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Pressures mount on California ports

Giant crane handles a ship's cargo at the Port of Long Beach. (Photo:

On November 1, the Port of Oakland officially began a $500 million conversion of the long-shuttered Oakland Army Base into new warehouses and pier-side rail spurs to improve the capacity – and competitiveness – of Northern California’s busiest port.

Financed in part with $250 million in state bond funds, the massive undertaking is expected to create 1,523 construction jobs over the next three years and another 1,800 permanent jobs when completed.

“The community wins with cleaner air, less congestion, more good jobs and local business opportunities,” said Chris Lytle, the port’s new executive director, at the groundbreaking.

“The supply chain wins with faster transit times, higher volume throughput, lower costs and greater reliability.

“And government wins with increased revenue and lower expenditures on fixing up local roads.”

Every four containers create $1,000 in state and local revenue, $8,500 in personal income and one job. Oakland says every three containers it handles generate one job, $5,100 in personal income and $540 in state and local taxes.

Also speaking at the event was Oakland’s former mayor, Gov. Jerry Brown. His attendance is a testament to the significance of the project and the important but sometimes overlooked role ports play in California’s more than $2 trillion economy.

California’s 11 ports, from Humboldt Bay in the north to San Diego in the south, generate more than $40 billion in annual economic activity. They create hundreds of thousands of jobs dockside as well as inland where cargo is loaded onto trucks or trains for delivery across North America, mainly to Mid-West hubs like Chicago and St. Louis.

Cranes, Port of Oakland. (Photo: Todd HUffman)

Cranes, Port of Oakland. (Photo: Todd HUffman)

The Ports of Long Beach and Los Angeles generate most of that economic activity. The two represent the nation’s largest cargo container port and the world’s sixth busiest harbor.

Oakland, gateway to Asian markets for Central Valley growers, is a distant third.

Ports in Canada, Mexico and the Gulf states are boosting capacity as the Panama Canal nears completion of a $5.25 billion widening that allows the world’s largest cargo ships to bypass the West Coast.

About 7 million cargo containers move through the Los Angeles and Long Beach ports annually. Every four containers create $1,000 in state and local revenue, $8,500 in personal income and one job. Oakland says every three containers it handles generate one job, $5,100 in personal income and $540 in state and local taxes.

Although still a major economic engine, California ports face increasing competitive pressures.

Ports in Canada, Mexico and the Gulf states are boosting capacity as the Panama Canal nears completion of a $5.25 billion widening that allows the world’s largest cargo ships to bypass the West Coast.

At the same time, major shipping lines are adding more routes from India and Asia through the Suez Canal.

California also has tougher environmental standards than most other state and countries as well as congested highways and high land prices. Oakland’s ability to add 1 million square feet of neighboring warehouse space is the exception, not the rule.

Ten years ago, Long Beach and Los Angeles received more than 56 percent of Pacific Rim cargo containers. Now it’s 48 percent and falling.

Of the cargo that is unloaded there, 40 percent could be easily diverted elsewhere, port operators say.

Police, Fire Department boats at Port of Long Beach.

Police, Fire Department boats at Port of Long Beach.

“Cargo has no loyalty. It will find the easiest, most cost-effective path to move through,” John McLaurin, president of the Pacific Merchant Shipping Association told Capitol Weekly. “If California can offer that, great. If not, other gateways will be utilized.”

Gooder Ways to Move Goods
State lawmakers are taking some actions aimed at

aiding state ports.

A new law creating another seemingly innocuous– advisory committee could actually affect the vitality of California’s ports by helping move goods through the state more efficiently.

Backed by the maritime shipping association, the legislation – AB 14 by Assemblywoman Bonnie Lowenthal, a Long Beach Democrat – establishes an advisory committee to help the state create a “freight” plan, which has the potential to boost the competitiveness of California’s three primary ports.

California created a goods movement plan seven years ago at the direction of then Gov. Arnold Schwarzenegger, in part to build the case for a $19.9 billion transportation bond that earmarked $3.1 billion for trade-related improvements. That plan is being updated, the Caltrans website says.

“An efficient and sustainable goods movement system isn’t just smart policy, it’s a sound investment, both for the state economy and potentially in securing more federal transportation funding.” says Lowenthal.

The Democratic governor signed Lowenthal’s measure without comment — a little under two years before the Panama Canal project’s expected completion date.

A January 21 meeting is scheduled for the advisory commission
Creating a plan that details how it would move goods to destinations throughout the United States could help California receive additional federal funds for trade-related transportation projects. As much as 95 percent of costs on selected projects, according to Caltrans.

The 2012 federal “Moving Ahead for Progress in the 21st Century” Act encourages states to prepare a freight plan as part of the law’s requirement a new national goods movement strategy be assembled.

Commonly, individual terminals are operated by different companies who hold long-term leases with the port. Often terminals at one port compete against each other to secure a bigger share of the cars, clothing and household goods arriving mainly from Asia.

California created a goods movement plan seven years ago at the direction of then Gov. Arnold Schwarzenegger, in part to build the case for a $19.9 billion transportation bond that earmarked $3.1 billion for trade-related improvements. That plan is being updated, the Caltrans website says.

A freighter at the Port of San Diego. (Photo: Dale Frost)

A freighter at the Port of San Diego. (Photo: Dale Frost)

“This is part of our responsibility to the national economy,” said Caltrans spokesman Mark Dinger. “Nearly 40 percent of the goods imported from Asia to the United States flow through California’s freight transportation system.”

Nearly all of those bond funds have been appropriated and most of the projects are under construction.

 

The state’s $250 million contribution to the Port of Oakland’s upgrade came from that bond, approved by voters in November 2006 as Proposition 1B.

Because of their unique nature, ports can be problematic for both state and local policymakers.

Ports aren’t monolithic entities. They’re more like franchisers or landlords.

“Ports face the same problem around the country. They have positive economic impacts with regional benefits that affect a large constituency. But you probably don’t want to live next to them,” says Jock O’Connell, a trade specialist headquartered in Sacramento.

Commonly, individual terminals are operated by different companies who hold long-term leases with the port. Often terminals at one port compete against each other to secure a bigger share of the cars, clothing and household goods arriving mainly from Asia.

Lots of Greenbacks to Get Green
Ports, California or otherwise, also aren’t environmentally benign.

 

Mammoth cranes move countless metal containers to dockside staging areas from 1,000-foot long vessels with diesel engines that gobble more than 150 tons of fuel each day.

Long lines of idling trucks wait to transport their payloads, often inching along crowded freeways to busy rail yards where diesel locomotives prepare to rumble their cargo to destinations across the continent.

“Ports face the same problem around the country. They have positive economic impacts with regional benefits that affect a large constituency. But you probably don’t want to live next to them,” says Jock O’Connell, a trade specialist headquartered in Sacramento.

For example, Burlington Northern Santa Fe wants to build the “International Gateway,” a 153-acre rail yard cargo depot near Interstate 710 at the edge of Long Beach.

“The city of Los Angeles and a major corporation are really treating Long Beach in a deplorable manner — one city is literally ignoring another city’s residents. We’re asking them to be clean and to be a good neighbor and help mitigate this, but they’re basically thumbing their nose at us.”

The project’s nearly 4,700-page environmental impact report, began in 2005 and completed in 2011, says the $500 million facility will improve Southern California’s air quality by reducing the distance trucks must haul cargo from the ports for transfer.

Currently, the chief truck-to-rail transport center is the Hobart rail yards in the City of Commerce – more than 24 miles from the docks along the already congested I-710.

But West Long Beach, the neighborhood next to the new rail yard, complains that it already chokes on diesel fumes, a condition community activists say won’t improve with the new rail yard.

“This is really taking advantage of poor people for the advantage of others,” Long Beach Mayor Bob Foster said in an April interview with the New York Times.

“The city of Los Angeles and a major corporation are really treating Long Beach in a deplorable manner — one city is literally ignoring another city’s residents. We’re asking them to be clean and to be a good neighbor and help mitigate this, but they’re basically thumbing their nose at us.”

In August, Long Beach consolidated its lawsuit against the project with six others filed by the Long Beach Unified School District, several local nonprofits and the South Coast Air Quality Management District.

Environmental mitigation requirements imposed by the Air Resources Board and other regulators has added $5 billion to port operational costs, according to the merchant shipping association.

Air Quality Efforts
Some $1.8 billion of that $5 billion in costs stems from having to create dockside electrical power for vessels so that onboard diesel engines can be turned off to reduce emissions.

Air board rules require that half of all container and cruise ships using the state’s major ports must “plug in” starting January 1. The technology is known as “cold ironing” – shipping term from the days of coal-fired engines. When a ship was tied up at port, the iron engines didn’t need be stoked and, so, became cold.

The Viega Nikolas in San Diego.

The Viega Nikolas in San Diego.

In a May 7 speech, Foster said ships are the largest remaining source of pollution at ports and that “plugging in a typical container ship for a day … is the pollution equivalent of taking 33,000 cars off the road.”

The Port of Long Beach says it will spend $200 million outfitting its terminals with power hookups.

A $1 billion pot of money was contained in the 2006 bond to reduce emissions from goods movement with $550,000 of it earmarked for Southern California and the Inland Empire.

The air board estimates there are about 20,000 trucks that regularly visit the state’s ports, often idling in long lines awaiting their loads. Seven years ago, the air board said all pre-1994 truck engines had to be retired or replaced with newer engines by 2009 By January 1, all port trucks must meet 2007 emission standards.

Long Beach and Los Angeles used nearly $100 million of their bond money to offer $50,000 subsidies to truckers to purchase new trucks with less polluting engines.

In another pollution control move, Long Beach and Los Angeles changed their fee structure so that trucks that pick up their cargo in off-peak hours pay less than those who don’t. Long Beach also rewards ships that slow down to 12 knots or less within 40 miles of the harbor entrance with lower dockage fees. The slower a vessel’s speed, the lower the emissions.

While operational costs may increase because of California’s more stringent regulation, ports are adapting and shrinking their carbon footprint.

But there are global forces that might be beyond the ability of the state’s ports to adapt to.

Like McLaurin says, cargo takes the speediest path of least expense to its destination.

The New Panama Canal
For almost a century, the Panama Canal defined shipping. So much so that vessels that could pass through the canal’s 110-foot wide locks are called “Panamax.” A Panamax ship can carry 5,000 cargo containers known as “twenty-foot equivalent units” or TEUs in nautical parlance because of their 20 foot by 8 foot size.

But now a new generation of cargo ships, known as “Post Panamax,” are plying the oceans.

They can carry as much as 15,000 containers. Although less than 20 percent of the world’s container fleet, the giant vessels account for 50 percent of the fleet’s capacity – a percentage that’s growing.

These massive vessels are a key reason for Panama’s decision to widen and modernize the canal, the only port in the world with terminals in two oceans.

The new canal and its set of 180-foot wide single-lane locks can accommodate ships designed to carry up to 12,600 containers.

What’s not yet known is how much will be charged to move through the new lock system – an important factor in determining cost-effectiveness.

Similarly, manufacturing centers are now moving west from China to Vietnam to India. That makes the Suez Canal a potentially speedier route to reach East Coast markets than trucking or training goods cross country from California.

On the other hand, some international shipping lines have long-term operating leases at California terminals and are unlikely to squander that investment – at least during the life of the lease.

Business is undeniably better for California’s ports in 2013 than during the recession when the shipping industry lost $20 billion in one year alone.

There’s wariness about the future but the ports are busy trying to accentuate their positives – like Oakland and its use of the neighboring army base property.

The Panama Canal’s fast-approaching opening could add more urgency – and attention – to efforts like Lowenthal’s to boost the competitiveness of California’s ports. No one involved disputes what’s at stake:
“Ultimately, it’s about the viability of these ports, particularly Long Beach and Los Angeles,” O’Connell tells Capitol Weekly.

“If we don’t move goods through more productively and efficiently then we lose business not only to Panama but other ports. And a substantial diversion of cargo away from California creates any number of significant and probably long-term effects. “

Ed’s Note: Greg Lucas, the editor of California’s Capitol, is the contributing editor of Capitol Weekly.


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