Gnostam LLC                                               February 15th, 2012 Newsletter      PO Box 960      Inverness, C...
Gnostam LLC                                               February 15th, 2012 Newsletter PO Box 960 Inverness, CA 94937the...
Gnostam LLC                                               February 15th, 2012 NewsletterPO Box 960Inverness, CA 94937Notwi...
Gnostam LLC                                                           February 15th, 2012 NewsletterPO Box 960Inverness, C...
Gnostam LLC                                                February 15th, 2012 Newsletter   PO Box 960   Inverness, CA 949...
Gnostam LLC                                            February 15th, 2012 NewsletterPO Box 960Inverness, CA 94937     Mar...
Gnostam LLC                                             February 15th, 2012 NewsletterPO Box 960Inverness, CA 94937This un...
Gnostam LLC                                              February 15th, 2012 NewsletterPO Box 960Inverness, CA 94937One of...
Gnostam LLC                                               February 15th, 2012 NewsletterPO Box 960Inverness, CA 94937Trans...
Gnostam LLC                                               February 15th, 2012 NewsletterPO Box 960Inverness, CA 94937is hi...
Gnostam LLC                                                         February 15th, 2012 Newsletter          PO Box 960    ...
Gnostam LLC                                                          February 15th, 2012 NewsletterPO Box 960Inverness, CA...
Gnostam LLC                                                February 15th, 2012 NewsletterPO Box 960Inverness, CA 94937    ...
Gnostam LLC                                                    February 15th, 2012 NewsletterPO Box 960Inverness, CA 94937...
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Seattle Port White Paper


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Study on how to improve traffic capture of Seattle as a West Cost Port. Sources:
Pacific Coast Container Terminal Competitiveness Study 2011; Prof. Jean Paul Rodrigue Hofstra University, Washington State Governors Port Initiative

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Seattle Port White Paper

  1. 1. Gnostam LLC February 15th, 2012 Newsletter PO Box 960 Inverness, CA 94937 Improving Economic Performance through Research SEATTLE’s PORT: WHITE PAPER ON HOW TO INCREASE THE ECONOMIC TRACTION THE PORT HAS ON THE LOCAL ECONOMY. EXECUTIVE SUMMARY: Given the strategic importance of the Port of The conclusion from the study of the existing Seattle to the Pacific Northwest’s economic literature is that the Port of Seattle is not sustainability as a viable manufacturing and taking advantage of the very large economic trade hub for Northeast Asia, it is somewhat opportunity as an alternative West Coast shocking that while billions have been port to Los Angeles, Long Beach, which is earmarked for the redevelopment of the operating almost at capacity. The growth in Seattle Waterfront, no investment has been the global trade between Northeast Asia and earmarked for the extension of the rail spur the Northwest Coast of the United States is to allow direct dock loading from Terminal likely to be the single largest trade route in 18. Rather these containers are shipped by the world by value. Seattle lies most private contractors on very rudimentary, strategically on the Great Circle route to inefficient and polluting trucks to the rail head Northeast Asia, the fastest growing one mile away. Notwithstanding the economic region in the world. There are recommendations in the Governor’s competitors to Seattle in the Pacific Container Port Initiatives Work Group Northwest, namely Prince Rupert and recommendations of January 2009, we still Vancouver, BC as well as Los Angeles Long have no strategic plan for the port expansion, Beach. nor has there been substantive progress withTons Miles shipped byMarine Transport:Source UNCTAD. Shareof Container has gonefrom 18.8% in 1970 to31.7% in 2008 1
  2. 2. Gnostam LLC February 15th, 2012 Newsletter PO Box 960 Inverness, CA 94937the Washington State Office of Financial “Great Circle” route from Northeast Asia toManagement [OFM] objective of enhancing the US West Coast and onto the bigthe amount of freight cargo moving in and population markets of the US East Coast.out of the State of Washington while Shippers have a choice. They can transshiprespecting requirements for clean air and on the West Coast, [with the ports of choiceenergy efficiency. By the admission of the being Los Angeles and Long Beach, [LA/LB]:OFM, air water and rail traffic decreased by Seattle is a distant third choice on the West0.9% from 2007 to 2008 while highway Coast]; or ship through the Panama Canal.freight traffic increased by 6.7% from 2002- The Canal route takes a lot longer, [7-102007. Rail cost per ton mile is 0.025¢, while days] but requires less handling and is moretrucks are 10 times less efficient and far reliable in terms of certainty of delivery date.more polluting. Marine is most efficient at The alternative is to transship and move0.007¢. containers in particular onto the US freight rail system. While the Asian Trade is expected toThe Pacific Northwest -- a Global Traffic continue to expand, the infrastructure of theHub: LA/LB Port is almost at capacity [operating at 88% capacity]. Seattle and Tacoma bothSeattle has a premier location in terms of its operate well below 55% capacity. In view ofglobal geographic position. The greatest capturing the opportunity for more containerglobal logistics corridor in the world is the and bulk commodities traffic, Prince Rupert in Source: Transport Canada Pacific Coast Container Terminal Competitiveness Study 2011 2
  3. 3. Gnostam LLC February 15th, 2012 NewsletterPO Box 960Inverness, CA 94937Notwithstanding the huge increase in port traffic and capacity from China, Seattle has shrunkon West Coast, a testament to a strategic misunderstanding of the N E Asian- East Cost US trade. 3
  4. 4. Gnostam LLC February 15th, 2012 NewsletterPO Box 960Inverness, CA 94937British Columbia has invested in a state of a mximum capacity of 4,500 TEU to thethe art Container Port that adds to the bulk “Post Panamax” giants that will not be ablecommodity capabilities of Prince Rupert, and to transit through the Panama Canal untilhas a fully integrated modal transport 2014. Even then, ships with greater lengthsystem with Canadian Railroads as a long than 366 meters, 49 breadth and 15 metersdistance rail carrier of containers to Chicago. depth will not be able to transit the Canal.This new entry into the “Container Trade” by Because the economies of scale in shippingPrince Rupert is a very serious threat to the on a 20,000 TEU ship are so great, thisviability of Seattle as an alternative to LA/LB, makes the North American land-bridgeespecially because the rail land route to competitive again, something not lost on theChicago from Prince Rupert has far less government of British Columbia, [BC],elevation gain than the route to Chicago which has invested over 750 million tofrom Seattle. extend the Fairview terminal wharf by 800 meters maintaining a 17 metre minimumDrivers of Trade and Containerization water depth, increasing the dock area toThe main driver to the huge Container ports 165 acres. This should enable Princethat have sprung up in China and Asia has Rupert to double the number of super post-been the economies of scale of going from Panamax cranes and supposedly create anthe Current “Panamax” container ships with additional 725 person years of employment.Souce Drewry Shipping Consultants. Maritime shipping is sensitive to fuel costs as they represent between 45and 50% of operating costs with limited opportunities to mitigate outside slow steaming. Maritime shipping withless fuel price sensitivity than trucking and rail, implies that higher energy prices are likely more to trigger theconsideration of routing options that have a port call the closest possible to the destination of the shipments.The other variable for very large ships is the sophistication of the receiving port infrastructure, turnaroundspeed and intermodal integration. Port of Seattle lags other major West Coast ports in this respect. 4
  5. 5. Gnostam LLC February 15th, 2012 Newsletter PO Box 960 Inverness, CA 94937 Port Expansion Model’sBird (1963) developed a theoretical model of port infrastructures evolution. Based on hisresearch into the evolution of British ports, Bird’s five stage model demonstrates how facilities ina typical port develop over several decades and even centuries. The stages are:▪ Setting. Until the industrial revolution, ports remained rather rudimentary in terms of their terminal facilities. Port-related activities were mainly focused on warehousing and wholesaling, located on sites directly adjacent to the port (1).▪ Expansion. The industrial revolution triggered changes that impacted on port activities. (2). As the size of ships expanded, shipbuilding became an activity that required the construction of docks (3). The integration of rail lines with port terminals enabled access to vast hinterlands with a proportional growth in maritime traffic. Port-related activities also expanded to include industrial activities which occurred downstream.▪ Specialization. Construction of specialized piers to handle increased freight volumes such as containers, ores, grain, petroleum and coal (4), expanded warehousing needs significantly. Larger high-capacity ships often required dredging or the construction of long jetties granting access to greater depths. This evolution required several ports to increase capacity, migrating activities away from their original setting. Reconversion opportunities of port facilities to other uses (waterfront parks, housing and commercial developments) were created (5).Local conditions do produce differences in detail. There are sufficient similarities to make theAnyport concept a useful conceptual tool. One of the features that Anyport brings out is thechanging relation between ports and their host cities. Instead of only stressing the portinfrastructure development, this emphasizes the changing linkages between the port and the city.One of these urban linkages is the redevelopment of old port sites for other urban uses, such asDocklands in London and Harborfront in Baltimore. Expansion is possible in Seattle as operatingconditions allow the existing sites to be extended or modified, with Consolidation of severalexisting berths to provide new expanded facilities; and the potential establishment of a superterminal. 5
  6. 6. Gnostam LLC February 15th, 2012 NewsletterPO Box 960Inverness, CA 94937 Maritime Transportation Rates for a 40 ft Container, between selected ports 2010 Source Drewry Shipping Main Container Ports in North and South America with volume of TEU traffic per major maritime hub. 6
  7. 7. Gnostam LLC February 15th, 2012 NewsletterPO Box 960Inverness, CA 94937This under estimates the real impact on one half to $1,449. This is illustrated in theemployment, as the port is a huge diagram below which shows the impact ofproductivity gain for the West Coast of increasing the size of vessels on theCanada in its attempt to capture and attract operating costs. The figures are from Drewrymore trade to BC. Prince Rupert is 4,642 nm Shipping Consultants Ltd., for 2008 andfrom East Asian ports [South Korea], while show that the total annual operating costsSeattle is 5,101 nm, only 10% further. But per TEU for a 4000 TEU vessel arewhat Prince Rupert has is the intermodal rail approximately US $ 2,314/TEU, while for ainfrastructure with Canadian National that 10,000 TEU the annual operating costs fallallows for highly competitive trans shipment by more than ½ to US $ 1,413 per the US hinterland in Chicago that Given this industry is very price sensitive,Container Ship operators need in order to the pressure is on for operators to build everjustify the capital investment necessary for bigger ships that will reach 20,000 TEU. It isthe Post-Panamax ships. The order of likely that the annual operating costs permagnitude of the cost savings that derive these ships will be in the region of US $ 800from the increase in size from 4,500 TEU, per TEU.[current Panama Canal container ships] to12,000 TEU is illustrated as follows. This will bring more pressure on Port infrastructure. The growth of the massiveThe incentive to use larger of 10,000 TEU Super Ports like Shanghai, Hong Kong, andcontainerships that were introduced in 2007, Busan will mean that these ports, if they arewas that fuel and port charges account built on the West Coast of the United States,respectively for 50% and 21% of annual will have to be capable of handlingoperating costs, while manning costs transshipments in a timely and cost effectiveremains constant. However, annual manner.operating costs per TEU drop by more than 7 The rise of the Mega Port handling > 5 million TEU’s. 10 ports in Pacific Asia handled more that 10 m TEU’s per annum. Shanghai, Hong Kong and Busan handled > 12 m TEU.
  8. 8. Gnostam LLC February 15th, 2012 NewsletterPO Box 960Inverness, CA 94937One of the major implications of the growth in the USA, [LA/LB] has done to connect itsof super-ports and of containerization is that port to the hinterland we see that 68% of thethey create the need for large scale trans- traffic is bound to long distance inlandshipments. Seattle is clearly affected by this locations. Local congestion and constraintsshift to mass containerization economics, as in infrastructure expansion invitemitigationthe infrastructure necessary to compete strategies, such as consideration of whereeffectively is completely different to that in the cargo is bound to, but also its at the moment. Perhaps this can be For LA/LB, there are two main options forillustrated by the following. The composition inland flows:of the container growth reveals a growingshare of the function of transshipment and ▪ Rail option. Containers are directlyan enduring share of the movement of loaded on an intermodal yard andempty containers in the range of 20% of all placed on a train, via an on dock railcontainers handled. While the transshipment yard. Alternatively, maritimeincidence was around 17% in 1990, it containers can be drayed to a nearclimbed to more than 28% in 2008. This dock or an off-dock rail yard. Thereflects the growing complexity of the containers thus enter the local roadmaritime network and the trade interactions system with the ensuing congestionit supports. and pollutant emissions (noise, particulates). LA/LB Port hasThe challenges for a Port the size of Seattle mitigated the rail access issue, by theis particularly acute as it needs to invest Alamada 20 miles rail corridor linkingheavily in an intermodal yard, especially for the port cluster to the major rail yardsthe Terminal 18 “inside” Container terminal. of BNSF and UP near downtown in 2002.If we examine what the most successful port Port TEU movements 1985-2008: Source Drewry Shipping. In 13 years the growth has been 122% compound annually. This has been 10 x the growth of Chinese GDP in the ßsame period. 8
  9. 9. Gnostam LLC February 15th, 2012 NewsletterPO Box 960Inverness, CA 94937Transloading option. Mainly because of Goldman Sachs owned company that willcontainer leasing agreements and a larger spend $27 million on buying the new Postinland transportation load unit in North America Panamax cranes necessary to unload the(the 53 foot domestic container) a significant bigger ships. In return for making thisamount of transloading activity takes place in investment, SSA will no longer pay thethe vicinity of the port cluster. Maritime port an $11.60/container fee, and will becontainers are brought to a distribution center able to charge its own fees to unload(transload center) where typically the contents larger ships, and more containers.of three maritime containers are transloaded Essentially SSA is betting that it will beinto two domestic containers. Themaritime able to recover its costs and makecontainers are then brought back to the port serious profits if it is able to unload >terminals. The domestic containers can either 500,000 containers in 5 years. In mybe trucked to their final destination or brought estimation SSA will easily achieve thisto a rail terminal to be loaded for an inland breakeven in less than 18 months.bound train (e.g. Kansas City or Chicago). It Clearly this is a deal done in desperationwas estimated that in 2009 45% of the by the Port of Seattle’s director of seaportcontainers imported through Los Angeles / leasing and asset management, MichaelLong Beach were transloaded into domestic Burke.containers. Taxpayers in the State of WashingtonSpecific Seattle Port Problems: support the Port of Seattle. The loss of the Port’s revenue source is a seriousThe port is suffering financially as a result of matter, as reducing funding flexibility willthe severe downturn in trade following the impact the Puget Sound taxpayers. Theglobal financial crisis of 2008. In early 2012 business model should allow for the Portseveral new cranes will be delivered to to capture revenues in more ways thanTerminal 18 and Terminal 5, care of SSA, a one, especially as the container business Container Maritime Freight Rates from 1993 to 2009, US $/TEU: Source UNCTAD 9
  10. 10. Gnostam LLC February 15th, 2012 NewsletterPO Box 960Inverness, CA 94937is highly cyclical – tied to world trade flows. Asia and North South trade has increased;Impact of Global Economics on Seattle’s 2. The rise of the West Coast of Canadabusiness opportunities. as a hub for container bulk commodity exports to North Asia does pose aThere appears to be a business case for threat to Seattle as a viable hub,investment in upgrading the Port of Seattle especially as the infrastructure [railinfrastructure to a world class level. Seattle and crane] in Prince Rupert is superioris blessed with a great location in the to that of Seattle;Northern hemisphere, at the cross roads of 3. Seattle is a transport hub for thethe heaviest container trade in the world. Of coastal trade to Alaska, but this hasthe 432 m TEU global trade, 56 million was been a declining industry;intra-Asia, 21 million transpacific. This is 4. North of Seattle there is substantialexpected to more than double if we have an opportunity to integrate liquifiedeconomic recovery in 2015. The economics natural gas and pipeline complex thatof post Panamax container ships mean that could be the source of export to Asia.there will be a drive to push the size ofcontainer ships to 20,000 TEU’s which In closing there is a substantial economicwould be bigger than the maximum 12,000 case to be made for the avoidance ofTEU that the 2014 new Panama Canal locks managing the Port of Seattle into negligentcan handle. Seattle can be integrated by rail decline. There are positives that can andinto the US Northeast. should be leveraged to spur growth for thisThe main investment concerns of this region.otherwise very strong business case are: 1. The unbalanced nature of the East West trade that has been evidenced by the global financial crisis. There has been a significant slump in the West to East trade, with an increase of “empties” as demand from Asia has waned post 2008, even as intraBibliography:Credits: Jean-Paul Rodrigue et al The Geography of Transport Systems, Hofstra University,Department of Global Studies & Geography. Professor Rodrigue is the source for the excellentgraphs for this paper, as is credited for these. The conclusions and any errors are mine alone.Governor’s Container Ports Initiative: Recommendations of the Container Ports and Land Use WorkGroup, Washington State 2009;Transport Canada: Pacific Coast Container Terminal Competitiveness Study 2011Office of Financial Management, State of Washington , Land use around the Port of Seattle, 2009;State of Washington Office of Financial Management. Land Use and local finance 2005.EC (2005), ExternE: Externalities of Energy - Methodology 2005 Update, Directorate-GeneralforResearch Sustainable Energy Systems, European Commission ( (2007), Monetary Valuation of Hard-to-Quantify Transportation Impacts: ValuingEnvironmental, Health/Safety & Economic Development Impacts, NCHRP 8-36-61, NationalCooperative Highway Research Program (; 10
  11. 11. Gnostam LLC February 15th, 2012 Newsletter PO Box 960 Inverness, CA 94937Changes invalue orworldMerchandise1950-2009 Private Sector Investment in Port Terminals Four major port holdings have substantial global assets of about 45 dedicated port terminals each; Jointly, they controlled through various equity stakes 177 dedicated maritime container terminals in 2010. 11
  12. 12. Gnostam LLC February 15th, 2012 NewsletterPO Box 960Inverness, CA 94937 Explosion of Container Trade. Is this sustainable? Global Container Throughput 1970=100 Source: Population and GDP from World Bank, World Development Indicators. Exports from World Trade Organization. Container port throughput compiled from ContainerizationInternational Singapore Rotterdam $ Cost per TEU, “experience curve”. 2008 Source Germanischer Lloyd. Singapore and Rotterdam are among the largest container ports in the world. We clearly see the effect of economies of scale where the Port terminal has made the investments for 18,000 TEU ships. 12
  13. 13. Gnostam LLC February 15th, 2012 NewsletterPO Box 960Inverness, CA 94937 Monthly value of Exports from Selected Traders 2006-2010; Source: WTOThe rail route from Seattle to Chicago is most efficient of through the North, CN 13owned infrastructure. This is a serious constraint for Seattle.
  14. 14. Gnostam LLC February 15th, 2012 NewsletterPO Box 960Inverness, CA 94937Disclaimer:The information and any statistical data contained herein have been obtained from sources which webelieve to be reliable, but we do not represent that they are accurate or complete, and they should notbe relied upon as such. All opinions expressed and data provided herein are subject to changewithout notice. Gnostam LLC and/or its shareholders, directors, officers and/or employees, may havelong or short positions or deal as principal in the securities discussed herein, related securities or inoptions, futures or other derivative instruments based thereon. The securities mentioned in this reportmay not be suitable for all types of investors. ALL investments involve different degrees of risk. Youshould be aware of your risk tolerance level and financial situations at all times. Furthermore, youshould read all transaction confirmations, monthly, and year-end statements. Read any and allprospectuses carefully before making any investment decisions. You are free at all times to accept orreject all investment recommendations made by the Gnostam LLC. As you know, arecommendation, which you are free to accept or reject, is not a guarantee for the successfulperformance of an investment and we are expressly prohibited from guaranteeing accounts againstlosses arising from market conditions.Past performance is no guarantee of future results, and current performance may be lower or higherthan the performance data quoted.Investment Disclaimer
 All investments involve different degrees of risk. You should be aware ofyour risk tolerance level and financial situations at all times. Furthermore, you should read alltransaction confirmations, monthly, and year-end statements. Read any and all prospectuses carefullybefore making any investment decisions. You are free at all times to accept or reject all investmentrecommendations made. All products sold are subject to market risk and may result in the entire lossto the clients investment. (For example: excessive withdrawals may result in the depletion of youraccount). Please understand that any losses are attributed to market forces beyond the control orprediction of Gnostam LLC. As you know, a recommendation, which you are free to accept or reject,is not a guarantee for the successful performance of an investment and we are expressly prohibitedfrom guaranteeing accounts against losses arising from market conditions. Gnostam LLC Gnostam LLC PO Box 960 5731 Kirkwood Place N Inverness, CA 94937 USA Seattle, WA 98103 USA Tel: 206 384 0069 E-mail: E-mail: 14