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Port Sees Container Slowdown by Kelly Kearsley The News Tribune, December 26, 2007

Sluggish economy, weak housing market cut Tacoma's cargo business

A slowing U.S. economy and a weakening national housing market meant the Port of Tacoma handled fewer cargo containers this year than in 2006.

As of the end of November - the port's most recent numbers - the agency handled about 1.8 million containers - 7 percent less than the same period last year.

Most major West Coast ports recorded similar dips in container business. The Port of Seattle was down about 1 percent as of November, and West Coast ports as a whole will likely end up flat or slightly under 2006's container numbers.

"In the short run we are doing everything we can do to try and enhance the cargo volumes," said Tim Farrell, the port's executive director. "In the long run, we are still feeling bullish and that's evidenced in the long-term commitments we are getting from customers."

The port announced this summer that NYK Line plans to lease a new, $300 million shipping terminal on the Blair Waterway.

NO DIP IN REVENUE

The downturn in cargo doesn't mean a dip in the port's revenue for this year.

The port earns its money through the services it provides - such as transferring containers from ships to rail cars - and the leases it has with shipping lines for the use of its container terminals.

In years of weaker cargo volume, the leases provide a base and a steady flow of revenue even if the demand for services dips.

The port had earned $89.2 million in operating revenue as of November, compared to $82.2 million in 2006. Its net income as of the same month was about $23.7 million, compared to $18.2 million from the prior year.

When the nation's economy slows, the ports feel it. That's because the shipping lines major customers include some of the nation's largest retailers, who are importing products from Asia.

COST TO USE RAILROAD LINES GOES UP

Paul Bingham, an economist and principal of economic research and forecasting firm Global Insight, said that when the National Retail Federation announces that it anticipates slower holiday sales, that means less business for the transportation providers.

Global Insight and the retail trade group produce Port Tracker, a monthly report of inbound container volume, port congestion and rail traffic speed.

The weakening national housing market can leave consumers hesitant to spend, affecting retailers.

"Consumers are more cautious," Bingham said.

In Tacoma, other factors are coming into play as well.

The port's international container business - boxes that head to and from foreign ports - was down 9.4 percent as of November. Trade with Alaska was down 1.6 percent. Trade with Hawaii was up 21 percent over the year.

Changes in the cost to use rail lines in Tacoma also affect the amount of cargo that comes through the port. The shipping lines have been in the process of renegotiating rates with the railroads. As the new - and higher priced - contracts come on line the shipping lines have diverted cargo through other ports where they have different, and likely cheaper, options for rail, Farrell said.

Bingham said the dip in Tacoma is also the result of business choices by specific shipping lines, with one choosing to focus more on the Europe/Asia trade routes this year. He's also seen some typically West Coast container business shift to the East Coast as carriers believe it's better to go through the Panama Canal rather than ship cargo east by rail.

In 2005, the Port of Tacoma witnessed double-digit increases in its container volume as shipping lines rerouted cargo to escape congestion in Southern California. Much of that congestion has since eased up, Bingham said.

The year has had a few bright spots.

The weakening U.S. dollar has ramped up exports.

"We're hearing from customers that they can't find enough containers (for outbound products)," said Tong Zhu, the Port of Tacoma's director of commercial strategy.

FORECAST IS MORE OF THE SAME

The port's auto line of business, which focuses on the import of cars, handled 6.6 percent more cars this year than in 2006. That's 10,000 more cars coming through the port.

"The autos should be at or near record volumes," Farrell said. "It's related to fuel costs. People are buying cars that are less expensive and more fuel efficient."

Next year will likely be more of the same as far as port container volume goes.

"We're not expecting to see much signs of improvement in container volume until late next year," Farrell said. The port anticipates the 2008 container volume to be fairly flat compared to 2007.

At Global Insight, Bingham expects that 2008 will be a weak year for the transportation industry.

"We have some tough months ahead of us as more of the housing market plays out in the economy," Bingham said.