Where the sustainable world is headed.

Port of Seattle Application for theIndustrial Development Pilot ProjectNovember 5, 2012

www.portseattle.org

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Introduction:

The Port of Seattle (Port) appreciates the opportunity to submit this proposal in response to Washington State, King County, and the City of Seattle’s Request for Concepts for Industrial Development Pilot Project (Project). The Request for Concept’s stated goal of incentivizing new industrial investment by offering regulatory flexibility is in alignment with the Port’s long-term goals for job creation and economic growth in the region. The Port’s recently developed Century Agenda sets a goal of adding 100,000 jobs over the next 25 years while reducing our environmental footprint. In order to achieve this goal, the Seaport is seeking to grow annual container volumes to 3.5 million TEUs1. To increase cargo volumes, the Seaport is working to ensure that port infrastructure can accommodate future growth in cargo. Specifically, the Seaport has planned major capital projects to meet the needs of the increasingly larger ships calling the port. These projects include deepening berths and navigation channels, and making structural improvements to marine terminals to allow for the replacement of existing gantry cranes with larger cranes capable of serving larger vessels.

One of the examples provided in the Request for Concepts for suitable pilot project is the “use of an alternative method for achieving or exceeding regulatory compliance.” The Port’s proposed pilot project falls under this type of project. Specifically, the Port’s project involves a request for the partial waiver of requirements within the Seattle Building Code related to geotechnical stability for future design and construction work on the Port’s marine terminal berth and apron infrastructure. The Port also requests an increase of the Alteration Exception Limits for the upgrade of crane rails at cargo terminals. Together, these two changes would provide the regulatory certainty necessary for the Port to proceed with major improvements to its marine terminals, stimulating millions of dollars in new construction related to upgrading our facilities and deepening our cargo berths. These improvements will attract larger ships (and therefore greater volumes of cargo) to our Port. Increases in cargo volumes would provide positive measurable economic benefits for the region, including the creation of new jobs and increases in Washington State exports. Under the current regulatory structure, upgrading and deepening our berth structures is cost-prohibitive. The regulatory changes proposed here would markedly reduce these costs, allowing the Port to strengthen its position as a world class international logistics hub and providing considerable economic benefits for the region and State.

The Port of Seattle is a Washington Municipal Corporation established in 1911 by legislation creating Port Districts throughout the state. The locations of projects associated with this application are container terminals and Terminal 91. All locations are within the City of Seattle. Zoning at these locations is Industrial General 1 (IG1). Aquatic lands associated with this request are owned by the State of Washington and Managed by the Department of Natural Resources. The Port has obtained a controlling interest in these aquatic lands as documented in attachment A, Port Management Agreement 22-080031.

Background, Market Trends:

In order to meet the Port’s goal of creating 100,000 new jobs by increasing cargo volumes, the Port must be highly responsive to fluctuating market trends. A dominant trend in containerized cargo shipping is a shift towards increasingly larger vessels. Container lines are rapidly phasing in vessels with a capacity of 8,000 TEUs and larger in order to reduce costs by achieving greater economies of scale. The use of newer more efficient ships also allows for increased fuel savings. This “big ship” trend is accelerating in the Trans-Pacific as the order-book of larger vessels comes on line.

1. TEU stands for “twenty foot equivalent unit.” It is the industry standard for describing a 20’ shipping container and is also often used as a term to quantify the capacity of container ships and container terminals.

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The Port of Seattle competes vigorously to retain all our major marine businesses. On the container side, we face new challenges in retaining and growing our market share not only from Tacoma but most recently from Prince Rupert, BC where new national investments have built a modern container facility with berth depths of -65’ mean lower low water (MLLW). Southern Californian ports have been gaining market share from the Pacific Northwest for many years, in part due to their numerous berths that are designed to -53’ MLLW and new berths being built to -55’ MLLW. Given that our Port’s designed container berth depths and federal channel depths are limited to -51’ MLLW means that our competitor ports have the capacity to service the largest ships in the world.

Today a number of 8,000 TEU container ships routinely call at our Port. We anticipate larger container vessels between 10,000 – 15,000 TEUs to commence routine service calls here in the second half of this decade or sooner. These vessels require berth depths of -55’ MLLW. Because our container berths are limited to -51’ MLLW, the Port is unable to meet required water depths for these vessels. We need to deepen and maintain our berths and channels to fully service these vessels as well as the even larger vessels anticipated in the future. Upgraded crane rails and larger cranes will be required at some facilities to service these vessels. Because these ships are mobile assets, they can choose other ports that have the infrastructure to meet their needs. The figure below depicts increasing vessel size and their depth needs.

Super Post-Panamax: 176’

15,000TEUs10,000

TEUs6,000TEUs

Post-Panamax: 136’Panamax: 106’

46' 48' 50'

What larger ships will mean for the Port?We have to have deeper berths and channels to accommodate larger ships.

Channel DepthLarge vessels require additional clearance (10% of draft).

ExampleA vessel drawing 50' requires 5' feet under the keel, for a total channel and berth depth of 55'.

55'

5'

50'

It is not just container terminals that require upgrades. Maritime industries, such as commercial fishing, are equally contested. Seattle is fortunate to be the major homeport of the Alaskan fisheries industry. However, many local ports such as Tacoma, Anacortes and Bellingham also service this industry and seek to lure this business out of Seattle. Berthing space is becoming a constraint in Seattle and we will have to upgrade aged dock structures at Terminal 91 or face the possibility of losing business to other ports.

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Proposed Port of Seattle Industrial Development Pilot Project:

What follows is a concept-level description of the Port’s proposed pilot project, including a discussion of the constraints associated with the current regulatory approach, and how the proposed project meets the goals of the pilot program and required project criteria.

The existing code and why it constrains economic growth:

In the Seattle Building Code, new construction, substantial alteration of existing developments and any new work as part of maintenance and repair of existing features are required to meet all building code requirements. The code requires meeting geotechnical stability of soils in seismic conditions for the following hazards: slope instability, liquefaction, differential settlement, and surface displacement due to faulting or lateral spreading.

Although all of the Port’s facilities were built in accordance to the Building Code at the time of construction and the existing conditions at the Port’s cargo terminals generally meet code requirements for everyday conditions, many structures do not meet the newer requirements in seismic conditions. Current requirements aim for a Life Safety standard for an event approximately equivalent to a 500-year earthquake event. Although notable structural damage is expected in such an event, the type of risk associated with this damage in a high-rise office, or a highway overpass, or a stadium, is much greater than at a marine terminal. The risk at our facilities is almost entirely economic: loss of berth depth due to sloughing, damage to the asphalt-paved upland, misalignment of the crane rails, un-levelness due to sunken piles, and similar issues that do not pose a large risk to life.

Our estimate for construction costs to meet existing code at one container berth is approximately $108 million. With four to seven berths likely to be substantially altered or deepened in the coming years, the total cost to meet current code for slope stability alone would range between $432 million to $756 million. The magnitude of these costs is beyond what the Port can sustain based on future financial returns, existing and forecasted debt obligations and our known capital project requirements needed to remain competitive in today’s market.

Proposed strategy for deepening or substantially altering our berths:

The Port would like to deepen our berth areas by installing new cantilevered steel toe walls to retain the slope above. With the expertise of geotechnical engineering consultants, the toe walls would be designed to achieve a berth structure capable of accommodating depths of -55’ MLLW. The slope and corresponding toes walls would be designed to meet all code requirements for non-seismic conditions and to be equal to or better than the existing state in seismic conditions. After installation of toe walls, the Port would dredge the berth areas to -55’ MLLW. This strategy has been used in the past for similar projects.

Additionally, the Port would like to upgrade crane rails without performing a complete reconstruction of the berth. Similar to previous crane rail upgrades, new piles would be driven, new beams constructed and new cranes installed to service larger ships. All typical non-seismic code requirements would be met.

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The figure below depicts the comparison of our proposed strategy versus requirements for meeting existing regulations.

Dock

Piles Existing Bulkhead

Proposed Depth: -55'

Current Depth: -51'

Existing Slopeand Armoring

New Slopeand Armoring

Install new Toe Wall Remove dockCut off piles Remove fill and armoringEstablish new slopeDrive new pilesInstall new armoringRebuild dock and bulkhead

Proposed New Toe Wall

Specific request of our application:

1. The Port requests a permanent, partial waiver of the requirements of Seattle Building Code section 1803.5.11 for future design and construction work on the Port’s marine terminal facilities such that, in static conditions, all designs would meet current code criteria for potential geologic hazards as listed in 1803.5.11. In dynamic conditions, all designs would be equal to or improve upon the existing conditions for potential geologic hazards as listed in 1803.5.11. The stability of terminal slopes in seismic conditions would remain the same as they are today, which may include a safety factor less than 1.0 in some locations. In non-seismic conditions, slopes would still be required to meet all code-based safety factors. Waivers for the same allowance have frequently been granted, on a case-by-case basis. Much of our existing Port infrastructure has been built with this allowance. Having the predictability that this requested waiver will be permanent allows the Port to effectively plan for a series of large capital investments. The waiver will assist us to increase our competitive position relative to other ports without undue risk from an uncertain permitting environment.

Comparison of Port Proposal versus Requirements of Current Regulatory ProgramsBased on 1,300’ berth

Port Proposal: $14 Million Dollars Current Regulatory Code: $108 Million Dollars

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2. The Port also requests a permanent revision to Seattle Building Code section 3404.4 “Exception,” to increase the 10% demand-capacity ratio limit to 20% for the upgrading of container terminal crane rails. This permanent revision request need only apply to “container terminal” structural modifications. Similar to the section 1803.5.11 request, this applies to seismic conditions only. All normal criteria for static conditions for the crane rail upgrade would be satisfied. This section 3404.4 crane rail request is subsequent to and separate from the section 1803.5.11 geotechnical request. We view acceptance of our slope stability request as unrelated to acceptance of this crane rail request.

Approval of this request generates numerous economic benefits for numerous stakeholders:

1. Approval of this request would make possible the deepening of current berths from -51’ MLLW to -55’ MLLW with new toe walls. Each toe wall per berth is estimated to cost $14 million versus the $108 million to meet current code conditions; which would require a 20’ excavation into the upland area and a complete reconstruction of the entire slope and dock. The potential cost savings to the Port is hundreds of millions of dollars (see table below). The Port needs these savings in order to invest in infrastructure that actually improves our ability to service larger vessels.

Potential Cost Savings with Waiver Approval1 Berth 4 Berths 7 Berths

Rebuild 1,300’ of docks and slope to meet current code $108 Million $432 Million $756 Million

Install 1,300’ toe wall (approved waiver) $14 Million $56 Million $98 Million

Potential cost savings with approved waiver $94 Million $476 Million $658 Million

2. Approval of this waiver would motivate the Port to initiate spending $56 million to install toe walls at each of our major container terminals as well as an additional $15 million for dredging the associated berths.

3. The Port has requested a federal channel deepening process from the U.S. Army Corps of Engineers which we anticipate will lead to channel depths in the harbor equal to the depths of newly deepened berth areas. However, if the Port has not first deepened our berths, there would be no logical reason for the Corps to deepen the federal channels. As the Port has witnessed from previous Corps work at other ports, the depths of the berths significantly influences Corps’ decisions related to depths of federal channels. Port and Corps expenditures related to deepening the federal channels to match berth depths are estimated at $110 million.

4. Larger vessels will substantially improve the reliability of the entire export market supply chain for our state’s farmers. We are the largest refrigerated container export market in the nation. However, agricultural exports are heavy and today’s vessels cannot load to their full potential given berth and channel depth restrictions. Larger vessels also equate to increased availability of container equipment which is often in short supply during harvest season. Larger vessels will provide more capacity for our agricultural export products and enhance equipment availability.

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5. Deeper berths will allow our current 8,000 TEU vessels to load to their full capacity, which today is reduced because of our berth depths. Berth depths of -55’ MLLW ensures the Port can attract the largest container ships in the world and the additional cargo they can carry. The table below identifies the potential container volumes that can be handled with deeper berth depths.

Additional container volumes attributed to deeper berths.51’ berth accommodates

a 6,000 TEU vessel53’ berth accommodates

a 10,000 TEU vessel55’ berth accommodates

a 15,000 TEU vessel(today’s berth) (future berth) (future berth)

Annual Volume: weekly call @ 4 berths 1,258,000 TEUs 2,080,000 TEUs 3,120,000 TEUs

Typical import / export ratio 60% / 40% 60% / 40% 60% / 40%

Typical vessel slot utilization ratios for import / export 85% / 55% 85% / 55% 85% / 55%

Adjusted total volumes (rounded)

640,000 TEUs Import275,000 TEUs ExportTotal 915,000 TEUs

1,060,000 TEUs Import 460,000 TEUs Export Total 1,520,000 TEUs

1,590,000 TEUs Import 685,000 TEUs ExportTotal 2,275,000 TEUs

Additional TEUs due deeper berths (rounded) 0 600,000 TEUs 1,360,000 TEUs

Based on calculations from John Martin Associates, economic impacts from container activity in 2010 determined that 10 jobs are associated with each 1,000 TEUs handled at the Port and that each TEU generated $1,854 in taxes, wages and business expenditures in the region. Based on these calculations, the table below identifies potential job gains and economic benefits directly related to additional volumes that can be added to our Port with deeper berths:

Economic Impacts of additional container volumes.51’ berth accommodates

a 6,000 TEU vessel53’ berth accommodates

a 10,000 TEU vessel55’ berth accommodates

a 15,000 TEU vessel(today’s berth) (future berth) (future berth)

Additional TEUs due deeper berths (rounded) 0 600,000 TEUs 1,360,000 TEUs

Additional Jobs 0 6,000 13,600

Additional $ imported to Region (Annual) 0 $1.1 Billion $2.5 Billion

Even with deeper berths, market trends and conditions also determine port volumes in any given year. The economic benefits shown here are thus conceptual in nature. In summary, approval of this waiver request can lead to $181 million in new infrastructure investments, thousands of new jobs and additional economic benefits imported into the region of more than $1 billion annually.

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Project time line:

If selected as a Pilot Project, the Port anticipates installation of the first toe wall to begin within two to three years, following completion of project design and permitting. Phased installation of further toe walls would continue and be related to a number of factors, including market demand, U.S. Army Corps dredging schedules, and East Waterway mandatory clean-up dredging activity. The Port expects toe wall installation and dredging for deeper berths to be a 10 to 15 year phased program. Other dredging activities anticipated for Terminal 91 will be driven by market demands.

Environmental protection:

Our proposed project will result in equal or better environmental conditions than would result from meeting current regulations. While our waiver requests have no specific environmental consequences, the cumulative environmental impacts from the work resulting from these regulatory actions are likely to be significantly less under the proposed project than under the existing regulatory framework. An alternative requiring substantial berth and slope modification compared to an alternative related to maintenance of existing slope geometry through Installation of toe walls or installation of new crane beams are substantially different. To meet today’s code requirements would necessitate the complete demolition of current dock structures. Required demolition and new construction work would be much more disruptive to the environment than the simpler installation of toe walls. Construction impacts required by substantial slope modifications include: temporary water turbidity, excavation and exposure of contaminated upland sediments, installation of significant geotechnical stability piling and increased fill to reduce slope angle. These activities create significant impacts to habitat. Providing for sufficient structural stability through installation of toe walls does produce water turbidity and noise during installation, but these impacts are temporary, can be mitigated, and are much less harmful to the environment than a complete rebuild of the slopes and docks.

Conclusion:

The Port’s proposed pilot project would provide regulatory certainty and an opportunity for the Port to invest in meeting the needs of our maritime customers with adequate safeguards. If selected, this project would allow the Port to accurately budget our Capital Improvement Plan and provide the certainty to federal, state and local agencies who will partner with us on clean-up dredging and channel deepening. Deeper berths and larger cranes will substantially improve our competitive ability to attract the largest ships in the world and the immense additional volumes of cargoes and passengers they carry. These additional volumes can generate thousands of new jobs and millions of additional dollars imported into our region. These positive economic impacts will benefit the entire state.

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Port of Seattle Application for theIndustrial Development Pilot ProjectAttachment APort Managment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i-xxx

Port Management Agreement Map . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxxi

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