Port of Tacoma – NYK Deal – Money Mostly Well Spent


Like I said in the last post, I don’t usually read the Tacoma News Tribune. It’s a scandal rag, owned by the McClatchy organization.

Last week, I couldn’t help looking at their story on the Port of Tacoma – a copy was lying there on a table at work, open to the story, Port of Tacoma’s Blair Development: Millions to nowhere. So reluctantly – knowing that with a title like that, it couldn’t be a good story – I read on.

In the article, they tell the story of the development of the proposed new container terminal for NYK.

Briefly, in 2007, the Port of Tacoma signed a deal with the shipping line NYK, to provide them a new dedicated 168 acre container terminal in Tacoma, located on the tip of the Blair Peninsula. Integral to building the new terminal was relocating an existing terminal, Totem Ocean Trailer Express (TOTE), and the demolition of existing buildings, as well as the cleanup of some toxic waste sites.

Because the Port didn’t own all the property necessary for the project, it spent some $146 million on property acquisition and demolition.

In 2007 when the deal with NYK was inked, the economy was going great guns. All the projections – which were accepted pretty much universally – held that Chinese imports would explode in the coming years, with cargo growth rates reaching as much as 25% a year. The big fear, up and down the West Coast, was that we would not have enough dock space or the infrastructure available to handle the glut of Chinese cargo coming in.


The mood was very upbeat, back then. We’d just gone through a period of explosive growth in 2005, with container traffic for the port up almost 25%.

As late as January 2008, I can remember maritime industry executives publicly berating the West Coast ports that they were derelict in their duty for not preparing for the onslaught of Chinese imports. The specter of newly developing ports in Mexico and Canada was dangled as a probable outcome if the West Coast ports didn’t act quickly to provide additional capacity.

At that time, Port of Tacoma, and Tim Farrell, the Port’s Executive Director, were hailed as visionary and forward-thinking for making the NYK deal. Bold leaders cited as examples of what other West Coast ports should do.

Also worth mentioning is the fact that Tacoma enjoys an almost unique place among West Coast ports – of all the major US ports on this coast, Tacoma is the only location with large amounts of suitable land adjacent to navigable waterways that could be developed into marine terminals. LA and Long Beach are pretty well built-out. San Francisco and Oakland are mostly built out, as is Seattle. Portland has the bar on the river and can only accommodate smaller ships.

Tacoma is really the only major West Coast US port with a good amount of room left for expansion.

The only serious competition is in Canada – in Vancouver and the new port at Prince Rupert – both of which are marketing themselves very aggressively.
So the Port of Tacoma signing a deal for a new terminal for NYK in 2007 was a no-brainer. It was a deal designed to ace out our Canadian competition. And it would set up Tacoma for the future.

That’s the climate of when the NYK deal came about. We were in a highly competitive situation. No one ever thought the economy would tank.

But stuff does happen.

The TNT’s article cited cost over-runs as another major problem with the NYK project. Cost over-runs in any kind of large project like this are inevitable. If you look at 10 similar sized projects, public or private, I suspect you’d see similar escalations in costs. So this really isn’t out of the ordinary.

The fact that NYK backed out of the deal is only reasonable. West Coast ports right now are way under capacity, and will likely remain that way for some time. Conditions change. Deciding not to finish building the terminal now with the current prevailing world economic climate is only reasonable. It’s an appropriate response to changing conditions.
But that in no way invalidates the initial decision to build the terminal.
As to the $190 million already spent by the port:

• $146 million to acquire the property and demolish vacant buildings.
• $35 million on design and planning.
• $6 million on environmental cleanup and permitting.
• $3 million in staff resources to support the development.

That sounds like a whole lot of money but in the long term, the only money potentially wasted is probably the $35 million on design and planning, and the $3 million in staff resources. But even so, I wouldn’t write it off just yet – some of the effort may yet pay off in future projects.

If the port spent $146 million in buying property and demolition, and $6 million in environmental cleanup, that’s likely money well spent – and an investment that will see a very good return in the future.

The real estate market may be flat right now but that won’t last. Commercial land that has the potential to be developed into a marine terminal is extraordinarily valuable. When the global economy does recover – and it will, it’s just a matter of time – then developments will again take off.

Chinese imports will take off again. It may be one year or even 2-3 years or longer, but the world economy will heal and when it does, Tacoma will again have to look at building new dock space.

If the Port bought that land at 2007-2008 prices, then in the long run it’ll be a bargain. Real estate is almost always a good investment. It’ll payoff handsomely. The costs of the inevitable environmental cleanups now are probably less than it would cost later, so that also is a wise investment.

The land they bought is a great investment for the Port.

So what do we have in the final analysis? The Port spent maybe under $40 million on a well-conceived deal to gain a major new customer. A move which everyone at the time – up and down the coast – hailed as a bold, visionary move.

So now the News Tribune conducts a sensationalistic, witch hunt and assigns “blame” for the supposed “fiasco” – which they largely they invented – onto Tim Farrell.
This is asinine. If any one single person is to blame, they might single out George W. Bush for destroying the world economy (and that probably isn’t totally fair because he had a lot of help in the matter).

But Tim Farrell isn’t to be blamed for anything at all. He did his job well. The project was a victim of circumstances, pure and simple. No one in their wildest imaginations would have thought shipping or the economy generally would decline like it has.
Let’s face it, the whole thing is about selling newspapers – messy scandals are great fodder for the presses.

It’s not what the TNT reported – I’m sure their facts are all correct. It’s what they left out of the story that gives it their trademark bias. By failing to report the whole story, they’ve made Farrell look like a bad guy – when he wasn’t at all. They’ve damaged an innocent person, possibly cost him his job. All to sell newspapers.

And that’s why I don’t read the Tacoma News Tribune.

Perhaps if they’d just stick with stories about women impregnated by space aliens? That works well for their competition (the National Enquirer).