Hopes and Prayers: The Latest from the Port of Portland
By Jock O’Connell
To avert a complete shutdown of container service at Oregon’s only international maritime gateway, it is widely agreed that the Port of Portland needs to substantially expand container traffic through its Terminal 6 (T6). By all accounts, the Columbia River port also needs a multi-million-dollar, multi-year subsidy from the State of Oregon until those higher volumes materialize. Yet, notwithstanding an aggressively optimistic outlook embedded in a Plan submitted by the Port to Oregon Governor Tina Kotek in late August, the historical context for profitably growing the Port’s container trade is not especially encouraging.
Exhibit A documents container traffic through the Port over the past three decades. The trend does not inspire great confidence. Indeed, through August of this year, TEU volume at T6 is down 24.1% from the same period last year and is 39.1% lower than it was in the first eight months of 2022.
The latest TEU tallies mirror the financial picture at T6, where container operations have not been financially self-sustaining in years. A March 21st press release from the Port revealed that it had “endured losses of more than $30 million from container operations over the past three years, including a projected $14 million shortfall in the current fiscal year”.
The same press release also acknowledged that the “terminal faces a number of unique challenges, including its distance 100 miles from the ocean, the region’s relatively small consumer market (to draw imports) compared to other West Coast cities like Los Angeles and Seattle, and the Columbia River’s limited depth to accommodate the largest ships in the shipping industry.”
Keep that small import market in mind as we parse the latest developments at the Port of Portland.
Earlier this year, the Port was prepared to scuttle container services at T6. On April 15th, the Port’s Chief Trade and Economic Development Officer formally advised port stakeholders that “we have made the difficult decision to cease [container] operations as of October 1, 2024”.
“Our losses began to really get deeper than we could manage on our own,” Port Director Curtis Robinhold told Oregon Public Radio. “So we signaled publicly that we weren’t going to keep the doors open anymore — we just couldn’t bear these losses over more than the couple years that we had. We were losing about $12 [million] or $13 million a year, which is essentially all of our public money, so we were unable to do the other parts of our mission because this one piece of business was essentially eating all of the investment.”
The apparent denouement of the Port’s container business hardly shocked anyone in the maritime trade industry. But the announcement did generate political shock waves in Oregon.
Just a month after Port officials warned they would be scrapping container operations at T6, the Port reversed itself in a May 16th press release that declared its intention to “continue providing container shipping services at Terminal 6”.
What happened in the space of one month to explain this volte-face?
Let Oregon Governor Tina Kotek explain: “After the Port of Portland’s April announcement that container service would end this October, I heard from scores of producers throughout Oregon that relied on Terminal 6 to ship their goods. Having represented the Port’s home district in the Oregon Legislature for many years, I understand that the terminal’s location makes container operations at Terminal 6 economically challenging. In response, I am proposing to invest $40 million in state funds to allow container service to continue and communicate my expectations for reliable and sustainable service moving forward.”
The governor’s proposed bail-out came with a stipulation, however. To get the public money it would need to sustain the box trade through T6, the Port had to present her with a feasible plan for transforming the container business at T6 into something it has not been for most of this century: a financially self-sustaining enterprise.
So a Port that had earlier been ready to drop container services at T6, now needed a Plan for turning what’s for decades had been a sow’s ear into a silk road for Oregon exporters.
But before delving into the Plan the Port submitted to the governor in late August, let’s stop for a moment and consider one of life’s eternal verities. Almost no one actually reads beyond the first page of executive summaries, much less the full-blown reports.
The crucial element of the Plan sent to the governor was the executive summary of a decidedly Panglossian forecast for container traffic through T6. It was an outlook that discerned volumes of container trade that had not previously been in evidence at T6. What it did was attach new labels to four export trades it identified as having potential. They are:
The Timberwave Corridor anticipates a return of a timber-focused trade that connects Portland to Japan, Korea, and China. Still, the Plan concedes this trade would add only marginally to Portland’s potential export trade.
The Pacific Produce Pathway would connect Oregon, Washington, and Idaho to the “vibrant markets of Peru, Chile, and Ecuador”. This route would carry commodities such as split peas and seeds to South America and return with fresh fruit and vegetables.
The Southeast Asia Gateway would link Portland to the “dynamic markets of Vietnam, Thailand, and Cambodia”. A call at Singapore, Hong Kong, or another efficient transshipment hub would also improve Oregon’s access to the growing Indian market.
Finally, the AgriTrade Connection would offer connections between Portland and other Pacific Northwest ports to Central America and Europe. Given the transition to larger vessels globally, it is thought this service would capitalize on the availability of smaller ships and transshipment hubs to provide a reliable route for the region’s agricultural exports, opening new markets and trade possibilities.
Exhibit B replicates the cargo growth scenarios depicted in the executive summary of the Port’s Plan. It displays container trade growth at T6 as each of the services described above come online between now and 2030.
For context, Terminal 6 handled a total of 116,083 TEUs last year. Through this August, however, that volume is down by 24.1%. Assuming that this rate of decline persists through the end of the year, just 88,107 TEUs will have passed through T6 in 2024. Nothing in the existing narrative about container trade through T6 has evidently deterred the Plan’s authors from painting a rose-tinted scenario that estimates that Terminal 6 could be handling as many as 302,700 TEUs by 2030.
Historically, the port’s best year in terms of TEUs handled was in 2003, when 339,571 TEUs moved through the port. But that was an unusual year, as Exhibit A showed. More importantly, even that peak volume in 2003 was not sufficient to yield a profit on T6 operations. Rising container volumes entail rising expenses as well as revenue. Whether a volume of 302,700 TEUs in 2030 would actually deliver a profit is not addressed in the Plan’s executive summary.
Still, in response to the Port’s new Plan, Gov. Kotek told Oregon’s Capital Press: “I think it makes a strong case that if we increase our level of commitment for the Port of Portland and the container business, we have a pathway to a sustainable container business there.”
So far so good?
Well, not necessarily. Persuading an elected official who wants to placate influential local and regional businesses is one thing. Convincing a prospective terminal operator or a shipping line that those businesses are capable of generating appreciably higher volumes of laden TEUs is something else.
One of the distinctive features of the global container trade is that exporters need empty containers, which normally are recently imported containers that have been emptied of their contents. One of the more interesting charts in the Plan is one that predicts that export TEUs will exceed imported TEUs by substantial margins. Left unexplained (at least in the executive summary) is how the Port of Portland is expected to make more empty containers available to exporters than it discharges as imports.
As the Plan acknowledged: “With its large export market but small import base, Portland faced increased difficulty attracting and retaining direct service to T6.”
All of those challenges remain. Terminal operators make their money by handling certain volumes of freight. Shipping lines profit from the higher fees charged to shippers importing goods and not from the much lower fees typically assessed to exporters. Headhaul is where the money is; backhaul is essentially a subsidized trade. The basic business proposition underlying modern container shipping does not favor a Port like Portland that is relying on backhaul to generate growth.
So how does the Plan proposed by the Port square this circle? One obvious option would be to reverse the standard order of business by charging Portland’s exporters headhaul rates, a move that would presumably prompt shipping lines to turn up with shiploads of containers, both laden and empty. However, I’m told that this option is usually considered a non-starter at agricultural trade conferences.
Otherwise, the Plan does not talk much about how additional levels of inbound containers would be lured to T6. Indeed, despite all the attention lavished on growing Oregon’s containerized export trade through T6, the Plan admits that achieving economic self-sufficiency at T6 cannot happen without boosting imports.
And a strategy for achieving that goal is not to be found in the submission to the governor.
Instead, as the Plan ultimately fesses up: “Actual success and timing in obtaining new services will depend on trends in the carrier industry, Port marketing efforts, and perhaps most of all on the influence of major ocean carrier customers. While concern for the future of T6 service has often focused on exports, the far higher revenue from imports dominates ocean carrier service planning. Oregon importers will thus likely have greater influence than exporters in obtaining new services.” [Emphasis added.]
But, as the Port, its hired consultants, and just about every financial report the Port has ever issued uniformly attest, the region surrounding Portland constitutes a “relatively small” import market, one no more likely to excite ocean carriers going forward than it has in the past. Apart from a distorting spike in imported containers in 2022 at the height of the pandemic surge, the Port’s inbound container trade has seldom reached six digits, as Exhibit C reveals. In the period from 1993 through 2014 (before an unnecessary labor dispute disrupted container traffic
Exhibit D displays the container volumes the Port’s new Plan envisions for 2024 through 2030.
This forecast is made all the more audacious by the fact that international container traffic through the Pacific Northwest’s dominant seaports, the Ports of Seattle and Tacoma, has also declined over the past ten years. Outbound loads from the Northwest Seaport Alliance (as the two Puget Sound ports are now marketed) totaled 983,867 laden TEUs in 2013 but only 588,744 in 2023. Inbound loads similarly declined from 1,238,894 in 2013 to 1,078,005 TEUs last year. Given the parallel travails of the Port of Portland, discerning a path to growth where none has existed seems even more wildly optimistic.
The Port’s Plan for resuscitating container trade at T6 therefore rests almost entirely on a bullish projection that there is more than enough Oregon cargo to expand T6 volumes. Still, the timing of the new services outlined in the Plan is said to be “an example rather than a prediction”. It is not clear what that statement means.
But there is no shortage of clarity when the Plan finally concedes that: “While concern for the future of T6 service has often focused on exports, the far higher revenue from imports dominates ocean carrier service planning. Oregon importers will thus likely have greater influence than exporters in obtaining new services.” [Emphasis emphatically added.]
So there you have it. After page after page devoted to a hazy outlook for expanding the containerized export trade through T6, in the end it’s all about luring more import traffic to a port that is consistently described as a “small consumer market”.
To be sure, there may be a legitimate case for subsidizing container service at T6. But it is a case grounded largely in environmental and broad economic benefits to the regional economy or perhaps as a nod to national maritime resiliency. There is very little in the Port’s Plan that sustains the notion that T6 can be made to be financially self-sustaining or that the terminal’s next proprietor will soon be in the market for black ink.
Jock's comments do not necessarily reflect the policies of the Pacific Merchant Shipping Association.