Looking to the Future: Is it too Early?
By Thomas Jelenić, Vice President, Pacific Merchant Shipping Association
We are in the midst of a crisis. Forget the Great Recession, the pandemic is creating Great Depression levels of economic harm. Throughout the maritime industry, ocean carriers, marine terminals, port authorities, trucking companies, and countless other stakeholders are focused on basic survival. Obviously, job number one is keeping everyone safe: workers, customers, and our communities. Job number two is keeping the companies that run the global supply chain from sinking.
But at some point, we will need to collectively look to the future. When we do is a matter of timing. Uncertainty reigns, survival is unknown. But if we are ever to have a revitalized future, we need to consider how to ensure our success. In the past, economic decline was accompanied by broken supply chains. And when economic improvement returned, supply chain planners reassessed the supply lines. That, unfortunately, often meant lost market share for Southern California to the benefit of East Coast and Gulf Coast ports, and lost cargo translates to lost jobs, lost tax revenue, and lost economic investment in our communities. When this crisis passes, how do we encourage cargo owners to choose Southern California as their preferred gateway? How do we work together to make Southern California the inevitable gateway choice? Here are four actions we can do now.
First, we need a plan for labor peace. We all now know the pain of declining cargo volumes. We need to make sure that declining volumes will be a bad memory of the pandemic and not our future. There is no stronger signal in terms of certainty and assured reliability that can be sent to cargo owners than beginning and concluding contract negotiations well ahead of the 2022 deadline. Without a contract, cargo owners will only see more future uncertainty when we emerge from the present crisis. Labor peace must provide them with the confidence to select Southern California.
Second, marine terminals and port authorities need to work cooperatively – not independently – to attract cargo to Southern California. When cargo owners select a gateway, they are selecting both a marine terminal and a port. Marine terminals and port authorities are truly partners; it is only the sum of their business terms that will appeal to a cargo owner. Port authorities and marine terminals that do not appear indivisible will only sow the seeds of uncertainty and provide the hint of unreliability to cargo owners. Only through the joint marketing of facilities will Southern California be successful.
Third, the railroads must be partners in retaining and improving market share. Retaining and improving market share means competitively delivering cargo to the Midwest and beyond. Ports, terminals, and ocean carriers will only be successful if Class 1 railroads prioritize competitive intermodal cargo. Canadian rail represents a real threat to Southern California market share. That threat can only be countered by the pricing and efficiency measures that Southern California’s Class 1 railroads take.
Finally, we need to ensure that our hinterland fully supports the ports. One of Southern California’s greatest assets is the one billion-plus square feet of industrial space that can process imports that enter North America through Southern California. That industrial space may be the ports’ most unheralded competitive advantage as compared to other gateways. However, that competitive advantage is at risk through lack of development and modernization. For example, some believe the abnormally low (pre-crisis) vacancy rates is a sign of a strong market but is really the product of California’s out-of-control development prohibitions that prevent new industrial space from coming to market. If Southern California ports will be competitive in the future, the ports must work today with their inland partners and elected officials in order to allow needed development that supports warehouses and distribution centers that are responsible for countless jobs.
We need to focus on these issues now. If we wait until the economy improves, it will be too late. At that point, other gateways will emerge as the choice of cargo owners. The San Pedro Bay ports will be left with higher costs to be spread over less cargo that will push more cargo away: a negative, self-fulfilling feedback loop.
As a reminder of what is at stake locally and for California:
Jobs: Over 700,000
Income: Nearly $40 billion
Economic Activity: $110 billion
State and Local Tax Revenue: $7.3 billion
Economically Vibrant Communities: Unquantifiable
Some leaders are taking initial steps to address competitiveness collaboratively. If we act now, decisively, we can maintain Southern California as the leading North American gateway. Let’s turn the COVID-19 crisis into an opportunity – a time when the economic decline turned around and became a market share gain.