When California governor Jerry Brown responded to President Trump’s June 1 decision to withdraw from the Paris climate change agreement by flying to Beijing and signing a “bilateral” accord with Xi Jinping, it underscored CNN’s comment that “if there is an issue about which Brown is most passionate, it is climate change.”
For users of California’s seaports, that is relevant information regarding the priorities of the largest US state. It appears the state’s all-out commitment to mitigating climate change is taking priority over maintaining the competitiveness of the state’s seaports, particularly the critical Los Angeles-Long Beach gateway. This comes at a time when the Southern California ports’ hold on discretionary cargo is as tenuous as ever.
The state revealed its ambitions in March when the California Air Resources Board (CARB) secretly adopted resolutions that would, in the name of reducing air emissions, place physical limits on business activity at distribution centers, railyards, and other logistics facilities. From a port and supply chain point of view, the rules would constitute “a state-imposed cargo diversion mandate,” Pacific Merchant Shipping Association president John McLaurin told the California Retailers Association on May 31.
The agency also mandated development of regulations for California marine terminals that would require the use of 100 percent zero emission equipment and shoreside electrical power by 2030 for all ships, including oil tankers, while at berth. Port engineering firm Moffatt and Nichol estimates the cost to implement the mandate at between $23 billion and $36 billion.
At that price, state support would be a requirement, but the mandate is already proving politically problematic with the West Coast dockworker union; the International Longshore and Warehouse Union has gone on record as opposing the use of public funds for investments that could end up advancing automation at ports and thus displace dockworkers. “No public discussion was allowed, (and) the resolution was not available to the public prior to the vote,” McLaurin told the retailer group.
He said the directives “wiped away” progress on a well-received 2015 Sustainable Freight Plan mandated by governor Brown that was intended to find a “sweet spot” where emissions would be reduced while improving the competitiveness of the state’s freight system.
At a time when California ports are losing container cargo to ports on the East and Gulf coasts, the state has a lot to lose by sending a message, as CARB seemingly did, that freight competitiveness is secondary as climate change issues are addressed. “If state and port policies end up being too restrictive, too expensive, and drive business away, these policies fail on several levels — they won’t reduce emissions, they will only relocate them, having no positive impact on climate change,” McLaurin said.
Case in point is what has happened in the year since the new locks of the Panama Canal opened, allowing much larger ships to transit the canal on voyages between Asia and the US East and Gulf coasts. Since the third set of locks opened for business on June 26, 2016, the size of ships transiting the canal has jumped significantly. “We thought we’d see vessels in the 6,500 to 8,000 TEU range (in the first year), but it quickly rose to 8,500 TEU, and has now jumped to an average vessel size of 10,500 TEU,” Panama Canal Authority executive vice president Oscar Bazan told JOC/IHS Markit sister publication Fairplay earlier this month.
That has impacted the routing of cargo. Last year, West Coast ports including Los Angeles-Long Beach were in the process of regaining market share lost during the months-long 2014-2015 longshore labor conflict. In 2016, the West Coast gained three-quarters of a percent of US containerized market share in the January-May period on Asia imports versus the same period in 2015, while ports on the East and Gulf coasts lost a half and a quarter point of market share, respectively, during the same period. However, that changed after the locks expansion. From January through May 2017, the East and Gulf Coast ports gained back all of that lost share and more.
During those five months this year versus the same period in 2016, the East and Gulf Coast Asia import volumes grew 8 and 41 percent, respectively, while the West Coast’s Asia import totals grew just 4 percent, according to PIERS, a sister product of JOC.com within IHS Markit. The ports of Savannah, Charleston, and Virginia all reported record monthly volumes in May.
The LA-Long Beach port understands that other than serving as the natural port for localized cargo, the complex caters increasingly to high-value, fast-moving goods that require visibility and predictability as they move through the ports and onto distribution centers and customers. That is why ports such as Los Angeles are making a big push into technology to improve visibility and flow.
If the ILWU approves a contract extension in an upcoming vote, that will eliminate shippers’ biggest concern for the next five years. That is positive, but a disconnect between the state’s global environmental agenda and the needs of its freight stakeholders could undermine much of that progress.