Lessons from the M-580

It seemed like a good plan, a very good plan. The idea was to provide a tug/container barge service between the northern California ports of Stockton and Oakland. Clearly the service would help relieve highway congestion, improve terminal efficiency, allow better service for heavy outbound boxes and on top of everything be an environmentally sound scheme. But the best laid plans of mice and men… generally go awry when double handling is involved.

In many ways the M-580 tug/barge service between the northern California ports of Stockton and Oakland was to be a template for how the nation’s Marine Highway of the future could contribute to relieving highway congestion and improving the efficiencies of container flows to and from inland destinations.  It all made perfect sense. The container barge service could handle the agricultural and other heavy outbound products while providing an inbound service that would cut out the overcrowded Bay Area highway system. The Port of Stockton purchased two 140-ton mobile cranes and two modified container barges to support the service. Amid great fanfare on November 1st of 2013 the service was officially inaugurated (although it had been running since June). Then in the beginning of September, the Port of Stockton discontinued the Marine Highway service, albeit with calls available by inducement. What happened in a ten-month period to scuttle the service? The obvious answer regarding the shutdown was the $8 million loss recorded by the Port of Stockton, which had received a $12 million federal grant for crane, tug, barge and pier upgrades. Loading & Unloading Handling Costs The main culprit for scuttling the service was handling costs. Container barge loading and unloading costs amounted to 86% of the waterborne transportation cost per container. This conclusion is based on data provided by a source familiar with the service’s operations. Costs varied depending on container loads. However, in a best case scenario where the barge was nearly fully loaded and carrying 200 containers per trip, the source provided the following cost breakdown: • Port of Oakland container handling cost was around $170 per container, • Port of Stockton container handling cost was around $140 per container, • Tug/barge operations cost was about $50 per container. A total cost of transporting one container by water between Oakland and Stockton was $360. Thus, total loading and unloading costs were $310 or 86% of the M-580’s waterborne freight rate. Users of the M-580 service factored an additional $100 per container for trucking charges from the Port of Stockton to and from distribution centers and other customers in the San Joaquin area, according to the source. Thus, in a best case scenario the M-580 cost was $460 per container versus about $491 (including fuel adjustment) for trucking the container to and from the Port of Oakland, the source said. This small difference - subject to many variances - did not make the tug/barge service overwhelmingly competitive with trucking. Furthermore, as the M-580 service struggled to gain container business, it operated with less than 200 containers per voyage making the service more costly than going by truck. An added problem was the M-580 service only utilized a one- way charge between Oakland and Stockton. The competing truck charge included delivering a loaded container and returning an empty container. This added cost was being addressed. A large ocean carrier, MSC (Mediterranean Shipping Company) was importing so many containers into Stockton on the M-580 barge that it could offset the cost of returning empty containers. However, this model began to break down over the last several months when the Port of Stockton cut back on its service. It caused exporters to stop using the service and reduced demand for the containers going back to Oakland on the barge, according to the logistics source. This made the service more costly. As a result, productivity was low and costs were high. Crane operators were only processing 8 container moves per hour utilizing the Port’s Liebherr Mobile Harbor cranes, according to deputy Stockton Port director Mark Tollini. Tollini admitted the 8 moves per hour rate was much lower than at other U.S. ports using the same crane. One U.S. terminal operator reports an average of over 16 moves per hour on the Liebherr. A New Jersey terminal operator was observed doing over 30 container moves per hour on the Liebherr. A stevedore familiar with California container handling operations said that the $310 per container costs charged at Oakland and Stockton could have been cut by 50% based on a more efficient operation. This slimmed down operation was possible even within work rules established by the PMA (Pacific Maritime Association) and unionized longshore workers represented by the ILWU (International Longshore and Warehouse Union) (ILWU). If the stevedore is correct, then the M-580 service might have cost $205 ($85+$70+$50) plus $100 for short distance trucking equals $305 versus $491 for the trucking cost. High costs incurred by stevedoring companies and longshore workers to load and unload the M-580 barge may have been avoidable, according to the logistics executive. The executive suggested: • Working with an ocean carrier in Oakland to share manning costs servicing one of its ships and the barge at the same time • Improving productivity to lower costs in Stockton. The costs overshadowed the fact that the tugboat powered cost was low and generated 80% less carbon emissions than trucks, according to the Port of Stockton. The service, supported by a U.S. Department of Transportation grant, also helped relieve truck congestion on a crowded highway - I-580 - and created new jobs and new business at the Port of Stockton that now have been lost. I-580: Marking Time & Costs on a Less Than Free Freeway The M-580 shutdown occurred as the trucking situation at Oakland and other U.S. ports worsens due to increasing delays at terminals, drivers unionizing and drivers leaving the drayage business. The M-580 service diverted hundreds of containerized truckloads per week onto a tug/barge. Since the shutdown, it takes just a glance in stalled traffic to see more trucks and consequently greater pollution on the I-580 freeway. This freeway is a major freight corridor linking Stockton area distribution centers and agricultural exporters to the Port of Oakland and the San Francisco Bay Area. Trucking executive Joe Antonini, president of Antonini Enterprises in Stockton, says that the M-580 service allowed truckers, trucking companies and shippers to avoid delays at the Port of Oakland. Local truckers could make multiple container pickups and deliveries at the nearby Port of Stockton and allow the barge to transport containers to and from Oakland on the Sacramento River. Stockton is 75 miles from Oakland. There are 7,000 trucks per day traveling along the I-580 and 205 freeways, according to the Port of Stockton. Antonini said it was only possible to make one truck trip to Oakland per day from the Stockton area on I-580 and that delays picking up or delivering containers at the Port were as long as five hours. He saw no prospect for any improvement at the Port of Oakland and argued that the M-580 service improved trucker and driver profitability by increasing the number of daily pick-ups and deliveries. ILWU Opposition To Marine Highway The ILWU should have been an ally for development of the marine highway service as it generates new jobs at smaller ports and should not adversely impact jobs at bigger ports. Over the past decade, the ILWU has been a productivity driver of terminal productivity and Pacific Coast ports have been the beneficiary. Atlantic and Gulf coast ports lagged behind in mechanization. In October 2012, a dispute with the ILWU local in Stockton delayed the start of the M-580 service by eight months. An unnamed ILWU official representing Local 54 told the Stockton RECORD that the union objected to the attempt by the stevedoring company at the time, Ports America, to reduce long shore manning of the barge service, compared to other maritime ship operations in Stockton, by 50% and “if the union gives in on this thing and someone gets killed, then we’re responsible.” The service eventually commenced in June, 2013. A crucial eight months was lost that could have allowed the Port to reduce costs and improve service. The high costs for loading and unloading the M-580 service suggest that the Port did not win significant concessions from the ILWU. In its first year of operation, the Port of Stockton said, the M-580 service generated over $4 million in income for harbor workers, primarily ILWU long shore workers. With the service shut down, this income and the ILWU member jobs are gone. Lessons Learned? The tragedy of the M-580 shutdown is more than just the fact that a good idea failed. What lessons have been learned, what are the takeaways from the attempt? Can a tug/container barge or even a container feeder service be a cost effective alternative to congestion on the I-95 corridor on the Atlantic Coast, the I-5 corridor on the Pacific Coast and other coastal and river corridors? It’s clear from the M-580 experience, that the answer is no, or at least a qualified no. The caveat is can waterfront labor be convinced of the advantages of the service, not just to the greater public but to their own memberships. There is a lot at stake in developing a “Marine Highway” in the US. On one hand there is the direct costs to building highways. In California, the widening of the I-710 freeway, which links the Ports of Long Beach and Los Angeles to the I-5 will cost taxpayers at least $6-billion. And California is not alone, the same question of highway investment vexes officials across the nation. Is the present course of containerized traffic sustainable? It is easy to argue, that while greater efficiencies are being made on the terminal tarmac, it all ends at the gate where the endless last mile begins.