Alastair Smith, Senior Director of Marketing and Operations

1,400+ total acres • 13 berths

700,000+ sq. ft. warehouing space 43-ft. channel

Rail: BNSF Railway, Union Pacific Railroad

Highways: I-5, I-84

Top export destinations: Japan, South Korea, China

Top export commodities: Wheat, Bulk Minerals, Scrap Steel

Alastair Smith: The Port of Vancouver is actually a bulk, break bulk, project cargo, automobile port. We basically don’t do containers. We maybe handle a couple hundred TEUs per year, but generally are on the break bulk and project side. Our export markets are actually very strong in wheat, corn and beans where we do approaching 3 million tons per year. The grain facility is United Grain Co., and they have just added about another 2 million ton capacity, so if they were to fill their capacity they could actually increase their export volumes up to be about 5 million to 5.5 million tons. So that is a recent addition. We do a lot of bulk minerals, including copper concentrate, bentonite clay and mill scale. We export steel scrap.

Our connection facility is probably about 65 percent complete. We expect the connection facility to be completed in 2015, so we’re seeing a light to the end but next year this will all be connected. With that, we have had a tremendous amount of interest with private investors looking to build on the infrastructure that we have put into place. We have an export facility that we are building in conjunction with the BHP Billiton. They’re in the process now of building a mine for potash exports out of Saskatchewan, Canada, that is going to come down on the rail system down the Columbia River Valley and be exported through the Port of Vancouver, and we’re looking at tonnage in excess of 8 million tons per year. We have also just signed a lease with a company called Tesoro Oil, which is in a joint venture with Savage Co. Tesoro is the owner of Oil Transporting out of the Bakken area in North Dakota coming to the West Coast to go onto vessel carriers going down into California and up into Alaska. This would be a crude-by-rail program coming from the Bakken area in North Dakota. This facility is going to be permitted for a capacity of 380,000 barrels per day. This will be the largest one, certainly in the Pacific Northwest but maybe on the West Coast. We are halfway through the permitting on that, and we expect permits.

We’re actually building that facility. We already have the rail capacity to make that work. We already have a dock in place to make that work, and the land available is already signed under lease, so that will be a 10-year lease. The BHPB lease is proposed to be a 30-year lease with four 10-year options, so that is a very long-term investment window that you are seeing with two very large players that are getting into this because of the foresight and the strategic planning that the Port of Vancouver has had in making sure that we have the rail infrastructure in place and how to develop that land properly. One of the other things that may differentiate us with others is that in addition to the lands that we have today on the marine side, we have another 108 acres that we have developed on the industrial side, 58 acres of that is ready to go. We’ve got roads, we’ve got utilities in place, all we need to do is have someone come with a pen and sign that contract. We’ve got a parcel of land which is around 500 acres called Columbia Gateway that the port owns. That was in our 10-year plan but because of the development of the rail and because of the public monies that we put into the existing lands, we are going to be needing additional land, so we’ll now drop that project from a 10-year plan into our 5-year strategic plan, and we have now started to set up a steering committee to figure out what we want to do with that land. So, we are in a position today where we’re starting to market that and things like automobiles, export, bulk export facilities that we would be able to put in a custom-built facility with loop tracks for multiple commodities built directly accessible into the 43 foot navigation channel in the Columbia River. That offers something that many other ports do not have the capability of offering. So I think we’ve positioned ourselves extremely well for that.

When we look at the oil portion of this, in order to get the oil out of North Dakota, transferred across into Vancouver, Washington, the fracking process that they use in North Dakota requires a tremendous amount of pipe, a tremendous amount of ceramic sand, which is called proppant, and generally is supplied out of China. So there’s hundreds of thousands of tons of that being shipped today. We’ve reckoned that for every well that gets drilled in North Dakota, you use about 250 tons of drill pipe. They are drilling about 200 wells per month. So there is a tremendous amount of inbound cargo to supply into the export market coming back out of North Dakota. We are looking at the synergies of how we do that. We are very fortunate that most of the product going into that area into North Dakota is supplied out of Asia. You’ve got a lot of the pipe coming from Taiwan, Korea and Japan and the proppants are coming from China. We have started what we have called our Advanced Supply Chain Program, and we’ve got an accompanying program called our Store to Door Project. Generally what’s happened in the past is that all of the oil reserves have been found around the Gulf area of the U.S. and so you’ve had it into Texas, into Oklahoma, you’ve got it in the Gulf of Mexico, so that market is actually very mature to where carriers (shipping companies) are used to carrying the pipe and other product into the Gulf area. Also, because it’s a mature market, they’ve set up a lot of the facilities to be able to do the testing, the threading and coating for all of this pipe that goes into the oil industry. So that’s great, but now the different factor is that North Dakota is actually well away from the Gulf states and it’s actually easier to access by rail from the West Coast. So we’ve taken a look at this. We’ve built our logistics plan and our logistics chain and we are sharing this with people in the Asian countries that are supplying the pipe and the sand. It only takes about 14 days to get to Vancouver, Washington, from Asia. It takes about 29 days to get to the Gulf ports, including a day that you have to go through the Panama Canal. So the actual amount of fuel that you burn in that extra 15 days has a tremendous amount of cost. The actual time adds another 15 days to the vessel voyage. That, excluding what it has on the rail side of it. So we feel we can actually get our stuff to market about 20 days sooner going through the West Coast than you can through the East Coast. When you take the vessel transit time, you take the amount of fuel you have, and you take the Panama Canal costs, we feel that on a vessel we should be able to save at least $500,000 in getting that to the Midwest, just comparing the vessel freight cost. When you were to take a look at what the rail differential is, it’s about $1,000 per rail car less shipping through Port of Vancouver to North Dakota than it would be from the Gulf ports to North Dakota. So as these logistics trends change is where the final destination of this cargo is, North Dakota is much more in synergy with coming through the West Coast than it would do coming through the Gulf. We actually have opened up an office in North Dakota as of about 3 or 4 weeks ago. It is in Williston, North Dakota, and we actually have staff there trying to drum up business coming in and out of the West Coast from North Dakota. So we are building up our relationships with all of the railroads. We understand which facilities can accept unit-size trains. We understand who has warehouse capacity and we understand the cost differential all the way along the logistics chain. By doing this we can now approach the shippers or the receivers in North Dakota or in Asia and figure out who is actually controlling those costs, because generally the way that it happens, a shipping company or vessel owner will actually take the cargo from a load port to a discharge port, then he doesn’t care what happens to it after that. Their responsibility is finished.

The railroad does the same thing. They take it from point of origin at a port into the final destination, whether it’s in North Dakota or not. The person who is paying that end bill, he is the only one who knows what the complete costs are, but if we have to come up with a better mousetrap and get the terms of bookings to change to where it’s on a DDP [delivered duty paid] basis, then both the shipper and the receiver will then understand the full logistics chain cost and I think that that’s where a tremendous advantage of coming through the Port of Vancouver, Washington, would be. Once you understand that delivered cost, then it can either produce more profit for the shipper or it can produce a more competitive price for the receiver. Just having everyone understand each component of that logistics chain I think will help people to make a decision to utilize cargo through the West Coast.

Global Trade: If you are an exporter of break bulk or project cargoes or bulk materials around North Dakota or the surrounding states, with the ports that you have around Port of Vancouver that are competitive, what is it about Port of Vancouver that you would want to tell those companies to get them to choose you over Port of Portland or Port of Olympia or what have you?

Alastair Smith: Well, with the two ports that you just mentioned, we are the only port that has two heavy lift cranes. We have two lever cranes that are 140-ton capacity each. Each of them can lift 100 tons at 100 feet and we can actually twin those cranes up to where we can do a 204-megaton lift. That is one of the other things that we have recognized that you have to have the proper equipment to be able to attract these types of business. We also feel that having two cranes is much better than one because a lot of the things that we handle today, whether it be wind energy or whether it be oil sands modules going up into northern Alberta or whether it’s just large component pieces going through a lot of these refineries. We find that having two cranes is a much more positive control on the pick when you have something that may be 80 to 100 feet long and the center of gravity is not centered. Therefore, by having the two cranes you can actually get much more control over it, and we have a very well-trained longshore force to where each one of the crane operators in that longshore union has been trained in tandem picks and engineered lift, meaning that everything is synchronized, everything is done very safely and I think we’ve got a very good record on that. We have a tremendous amount of experience with this because we are the No. 1 port for handling wind energy in the nation in 2009 and 2011. We have longer term contracts with Siemens, with GE. We have handled cargo for REpower and there are two or three others that we are handling cargo for as well. All of these have led to good training resources for our crane operators.

We also handle large modules going into the oil sands business. Most of those were manufactured in Korea. Some of them were actually up to 154-metric-ton lifts. We’ve got a lot of experience. We have the proper infrastructure. We have the ability to get in the proper trailers that are heavy lift trailers when required. We have stevedores here that have not only the experience but they have the stevedoring gear to be able to handle all of these projects. It’s very hard and difficult to get up to speed quickly to do one or two of these picks, but over the course of the years you actually build up quite a cache of equipment so that you are very versatile in handling just about anything people throw at you. One of the things it’s very, very hard to do is to change directions of a super tanker and you can see that the direction of all of the steel and the oil industry has gone to the Gulf. So we’re just trying to turn that ship around a little bit to give the West Coast a look because we do think that for certain areas within the U.S. that it makes more sense coming in through the West Coast. We are not saying that we are going to try to handle all the cargo going into the Gulf. That doesn’t make sense, but where it does make logistical sense is where we are trying to focus on.