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June 23, 2014

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LAND LINES 44 THE JOURNAL OF COMMERCE JUNE 23.2014 Lawrence Gross WHO'S REALLY EATING THE PNW'S LUNCH? THERE'S BEEN NO shortage of turbu- lence on the West Coast lately, and more is in store with the midnight June 30 expiration of the ILWU contract. In addition, there has been mounting pressure on Pacific Northwest ports, seemingly caught in a vise bet ween the western Canadian ports to the north and California to the south. There's been a lot of focus on diversion of cargo from the PNW north to Vancouver and Prince Rupert, British Columbia, and a lot of discussion about what factor the harbor maintenance tax has played. An examination of container- ized imports handled by the three regions illustrates the problem. Five years ago, the PNW ports of Seattle, Tacoma and Portland held a 12 percent market share of inbound international containers hitting the U.S.-Canada west coast (based on the three-month mov- ing average). This was behind the 12.5 percent share of western Cana- dian ports (Vancouver and Prince Rupert), while the major California ports (Los Angeles, Long Beach and Oakland) enjoyed a dominant 75.4 percent share. Fast-forward to April 2014, and the PNW share was down to 10.9 per- cent, while western Canada had increased to 14.1 percent and Cali- fornia ports to 75 percent. So, there is an indication of a problem, but the analysis is incomplete. It doesn't tell us how much of the change is due to diversion of imports tran- siting the port bound for interior points — traffic that can be diverted from one routing to another rela- tively easily. One of the major battlegrounds among the ports is import traf- fic bound for the U.S. Midwest. I used data from the Intermodal Association of North America to take a look at the trends. When examining the number of revenue movements of ISO containers (20-, 40- and 45-footers) that originated in IANA's Southwest, Northwest and western Canada regions, cor- responding to the port regions of California, the PNW and west- ern Canada, the presumption is t hat all such revenue movements are intact moves of import cargo that traverse the port and then hit the rail. In May 2009, with intermodal in the first year of economic recovery, the Northwest-to-Midwest routing accounted for 30.3 percent of such movements (based on the three- month moving average). The lion's share, 62.7 percent, moved through California ports, while western Canada ports were a minor factor at 7 percent. The PNW then enjoyed a burst of strength that reached a high point during peak season 2010, when about 40 percent of the import containers bound for the Midwest came in via the PNW. An equally rapid decline in PNW use followed, with volume switching back to California, while western Canada remained relatively static. It was only in mid-2011 that we begin to see a big rise in the share of western Canada, as the Canadian railroads introduced competitive intermodal services to the Mid- west, and Prince Rupert ramped up. Interestingly, the PNW's share held constant and even improved dur- ing this timeframe, and it appears California took the brunt of the diversion. The current slide in the PNW's share appears to have started at the end of 2012 and continued for the next year before stabilizing in 2014. The primary diversion was to California. Western Canada's share didn't start to increase until the sec- ond half of 2013. This analysis doesn't tell us directly what is causing the diver- sion, but it does tell us some things that aren't primary causes. It indi- cates the PNW's troubles aren't direct ly related to t he recent operating difficulties on BNSF Rail- way's northern tier line, because the PNW's share has held relatively stable since the beginning of the year. Canada isn't the chief culprit, either. Of the 9.3 points of Midwest- bound market share forfeited by the PNW since November 2012, western Canada accounted for a bit more than a quarter of the loss, ris- ing 2.6 percent. Almost three-quar- ters of the loss, 6.6 percent, went to California. And this doesn't even count the effect of transload- ing, which occurs primarily in S outhern California and not the other regions. Su m ma r izing, t he slide in PNW-to-Midwest market share far exceeds the decline in the ports' total share of imports. The majority of the recent shift has been to California ports. It could be a function of rates (ocean and/or rail), service speed (ocean transits, sailing frequency, train schedules, train speeds), and/or reliability (port congestion, variabilit y in ocean/rail service). But it won't be solved simply by a change in the har- bor maintenance tax or the spring thaw. JOC Lawrence Gross is president of Gross Transportation Consulting in Mahwah, New Jersey, and a partner at FTR Transportation Intelligence. A veteran with 34 years in the transportation business, he covers freight transportation, concentrating on the intermodal and trucking sectors from a transportation and equipment perspective. He is a frequent speaker at industry events. Contact him at and follow him on Twitter: @intermodalist.

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