Clearing the Air at Oakland
By Jock O’Connell
Earlier this summer, the Port of Oakland announced it had a vision for achieving emissions-free cargo operations by mid-century. That ambitious target is outlined in the port’s Draft Seaport Air Quality 2020 and Beyond Plan. The plan/vision, which was circulated for public review on June 29th, calls for “reducing criteria pollutants and greenhouse gases at Oakland’s seaport – technology, feasibility and budget willing.” [Emphasis helpfully added.]
That italicized caveat is telling. As with the Clean Air Action Plan embraced by the Ports of Los Angles and Long Beach, Oakland’s blueprint for the future is hugely aspirational. In addition to an implicit prayer that the technology needed to move heavy boxes into, around, and out of the East Bay port without emitting a single gasp of PM and nary a SOx or a NOx will eventually (preferably sooner than later) become available, what’s similarly missing is a strategy for financing attainment of that goal. Great proposal; no money. Sound familiar?
With the 2018 mid-term elections less than three months away, the left-of-right people are espousing a range of social bromides such as universal health care, tuition-free college educations, guaranteed minimum incomes, and other nice stuff without much specificity about how these would be financed. Meanwhile, on the we-can’t-get-much-further-right folks, having succeeded in exploding the federal fisc this year with massive tax-cuts, are back calling for tariff relief for (hand chosen) businesses victimized by President Trump’s tariffs and (cue theme music from John Williams) a brand-new Space Force. And did I mention that long-awaited national infrastructure rehabilitation program. In every case, the not-so-minor issue of financing bold public policy schemes remains pretty much TBA.
Oakland’s Plan
In announcing the Draft Seaport Air Quality 2020 and Beyond Plan, Port of Oakland officials concede that a zero-emissions seaport will take years and will require substantial investments in transformative technology, new infrastructure, and equipment. The 30-page document describes how the port would have to profoundly transform how it operates. It proposes everything from electric trucks to new infrastructure to eradicate freight transport emissions. It would attack both diesel particulate matter and greenhouse gas emissions.
The Port said its plan specifies three primary clean-air strategies:
Continuing with its 2009 Maritime Air Quality Improvement Plan (MAQIP), which called for an 85 percent reduction in diesel emissions by 2020;
Promoting a pathway to zero-emissions equipment and operations that reflects the state of California’s 2030 and 2050 greenhouse gas goals; and
Building out infrastructure – including electrical systems – to support a future less reliant on diesel-emitting cargo handling equipment and trucks.
The plan also seeks to have all vessels calling at Oakland switch off engines and plug into the landside power grid. (Nearly 80 percent of ships calling Oakland reportedly do that now.)
The Port didn’t put a price tag on its plan but admitted implementation would be costly. No obfuscation there. But a press release accompanying the plan added that “public sector funding and investments by businesses serving the port would be essential in moving toward emissions-free operations.” Plenty of obfuscation there.
Oakland’s draft plan arrives as the State of California is formulating stricter regulations for cargo transport. The state is expected to curtail diesel-powered freight hauling and put tougher restrictions on all sources of emissions over the next few years. California ports, now including Oakland, have developed their own plans in advance of new state mandates.
Meeting its more aggressive clear air objectives would be easier if the port did not also aspire to growing the volume of containers it handles. A new $90 million cold storage distribution center, for example, is intended to attract more cargo requiring secure cold chains. And, in pursuing a longtime objective, the port also aims to increase the volume of rail traffic with markets east of the Sierra.
Paying For the Plan
Although some public funds will be made available, Oakland’s hunt for the dollars to finance its cleaner-than-clean air commitment will ultimately involve hitting up the beneficial cargo owners whose goods are hauled across Oakland’s docks. (The burden to be borne by BCOs is likely to be even greater if California voters repeal a gasoline tax surcharge now used to support transportation projects throughout the state.)
Billing the beneficiaries may sound fair enough, especially for those who subscribe to the relay-race theory of infrastructure financing in which the BCOs would pass the baton of increased port costs on to their customers who, in turn, would hand off the higher costs to their customers…until the poor schlep running the last lap gets stuck with the entire bill.
Cargo owners do have options, one of which is take their business elsewhere. That is a very real danger at the San Pedro Bay ports and the Northwest Seaport Alliance Ports of Seattle and Tacoma. Because very large shares of the goods they handle are in transit between East Asia and markets throughout the U.S., increased container fees could accelerate the diversion of containers to rival American gateways East of Panama or Canadian rivals north of the 49th parallel.
Cargo diversion is much less of a risk at Oakland, because its service area is much more focused on serving a regional market, essentially Northern California. While higher container fees might discourage some low-margin shippers from engaging in international trade, they are not apt to cause them to take their business to other ports, especially those similarly afflicted by the dictates of the California Air Resources Board.
So long as higher container fees do not drive business away, ports can reasonably hope to raise additional revenue by increasing the number of containers they handle. Despite seeing their respective shares of the nation’s containerized trade slide almost inexorably in recent years, the Port of Los Angeles and Long Beach have recorded higher overall TEU numbers, particularly in years not impacted by labor strife. That’s much less the case at Oakland, as Exhibit 7 shows.
Between 2010 (when ports around the nation began recovering from the Great Recession) and last year, Oakland’s total container traffic – loaded as well as empty -- increased by 90,380 TEUs (+3.9%). By contrast, the Port of Los Angeles saw its total container trade rise by 1,511,291 TEUs (19.3%), while the Port of Long Beach posted a gain of 1,281,008 TEUs (20.5%). Loaded container traffic at Oakland did climb by 92,113 TEUs (5.2%) from 2010 to 2017, but the comparable figures at Los Angles and Long Beach were 13.8% and 13.7%, respectively. And, while empty container traffic has absolutely surged at the San Pedro Bay ports (by 35.2% at LA and by 40.6% at Long Beach, the number of empty containers Oakland handled actually shrank between 2010 and 2017 by 1,733 TEUs.
Oakland is certainly hopeful of expanding its container business. That’s a major reason for constructing a new cold storage facility to handle higher volumes of frozen meats and fish as well as chilled fruits and vegetables. That should make the port even more attractive to agricultural exporters and may eventually lure more business from food exporters east of the Sierra, but its opening comes at a particularly inopportune moment tariff-war-wise.
Reaching outside Northern California for new business is essential to a port that it is largely out-of-sync with the local economy in the Bay Area. While loaded container volumes through the Port of Oakland grew by 5.2% from 2010 through 2017, the San Francisco Bay Area’s economy grew by 38.3% in real (i.e., inflation-adjusted) terms. Even the much larger service area stretching north to Redding, east to Reno, and south to Fresno saw real GDP growth of 24.0% since 2010.
To be sure, the Bay Area economy is heavily tilted toward services. Furthermore, the tangible manufactured goods that it does trade tend to be advanced technology products with the high value-to-weight ratios that are more suitable for air transport. Not surprisingly, international air freight tonnage at San Francisco International increased by 13.5% from 2010 to 2017.
But, for a port struggling to identify the funding sources that will permit it to embrace a zero-emissions universe, Oakland’s relatively modest rate of container growth, depicted in Exhibit 8, is likely to heighten the challenge. Furthermore, what was once the Port of Oakland’s chief distinction – that it was the rare U.S. container port that exported more than it imported – appears to have been all but erased in the past couple of years, just as it did in the “bubble economy” years leading up to the Great Recession. See Exhibit 9.
Over the longer-term, though, growth in container traffic at Oakland has been comparatively static. As Exhibit 8 reveals, Oakland’s annual TEU totals began to approach the 2.5 million TEU mark just prior to the onset of the Great Recession before falling, understandably, through the downturn. Since then, though, the annual totals have been virtually static. From 2011, when most ports around the country began to see their post-recession box counts start to grow again, through last year, Oakland reported a 3.3% increase in total TEUs.
Unlike the two big ports in San Pedro Bay which last year handled a third of the nation’s $1.02 trillion in containerized maritime trade, the market Oakland serves is predominantly regional. In 2017, Oakland handled 2.42 million TEUs, up 2.2% from the year before. The contents of those containers were valued at $41.91 billion, up 2.4% from the year before.
From Oakland’s pre-recession peak in 2006 through last year, total container traffic increased by just 29,092 TEUs, a fairly meager 1.2% gain over more than an admittedly topsy-turvy decade. Absent a hitherto undemonstrated aptitude for growing its container trade at a brisker pace, the Port of Oakland is likely to find achievement of its new clean air goals to be financially...well, unattainable is one word that easily springs to mind.
The commentary, views, and opinions expressed by Jock O’Connell are his own and do not reflect the views or positions of the Pacific Merchant Shipping Association. PMSA does not endorse, support, or make any representations regarding the content provided by any third party commentator.