SoCal ports, local groups team up to prevent cargo diversion.
By Eric Kulisch
The expansion of the Panama Canal in 2014 and the potential threat that it will draw transcontinental cargo away from Southern California ports to Gulf and East Coast rivals is a useful foil for getting local support to make the Port of Los Angeles more competitive, Executive Director Geraldine Knatz said.
On the ground, the port authority is working with industry stakeholders to improve the flow of cargo through its
terminals and satisfy the need of shippers for timely deliveries.
The process improvements and facility upgrades are part of a broader public-private partnership to enhance goods movement and maintain the region’s preeminence as the nation’s primary gateway for containerized trade by galvanizing support for investments in infrastructure.
A coalition of interests, including the cities of Los Angeles and Long Beach and their respective ports, surrounding jurisdictions, labor and business leaders are collaborating at the political level to champion freight projects and address related environmental issues as a way of counteracting the Panama Canal’s value proposition for giant containerships from Asia making direct calls to eastern ports. The groups united last year under an umbrella organization called the Jobs 1st Alliance
, which has mounted a campaign called “Beat the Canal” to leverage trade-related infrastructure as a way to create jobs.
In reality, the strategy is about making the region’s ports and intermodal system able to withstand new competition from Canadian and Mexican ports as much as from the Panama Canal routing.
But the canal is the most concrete manifestation of the existential threat to trade activity faced by Southern California and gets people’s attention, Knatz said during a recent conference call with American Shipper
editors to discuss developments at the Port of Los Angeles.
“Whenever I go to downtown Los Angeles, I talk about the widening of the canal. Not because I’m afraid. But it’s an opportunity for us to use that to bring in the greater Los Angeles business community and make them aware of the importance of the port,” she said.
Building that wider base of support can help advance approval for projects, such as the plan to construct an intermodal rail yard operated by BNSF Railway for international containers moving through the ports of Los Angeles and Long Beach, she said.
“There’s nothing that brings people together more than a common enemy out there,” Knatz said.
The “Beat the Canal” coalition’s specific goal is to accelerate 65 freight mobility projects that have been awarded $7.5 billion in funding but are tied up in red tape. The projects, such as the replacement of the Gerald Desmond Bridge, will create 100,000 construction jobs and thousands of permanent jobs as local companies are able to expand sales by easier access to international and domestic markets, said Wally Baker, who heads the Jobs 1st Alliance.
In addition to pushing project development, the coalition’s three-pronged strategy calls for the twin ports to streamline internal processes for handling cargo and a marketing effort to get the word out about the new logistics performance capabilities of the region once the upgrades are in place.
The holistic approach is geared towards “improving our speed to market” to help companies become more profitable, Baker said. Among the fixes required to make Southern California the best gateway for shippers is reducing and eliminating fees “as much as possible,” he added.
The group’s Web site, www.Jobs1st.org
, says it will develop a performance index to rate goods movement through Southern California ports and trade corridors compared to other ports. No specifics are given yet on what criteria will be considered. Defining how to measure the performance of ports and other logistics factors often varies by who is doing the measuring and independent groups have had difficulty to date settling on a common standard.
2014 serves as a useful deadline for advocates pushing to get the infrastructure upgrades in place before the canal expansion is completed.
“Between now and 2014 we’re in an infrastructure 100-yard dash,” Baker said. “It’s about beating them to the finish line. So we’re accepting the challenge of moving cargo faster, cheaper and better than they do. We may be able to get close to their price and ensure delivery much faster — but in order to do that we have to leverage our infrastructure.”
The aggressive approach to competing for cargo represents a shift in mindset from several years ago when officials at the twin ports were widely perceived as taking for granted that the explosive growth in container volumes would continue unabated, especially in Southern California where more than 40 percent of all ocean imports enter the country. Container volumes peaked at the San Pedro Bay ports in the 2006-2007 timeframe as the recession took its toll on trade and shippers shifted some of their cargo to East Coast destinations because of concerns about labor unrest, higher fees, and environmental regulations for trucks and vessels in California, as well as a desire to take advantage of import distribution centers closer to their customers.
During the previous decade, West Coast ports lost about 8 points of market share to their counterparts in the East. Still, more than three-quarters of container imports are handled on the West Coast after ports there recovered volumes faster after the recession than their East Coast counterparts.
In 2010, the Port of Los Angeles handled 7.8 million TEUs, an increase of 1.1 million shipping units over the year before.
Some analysts believe that the impact of the Panama Canal on cargo flows will be less than anticipated because most ocean carriers and shippers have already locked in most of their network changes. Meanwhile, there are many unknowns that could influence discretionary cargo such as the size of the Panama Canal’s next toll increase, fuel prices, and rail rates from the West Coast.
Discretionary cargo refers to cargo that doesn’t have to go through a particular gateway because it’s destined for another part of the country.
Container ports from Washington to Southern California banded together with the BNSF and Union Pacific railroads a couple of years ago to promote the region as the best alternative for shippers moving goods to the Midwest amidst fears that shippers were diversifying their ports of entry.
Politicians appear to realize too that they’ve contributed to making Southern California less friendly to business by overly supporting community and environmental groups seeking to reduce the negative health effects of diesel emissions and traffic congestion emanating from the ports. The ports, identified as the single-largest source of diesel air pollution in Southern California, last decade came under intense political and legal pressure to cut port-generated emissions from yard equipment, trucks, trains and ocean-going vessels. The ports were forced to virtually freeze their development plans for several years under threat of legal action from environmental groups. In response, the ports enacted the most aggressive clean air programs in the nation and eventually got the green light to proceed on terminal expansion.
Initial reaction to the environmental requirements was that the expense could scare away shippers, but other U.S. cities are now putting more emphasis on reducing harmful diesel emissions and the port industry now looks at Los Angeles-Long Beach as the model for balancing trade and environmental quality.
“In Southern California, if you don’t pick your enemy, we will pick on each other. We make ourselves the enemy,” Baker said. “We have to realize that we’re competing and somebody externally has to be the enemy.”
On the political side, the “Beat the Canal” coalition is trying to convince officials to make the freight projects a priority and expedite the permitting process. The new projects will reduce congestion and air pollution by adding capacity and low-emissions equipment at terminals and intermodal yards, the group argues.
It encourages people to physically show up at every public hearing and voice their support for the various freight infrastructure projects as they come up for review. Then members from groups like the business-led Southern California Leadership Council will keep the pressure on public officials behind the scenes to follow through and provide advice on how to overcome procedural challenges that crop up, Baker said.
A YouTube video titled, “Beat the Canal — Put People to Work!,” has ominous-sounding music in the background as former California State Assembly Speaker and San Francisco Mayor Willie Brown Jr. warns about the threat to the local economy if cargo is diverted from the San Pedro Bay ports to the East and Gulf coasts, which themselves are heavily investing in facilities to handle the arrival of bigger vessels.
“Hundreds of thousands of jobs are at risk and so is our middle-class buying power,” he intones.
“If we lose to the canal we lose job opportunities and business opportunities for a whole generation,” adds Maria Elena Durazo, executive secretary-treasurer for the Los Angeles County Federation of Labor. “We can’t afford to do that. There’s too much at stake here.”
Brown pointed to the decline of the aerospace industry in Los Angeles and said, “We can’t let that happen again.”
Former Gov. Gray Davis is also behind the effort.
Baker expressed optimism that many of the projects can be completed in the next three years as long as local officials don’t get tripped up by frivolous lawsuits.
Local officials should create new rules for pending development deals that require lawsuits to be decided by the courts within a short period or the project moves forward, as was ostensibly done to clear the way for any future deal to build a football stadium in Los Angeles, the former senior vice president of the Los Angeles Economic Development Corp. said.
In September, California Gov. Jerry Brown signed a bill allowing litigation filed to force compliance with the California Environmental Quality Act to be expedited for big, job-creating development projects the governor certifies as having significant environmental “leadership” benefits. The law, which essentially gives Brown the power to give projects fast-track treatment for a three-year period, amends CEQA by defining “leadership projects” as commercial, sports, or other developments that achieve 10 percent or greater transportation efficiency or have clean energy components; mandates that any litigation against a certified project be filed in the Court of Appeal with geographic jurisdiction over the project and that the Court of Appeal issue a decision within 175 days. The setting is important because appeals from the court can be denied by the California Supreme Court without a hearing.
But the proper way to reform CEQA is to have a public review of its procedures rather than quietly broker a deal behind the legislative scenes to benefit the stadium developer, Antonio Rossman, a lawyer who also teaches environmental law at the University of California Berkeley, said in a commentary in The Berkeley Daily Planet
“The larger explanation for these bills lies in successful exploitation of our current economy to stoke unsound fears that environmental protection must be sacrificed to restore economic opportunity,” he wrote. “Jobs’ has replaced ‘national security’ as the talismanic code word to justify the waiver of protections that most citizens support, and that time and again have been shown in dispassionate analyses not to stand in the way of economic progress.”
Port of L.A.
Port officials stress that all initiatives to increase throughput, improve service and “green” operations are designed to make Los Angeles more competitive and maintain market share against the Panama Canal, or rivals in Mexico and Canada.
“Because of the competitive threats that we face, the most serious risk facing us is loss of our discretionary cargo,” Knatz told the Board of Harbor Commissioners at its Sept. 15 meeting.
Half of the Port of Los Angeles’ containerized cargo heads inland by rail, with Chicago being the second largest market outside Southern California.
“So over the next five years we’re going to be battling this competition from the East Coast ports, from the Canadian ports. And if we don’t win this battle, if we don’t protect our discretionary cargo we’re going to lose the jobs and revenue that come along with that,” Knatz said as she presented the outline of a new five-year strategic plan designed to meet the challenge.
The previous strategic plan emphasizes “green” initiatives that would allow the port to grow.
“We realize that we have to put the same emphasis on fighting for business over the next five years we did on cleaning up the business the past five years,” she added.
The new strategy focuses on optimizing land use, facilitating operational efficiency, building top-flight infrastructure on time, and fostering strong relationships with businesses and the local community.
Port authority staff is finishing up its own “Beat the Canal” work plan that identifies actions the port can take to indirectly influence changes in the flow of cargo, Knatz said.
A possible step, she suggested, is offering incentives to terminal operators to increase their average TEU throughput per acre.
In a separate interview, Kraig Jondle, the L.A. port’s director of business and trade development, said he’s “not a fan of the ‘Beat the Canal’ phrase because the canal plays an important role in international trade and is just one component of the changing dynamics within global supply chains.
“It’s no different than another port building a new terminal or making their waterways deeper. To me, they’re similar competing forces. So when they make a change it’s up to the rest of us to counter that change,” he said.
The port, for example, is expected to complete the final phase of its 13-year deep-water dredging project by 2013 that will put the facility at a 53-foot depth capable of handling the world’s largest container vessels. Currently access to three terminals remains at 47-feet.
As part of the team strategy for the region, the ports of Los Angeles and Long Beach in mid-2010 created the Competitive Cargo Strategy Committee to consult with industry stakeholders — ocean carriers, terminal operators, shippers, motor carriers, warehouse operators, railroads, and the longshoremen’s union — on how to improve the operational efficiency of the marine terminals and help with projects around the port.
The committee meets once a month to deal with issues such as the side effects of PierPass, the voluntary program of off-peak hours implemented by marine terminals in 2006 to minimize daytime traffic congestion and increase cargo movement at the ports. Trucks that use day-time gates are assessed a fee of $60 per TEU.
The program has resulted in heavy truck bunching around the 6 p.m. night gates when the fee drops to zero, followed by a long stretch of slack time as truckers try to complete their day as early as possible.
One solution under discussion is a port-wide appointment system for truckers, Knatz said.
As part of a new marketing plan, the Port of Los Angeles is also aggressively courting shippers, not just carriers, by comparing and contrasting its capabilities to those of other ports.
Los Angeles has advantages in acreage, on-dock rail, workforce size, gantry cranes, weekly ocean services, transit time, trains per day and local warehouse space, Jondle said. He likes to point out that the twin ports have 100 trains per day leaving their docks for the heartland compared to the Port of Vancouver in British Colombia, which fills two intermodal trains per day.
“More trains means more throughput, which means more reliability and efficiency,” he said.
The port is also getting more creative in reaching out to customers and keeping them informed about what it is doing.
Staff members traditionally visited container line officials at their overseas headquarters or at regional offices in the United States, but now are trying to connect with their primary customers at a deeper level by stopping at the carriers’ local sales offices whenever they are traveling to a conference or making other calls around the country, Jondle explained.
“We feel that knowledge is power. The more people know about your product the more powerful they can be with their customers,” he said.