There’s little doubt that California’s ports face a tough 2015, the real question is whether the issues linger longer.Aerial view of the Port of Long Beach, CA
There is no doubt that the waterfront labor and trucking issues were the elephant in the room when 600 plus met to nominally discuss the “peak season forecast” at the Port of Long Beach’s annual “Pulse of the Port” briefing on April 29th. The often contentious contract dispute between ILWU (International Longshore and Warehouse Union) and the PMA (Pacific Maritime Association), whose contract is scheduled for a membership vote on May 22nd, and the more recent trucking quarrels provided a backdrop to the presentations.
These issues made the event more than simply a Port of Long Beach or even San Pedro ports (inclusive of the neighboring Port of Los Angeles) meeting. The “Pulse of the Port” meeting outlined the challenges to all California’s port in the near term.
There were four quick takeaways from the presentations that sketch out the immediate challenges to the region’s ports:
• U.S. agricultural exports, primarily shipped from the ports of Oakland, Long Beach, and Los Angeles, facing growing market challenges from foreign competitors as a result of the high dollar, increased foreign farm consolidations and higher transportation costs.
• Hopes by East Coast ports that they may pick up more business from California ports in the aftermath of the West Coast labor slowdown may be short-lived.
• The FMC (Federal Maritime Commission) offers help for shippers hit with demurrage charges that resulted from stranded cargoes from port congestion and the recent West Coast labor dispute.
• California harbor trucking costs are going up.
Tougher Ag Export Market
The higher dollar will adversely impact California and U.S. agricultural exports making them more expensive in foreign markets (see related article on page 8). This would adversely impact exports at the ports of Oakland, Los Angeles and Long Beach.
As a result, Dr. Walter Kemmsies, Chief Economist at Moffatt & Nichol, told participants that salvaging a decent agricultural export market in 2015 “is going to be a little difficult.”
He explained that other factors are also hurting U.S. and California exports “the production costs differential that the U.S. has had, has been eroded as many countries have started to consolidate their farms into much larger farm operations, and the scale of economies has brought the costs down. These days, it is all about the transportation cost. The lower the transportation cost, the greater your reach. The higher the transportation cost, the more limited your market is.”
West Coast Versus East Coast
New Asia-East Coast ocean carrier services via the Panama Canal inaugurated in response to labor dislocations at West Coast ports “are somewhat temporary,” according to Allen Clifford, Executive Vice President at the (MSC) Mediterranean Shipping Company.
Clifford, an industry veteran, said that the new services from Asia to the East Coast were designed to address congestion problems at West Coast ports.
Clifford was responding to a question about an Alphaliner report predicting an overcapacity problem with 6 new Asia-East Coast services that could add an additional 24% of capacity to weekly services above March, 2015 levels. The services are operating with smaller ships transiting the Panama Canal.
However, the Port of Long Beach CEO John Slangerup noted that bigger and more economical ships would continue to come to the Ports of Long Beach and Los Angeles. The two ports have the terminal handling capabilities for 18,000 teu vessels that cannot be matched by other U.S. ports. Thus, shifting cargoes to less economical ports is not a viable option for shippers and ultimately the economies of scale will attract business back to the two Southern California ports.
But this logic is not a cut and dry. Shippers have already moved significant portions of their freight to other gateways, primarily on the East Coast….not only as a result of the West Coast port labor disruptions in 2014/15 but because of the early contract disputes. Winning back the same share of national freight might be more difficult the second time around.
Finally, economies of scale trumping other issues is still an open question. The Panama Canal expansion project is entering its final phase, which will allow vessels of up to 14,000 teus to transit the waterway and the canal authority is already looking ahead to add a fourth set of locks to handle in excess of 20,000 teus. From a global perspective this would put the Panama Canal in competition with the Suez Canal for Asia liner services to the US East Coast. However, there is a wide variety of other factors that will tip the balance of whether services go East or West.
Equally, East Coast dredging projects will open up ports to larger vessels, [albeit not mega-class container ships] without as much congestion, effectively making the port teu capacity “larger” through velocity. There are already some services in place notably by MSC that skip congested ports for middle-sized ports with less congestion.
From the carrier’s perspective, whatever option presents them with the most cost effective way to serve the customer is the one they will employ.
All things equal, the San Pedro ports win back their market share. But will all things be equal?
FMC Weighs in on “Too Late Freight Charges”
Mario Cordero, Chairman of the Federal Maritime Commission (FMC), said shipper concerns about demurrage charges from late freight deliveries are being addressed. These concerns arose from growing congestion at U.S. ports and the West Coast ports’ slow down. He urged stakeholders to review the “Staff Report on Detention, Demurrage, and Free Time” available at the FMC website.
Cordero said FMC is considering eight possible actions, but “haven’t decided which of the eight actions, if any, to take.”
In announcing the publication of the FMC report, Cordero made the following introduction: “I am hopeful that the report becomes a discussion paper among industry stakeholders and helps stimulate solutions to problems that have arisen as a result of the severe port congestion experienced in the last year. The report primarily frames the relevant issues, including: defining terms associated with the application of demurrage and detention rules…”
Cordero added, “The Commission has heard from many importers, exporters, and drayage trucking companies complaining about demurrage and detention charges that they must pay even though they cannot timely access their cargo or drop it off before free time expires. Though the Commission has received anecdotal evidence, the industry is encouraged to submit substantive documentation and information of unreasonable practices regarding the application of demurrage or detention.”
Will This Be the Year of the Trucker?
Shippers and carriers are resigned to harbor trucking costs rising, according to David Duncan, the Chief Operating Officer at Duncan and Son Lines, Inc. Duncan told Long Beach participants that he has been meeting with customers and reports that customers understand that the existing freight rate structure is no longer viable and must rise: “I guess maybe it is the year of the trucker,” he said.
Duncan and Son Lines, Inc., based in Buckeye, AZ, specializes in intermodal drayage, operating over 200 company owned trucks between the Ports of Long Beach and Los Angeles and surrounding states including Arizona, Nevada, New Mexico, Utah, Colorado and Texas.
One factor is congestion at California ports which has reduced truck turn times. Trucking companies are demanding more money to compensate them for the delays at ports. Another factor impacting Southern California trucking is the slow success of the Teamsters Union Port Division in campaigning for better pay for drivers. They are demanding harbor trucking companies change the driver status from owner/operator to employee.
Several trucking companies were picketed at the Ports of Long Beach and Los Angeles by Teamster drivers on April 27th and 28th demanding the companies recognize drivers as employees with improved wages and benefits, as opposed to being owner/operator contractors.
The impact to shippers is that a driver who is an employee must be paid on an hourly basis waiting to pick up and deliver truckloads. Currently, most drivers are paid on a per load basis and lose money as delays have increased at ports due to congestion. As this relationship changes, freight rates will rise.
However, the effort to unionize Southern California harbor truck drivers took an unexpected turn on May 4th when Saybrook Capital, prime investor in Total Transportation Services, Inc (TTS) - an opponent of unionization of drivers, announced that it has started a “sister” company supported by the Teamsters Union.
The new union-backed trucking firm, Eco Flow Transportation has hired 100 drivers including former TTS drivers and is gearing up to hire as many as 500 new drivers.
At a Dodger Stadium press conference, Los Angeles Mayor Eric Garcetti said that his office has been working with the Port of Los Angeles, Saybrook Capital, drivers and the Teamsters Union to make Eco Flow a “new model for harbor trucking” that will also provide decent wages for drivers.
He added: “We must make sure the ports work for the drivers who bring the goods from the docks to your doorstep. The misclassification of port truck drivers is not the gripe of a few drivers but a battle cry of a systemic problem that must be addressed. These professional men and women drivers are just the type of middle class Angelenos we need to support as we build an economy that works for everyone. Eco Flow is leading the way and becoming a model for the future of goods movement in Southern California – and soon, the rest of the nation as well,” said Los Angeles Mayor Eric Garcetti.”
The drivers will not be contractors but employees of Eco Flow Transportation, a source told AJOT, “They are employees of the company (i.e., not independent contractors) and Eco Flow has agreed to stay neutral with respect to unionization and, if the drivers choose a union, they will be members of Teamsters Local 848.”
Jonathan Rosenthal, Chair of Saybrook Capital, a private equity firm in Los Angeles, which backs ITS and Eco Flow said this is “ground zero for change in truck drayage.” He added, “Who would have thought we would be here a year ago?”
Randy Cormack, President, Teamsters Joint Council 42 praised the Mayor, “Mayor Garcetti stepped up to the plate and led to the resolution of our differences …the Mayor’s intervention encouraged people to move in a different way that benefits working people and the City of Los Angeles. One of the few places this is happening is in the City of Los Angeles.”
