An Inflection Point

By John McLaurin, President, Pacific Merchant Shipping Association

I can’t recall what prompted me to pose this question, but several years ago I asked a colleague in our Long Beach office whether California would have ports in the future. Without hesitation, he responded: “Yes. We shall call them marinas.”

Humor aside, while the situation isn’t that dire, we clearly face a number of challenges.

Two weeks ago during a monthly webinar that he holds which is normally viewed by 500-600 people, a senior maritime industry professional stated that West Coast ports were at an “inflection point”, meaning that cargo that has been diverted from the West Coast may

not come back. Among other issues, he cited labor uncertainty, regulatory uncertainty and rising costs, and the perception that Californians and their political leaders do not welcome trade or appreciate the benefits of the supply chains that serve the state. He sarcastically noted that while people don’t like warehouses, they all like same-day delivery.

California ports and the commerce they facilitate are a critical part of California’s economic success. They also represent innovation and leadership with regard to environmental achievements on a global scale. In order to maintain California’s presence in the world marketplace, it is imperative that we protect and invest in these international gateways.

According to the California Association of Port Authorities (CAPA), the businesses operating at the ports of Long Beach and Los Angeles generate over 800,000 jobs in the state and over 2.7 million jobs throughout the nation. The Port of Oakland supports over 84,000 jobs in the Bay Area, and its close proximity to California’s Central Valley agricultural sector provides a strong, balanced international gateway.

During the last three years of COVID, California ports and the supply chain endured the most intense business period in the state’s history. Shortly after the start of the pandemic, the goods movement industry was forced to adapt to an unprecedented surge in cargo volumes due to massive consumer demand for goods, adjusted to shortages in equipment and space, congested terminals and rail yards. The shocks to global supply chains and resulting congestion occurred on a massive and international level, whether in Oakland, Chicago, Singapore or Rotterdam.

I think everyone can be proud of the efforts of the state’s maritime industry along with everyone else in the logistics sector as the results defied the challenges. By the end of the pandemic, California ports processed a record number of containers. The supply chains running through the state’s ports kept the national economy afloat during a worldwide pandemic.

But now, we need policy makers and the public at large to pay greater attention to another critical issue: the unprecedented competitiveness challenge facing California’s ports. For years prior to the pandemic, California ports were experiencing a decline in market share. Now that pandemic cargo volumes have leveled off, the decline in market share has accelerated. We are losing our discretionary cargo.

The consequences associated with this loss of market share have direct and negative impacts on the California economy. California can expect to lose high quality logistics jobs throughout the supply chains as container volumes move to ports in other states.

The reason for the decline centers around three issues. First, the state needs to reevaluate policies that slow down the supply chain and increase costs, and re- engineer policies so that environmental and economic goals can both be achieved. They are not mutually exclusive goals.

Second, California has established zero-emission goals for the goods movement sector, but the path to achieving those goals is uncertain. For example, California has mandated that the port-based supply chain become all electric by 2035, but there are significant challenges in building the power grid infrastructure and ensuring the supply of reliable electricity on that timetable. In order to electrify the trucking component of the supply chain, approximately 400 heavy-duty truck charging units need to be built every month between now and 2035. Yet, over the past several years, vessel operators have been repeatedly asked to disconnect from the power grid during times of great stress to the power system in order to avoid widespread blackouts. Every recent hot spell has occasioned pleas for the public to avoid using electrical appliances between the hours of 4-9pm when the demand for power peaks.

Nevertheless, public policy goals are driving an ever- greater demand for electricity without corresponding mandates on power generation or transmission. As demand and extreme weather events increase, the need for adequate power infrastructure shifts from a long-term planning goal to an immediate operational concern. I believe that time has arrived.

And third, California must embrace, create and invest in a robust strategy for promoting the state’s role as a premier international trade gateway. Other states have made their ports a centerpiece of their economic growth. Trade routes and volume, like other business decisions, are impacted by perceptions. Unfortunately, California’s reputation for working earnestly with cargo owners and other supply chain partners is less than golden.

To market our ports we have to believe in our ports. That is difficult to do when public officials cavalierly discount the value of maritime real estate against various fields of dreams. It is difficult to do when port budgets are viewed simply as ATM machines to fund failed municipal ambitions. It is difficult to do when people assume that cargo must come to California without acknowledging how many shipping options are now available to cargo owners.

If it weren’t for the pandemic import surge, few people would have cause to truly appreciate and value California’s supply chains. But memories and attention spans are short. We should not take our ports and supply chains for granted. 

Above all, we need policy makers, regulators, environmental advocates, and community groups to collaborate with the goods movement industry on devising pragmatic, holistic policies that will enable our goods moving industries to meet exacting environmental goals while growing steadily more competitive.

So, my plea to you is this: get engaged. If we want ports instead of marinas, get ready to fight for them!