No One’s Standing Still
By Jock O’Connell
It is a near convention of academic research papers that requires the author(s) to end with a call for more research. In most instances, it’s to advertise a desire for additional grant money to advance the frontiers of knowledge. In others, it’s a tacit admission that the author(s) bit off more than he/she/they could chew and are looking for others to rescue the project.
The latter seems to be the case with the final iteration of the 2017 Clean Air Action Plan (CAAP) released by the Ports of Los Angeles and Long Beach on October 23 and then cavalierly solemnly approved by the commissioners of both ports at a joint meeting on November 2.
For starters, there is the addendum to the CAAP’s section on “Economic and Workforce Considerations” which admits – for all intents and purposes – that there is precious little empirical information with which to weigh the CAAP’s economic and workforce considerations. Here’s one illuminating passage:
“Of note, the CAAP is a high-level planning document and does not contain details on implementation, timing, or dollar amounts for proposed incentives or rate-based disincentives. Without these details, it is difficult to construct a robust economic analysis with any certainty. [Emphasis worrisomely added.] As such, this document assesses economic effects only at a high level. As specific CAAP strategies are implemented over the coming years, the Ports will conduct more thorough economic analyses.
To that end, this document does not:
Contain a detailed economic impacts analysis of individual CAAP 2017 strategies,
Evaluate appropriate pricing levels for incentives or rates,
Conduct a cost-benefit analysis of CAAP 2017; in other words, this assessment does not purport to determine the net effect of the CAAP 2017 strategies on the industry or public health.”
Okay, I’m an economist, not a spiritualist or even an evangelist for clean air. But what, for heaven’s sake, does the CAAP do if it head-fakes its way past concrete economic issues? Certainly, the CAAP approved by the ports’ powers-that-be earlier this month does little to lay to rest concerns that had been repeatedly voiced about the draft CAAP circulated for comment this summer.
One of those concerns was that the strategies could adversely impact the San Pedro Bay ports’ competitiveness and the jobs of those who work in Southern California’s maritime supply chain. The response: “The final version of the CAAP Update includes a new CAAP guiding principle affirming our commitment to maintain the port complex’s economic competitiveness and jobs. Additionally, the ‘Economic Competitiveness’ section in the final CAAP identifies that the Ports will conduct economic evaluations associated with specific strategy implementation efforts (e.g., truck and vessel rate studies and feasibility assessments). In addition, the Ports will work with the State and other stakeholders to evaluate ways to enhance our economic competitiveness and maintain our market share. Possible economic impacts are discussed in the CAAP supporting document, ‘Economic and Workforce Considerations for the Clean Air Action Plan Update.’”
In other words, we’ll see.
Maintaining the two ports’ competitiveness and protecting the livelihoods of those who labor in Southern California’s maritime supply chain is a worthy goal. Doing so without driving business away is the trick. So a formal commitment to not biting off too much of the hand that feeds you is desirable, however vacuously vague the CAAP may be.
“With respect to competitiveness and diversion, the Ports will work with the State and other stakeholders to evaluate ways to enhance our economic competitiveness and maintain our market share.”
This statement is borderline risible considering the extent to which the State of California has assiduously undermined the competitiveness of the San Pedro Bay ports by failing to maintain the state’s goods movement infrastructure. So long as the state is governed by politicians who favor environmental activists over blue-collar constituents, Sacramento’s position on the state’s maritime gateways will be determined by the California Air Resources Board, with the State Department of Transportation and the Governor’s Office of Business and Economic Development playing the dummy hand.
The price of buying time. Sayeth the CAAP: “In order to give terminal operators ample time to purchase the necessary equipment and put it in use by 2030, the Ports have assumed a 5-year window for the installation of electrical infrastructure in the San Pedro Port complex from roughly 2018 to 2022.”
The ports estimate that terminal operators may have to spend between $914 million and $2 billion beyond what they would spend on diesel equivalents to convert their cargo-handling equipment to zero emissions. For an analysis stuffed with caveats about numerous uncertainties, that $914 million lower-bound estimate looks curiously exact. In any case, the range of estimates is inconsistent with estimates independently arrived at in the Pacific Merchant Shipping Association’s study by Moffatt & Nichol. Part of the deviation stems from the ports’ assumption that equipment can be replaced on a one-to-one basis. How this works when replacing tried-and-true diesel equipment that can quickly be refueled with more experimental gear that may have to sit at recharging stations for hours is the rub.
And there’s that issue of timing. Some keen observers of San Pedro Bay port operations have advanced the notion that terminal operators could choose to adopt a wait-and-see strategy, delaying acquisition of expensive new cargo-handling equipment until near the end of their current leases. If, by then, the costs of doing business in the San Pedro Bay do not justify lease renewals, the ports could see a highly disruptive reshuffling of port operations occasioned by the departures or consolidations of terminal operators.
One development that could accelerate that outcome could be a continued slide in the ports’ share of North America’s transpacific trade. The ports profess to be confident that passing on costs to BCOs will not drive appreciable amounts of cargo to other West Coast ports or through the enlarged Panama Canal to East and Gulf Coast ports. The point they seek to make is that the low-cost, time-insensitive merchandise that would most likely be diverted to East and Gulf Coasts ports is already going through the Canal.
So, why then are the ports losing market share? In September, the two ports’ share of U.S. mainland containerized import tonnage was 28.9%, down from 31.1% in August and from 29.7% a year earlier. Exhibit 4 (see preceding page) charts the shift in containerized import tonnage from East Asia at U.S. mainland ports over the past ten years. While East and Gulf Coast ports saw their respective shares grow from 24.5% and 5.2% to 34.7% and 6.9% through the first nine months of this year, the San Pedro Bay ports saw their share diminish from 52.1% to 46.0%.
The answer, in a word, is… Competition. Early estimates of the impact the enlarged Panama Canal might have on maritime trade assumed that shipping lines would be cautious about challenging the container-handling capacities of East and Gulf Coast ports. That assumption soon evaporated as shipping lines devised ways of sending vessels with as many as 14,000 TEUs through the new locks. And that has prompted port authorities and the Army Corps of Engineers to double-down on expansion projects from Boston to Bayport.
For example, as reported in the Journal of Commerce and other maritime industry publications, the Port of Charleston is engaged in dredging work that will provide the port with the deepest channel on the U.S. East Coast. Charleston has recently begun handling ships with capacities of 14,000 TEUs and has seen its share of Asian containerized imports rise from 2.1% in 2007 to 3.5% through the first three-quarters of 2017. The South Carolina Port Authority is upgrading its Wando Welch Terminal and expects to open a new Leatherman terminal in North Charleston in 2020.
Savannah, which saw its share of the East Asian import trade grow from 5.8% in 2007 to 8.7% this year, is deepening its 40-foot channel to 47 feet. Philadelphia has received funding to deepen its 40-foot channel to 45 feet, and the Army Corps of Engineers has approved funds to start deepening Jaxport’s channel from 42 feet to 47 feet. Plans also call for Port Everglades to deepen and widen its channel to accommodate larger container vessels.
At Virginia, construction teams are making headway on the expansion at Virginia International Gateway. The first rail-mounted gantry cranes are set for delivery in January 2018 and are scheduled to be operational by late April. Landside developments are also improving the competitiveness of Savannah. In conjunction with CSX and the Norfolk Southern railways, the port is working to double the rail-lift capacity at its Garden City Terminal. That should enable the port to assemble more unit trains at the terminal and thus reduce shipment time to inland destinations like Memphis and Chicago by two days.
At the East Coast’s largest maritime complex, the raising of the Bayonne Bridge roadway now permits 18,000 TEU vessels to call at container terminals in New Jersey. For a rhapsodic account of the bridge’s history and reconstruction, see Ian Frazier’s recent New Yorker article: New York’s Majestic Passage in the Sky.
Houston last year handled 879 ships that averaged 1,450 container moves per call but as many as 4,000 boxes. The port now reports regularly handling ships with a capacity of 6,000 TEUs but has lately been seeing vessels in the 8,000 TEU range.
Not all is well
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.