PORT OF TACOMA COMMISSION MEETING OCTOBER 2, 2008

PORT OF TACOMA/ UNION PACIFIC RAILROAD LEASE AND OPERATING AGREEMENT

ACTION REQUESTED OF COMMISSION Request authorization for the Executive Director to sign the Lease and Operating Agreement with the Union Pacific Railroad based upon the terms outlined in Memo to the Commission dated October 2, 2008.

BACKGROUND GOAL: Increase SIM volume For the past year, the Intermodal Line of Business (LOB) has been working to increase business in the South Intermodal Yard (SIM), as it has been an under-utilized asset.

BACKGROUND GOAL: Diversify intermodal business The Intermodal LOB has also been working to diversify the intermodal business at the Port of Tacoma, so that the Intermodal LOB is not completely reliant on international intact containers.

BACKGROUND The Intermodal LOB approached the Union Pacific Railroad (UP) about moving domestic business from the Seattle UP Argo Yard to the SIM Yard a few months ago. One of the main goals of the Intermodal LOB has been to expand capacity for the UP in the Puget Sound area. The UP cannot accept any additional international business at the Argo Yard.

LEASE & OPERATING TERMS The Port operates the SIM Yard today through Pacific Rail Service. Its current customer base includes Horizon Lines and Maersk Line. The new customer base will include UP. The UP would rent staging acreage across the street from the SIM Yard. The Port of Tacoma would charge the UP for lift fees, facility fees, and acreage rental.

LEASE & OPERATING TERMS Lease term is 5 years with 5 one-year mutual renewal options thereafter, for a total of 10 years. Lease and Operating term to commence on December 1, UP would lease 10 acres at the beginning of the lease at a rate of $.12/sq.ft. per month.

LEASE & OPERATING TERMS This would increase to 25 acres during the term of the Lease. Minimum guarantee of 35,000 lifts the first year and 45,000 lifts the second year. Thereafter, the lift guarantee will be increased by 5% per year. Lift fees will be charged to the UP based upon our costs from Pacific Rail Service.

FISCAL IMPACT The 10-year Lease and Operating Agreement, as evaluated by the Finance Department, passes the Port of Tacoma hurdle rate. The project will not require significant capital investment, as the UP will use an existing intermodal yard and existing paved, fence facilities. The Port will need to adjust fence lines and invest in fencing to realign the facility where Kia automobiles are currently staged.

ACTION ITEM Request authorization for the Executive Director to sign the Lease and Operating Agreement with the Union Pacific Railroad based upon the terms outlined in Memo to the Commission dated October 2, 2008.