles northwest of Portland. The Chinese firm, Northwest Innovation Works, plans to ship the methanol to Dalian, on China’s east coast, where the product will be used to manufacture rubber and plastic consumer goods. It’s expected two Panamax vessels will be needed weekly by each plant to move the product following first phase of construction and four ships weekly for the second phase. The port would expand their existing dock to accommodate the traffic.

Liz Newman, Marketing Manager for the port told AJOT that although data has yet to be compiled the port has been very busy for the first part of 2014 including a construction project to expand trackage capacity at the Temco LLC site. The port’s $5.9 million investment coupled with a substantial investment by Temco in the grain terminal will double rail capacity so two unit trains can be loaded at once and serve to triple product throughput capacity at the site. The project is slated for completion in early January. The port also has an expansion project underway at their east port on the East side of Interstate 5 which will make land available for light industrial and possibly commercial industry, Newman said. Ports of Oregon: Port of Portland A collective sigh of relief was heard throughout the port after Korean-based Hanjin Shipping announced that it would not be pulling out of Terminal 6, Portland’s only container terminal, because of labor difficulties. The company said it would continue its weekly transpacific call after the port executive offered an incentive of $20 per container plus $25 a container for each increase in the number they deliver over a pre-determined level to a total of $4 million. However, it was not a slam dunk for the port as Hanjin also cautioned management and employees that low productivity and escalating costs at Terminal 6 will have to be addressed if the company is to continue using Portland as a West Coast port of call. Port spokesman, Josh Thomas, told AJOT that, in spite of the disruptions and threatened pull-out, container traffic slipped by only 2.6% last year to 178,451 TEUs compared to the previous year with import boxes up 13.3% and export boxes down 11.5%. A new line of business, Ford vehicle exports to China and Korea, proved to be a welcome and successful piece of traffic during the year he said: “The demand has been high and volumes have been increasing. There’s also potential to grow that business because in the past, as an import port, there’s been full ships arriving but empty ships returning; so there’s opportunities for a backhaul arrangement and it’s a win/win situation.” At present the port imports Hyundai, Honda, Acura, Toyota, Scion and Lexus, but is hoping Honda, which was one of the first exporters from the U.S., may also come on board at some point. Also, while grain exports were down 12.7% for the year at 3,511,490 tons, a $40 million expansion of Terminal 5 grain handling facility, owned and operated by Columbia Grain, is expected to improve upon these numbers this year. Exports last year were slowed by ILWU slowdowns and work-to-rule activities at the terminal and an eventual lockout by the company. International Port of Coos Bay Plans for Jordan Cove Energy, a six million tonne per-year LNG export terminal to be built at the Southern Oregon port of Coos Bay by Calgary-based Versen Inc. recently received approval from the U.S. Department of Energy and, while public affairs director Michael Hinrichs says there are still hurdles ahead, particularly environmental hurdles, the U.S. Department of Energy’s support has given the project a huge boost. When completed the plant will chill and condense natural gas delivered by pipeline from Alberta, Canada, and local natural gas sources for export. Project approval by the Federal Energy Regulatory Commission is expected this year, which would be the final major hurdle before construction could begin. But, while plans for what could be the West Coast’s first operating LNG terminal are top of mind in Coos Bay, he said the port has other plans including: several marine terminal projects as part of the Oregon Gateway Marine Terminal complex with two multi-purpose docks capable of handling deep draft vessels and loading both liquid and dry cargo.