Reflections
By John McLaurin, President, Pacific Merchant Shipping Association
The international trade industry faced monumental challenges over the past two years yet delivered record amounts of cargo. As we look ahead in 2023, California’s supply chain is in for a different set of serious challenges in which California public policy will be creating operational uncertainty at California ports. Let me outline some of my concerns:
Regulation and Electrification of California Ports
Truck and Bus Regulation
Come January 1, 2023, all trucks that are older than model year 2010 will no longer be allowed to operate in the state. These trucks move approximately 20-30% of the containerized cargo at the ports of Long Beach, Los Angeles and Oakland. This rule will bring a potential capacity crunch at the ports. The only saving grace with regard to the reduction of truck capacity is the recent decline in cargo volumes and potential recession which may mitigate the impact of CARB’s rule.
Advanced Clean Fleets
CARB has proposed a rule that only zero-emission trucks be permitted to be added to the State Drayage Truck Registry starting January 1, 2024. Eventually, all existing trucks would need to be replaced with zero-emission trucks by 2035. The California Energy Commission estimates that the state needs to install approximately 400 public facing heavy duty truck charging stations on a weekly basis between now and 2035. For port drayage trucks operating in Southern California, it is estimated that we need to install 380 charging stations on a monthly basis until 2035. One company that is testing the use of battery electric trucks has informed us that it took 18 months to permit and install two charging units at a cost of $75,000 each. Increasing the capacity of a substation to handle additional power demand is estimated to take five years.
Clean Truck Fees
The ports of Los Angeles and Long Beach in April 2022 implemented a $10 per TEU fee. The intent is to use this fee to provide funding for drivers to purchase low emission/zero emission trucks. Not to be outdone, the South Coast Air Quality Management District is discussing introducing legislation that would impose a tax on cargo that use California ports to fund clean air measures. It is expected that this would be a statewide tax.
Indirect Source Rules
The South Coast Air Quality Management District has adopted an “indirect source rule” (ISR) for warehouses and distribution centers. Additional ISRs are proposed for ports and railyards. The purpose is to hold these facilities responsible for the emissions from trucks, ships and locomotives that utilize their facilities – even if the facility itself is zero-emission. The warehouse ISR is currently the subject of litigation. Under the warehouse ISR, the mitigation fees for warehouse operators are estimated to be $1 billion annually. This will create conflict between port stakeholders and dramatically increase costs to use California’s supply chain – without improving productivity or velocity.
Marine Terminals
CARB is expected to move forward with rules in the coming years which would require full electrification of marine terminals. The goal of the ports of Los Angeles and Long Beach Clean Air Action Plan is to electrify the ports by 2030.
Container ships are already required to utilize shoreside electrical power when at a berth. CARB has expanded the rule to include bulk ships and tankers. It should be pointed out that California asked vessel operators and marine terminals to unplug ships from using shoreside electrical power earlier this year multiple times in order to keep the lights on in people’s homes. This has become an annual exercise. The main question is whether California has enough reliable grid power to meet the needs of an all-electric supply chain, especially when coupled with other state policies requiring greater use of electricity in our daily lives. At this point, we don’t have any assurances that the power will be there.
Laws of Physics and Conflicting State Policy on Automation.
While the state invests in automated equipment for their own operations such as automated toll booths at bridges and roads and kiosks to register new automobile and driver license renewals, the state budget prohibits the use of state funds that would assist automation at the ports. This policy is contrary to that articulated repeatedly by Biden Administration officials who earlier this year were urging the supply chain to move away from our “grandfather’s infrastructure.” Automation at marine terminals has been approved in three successive West Coast collective bargaining agreements with labor. Workers were given generous lifetime benefits for those displaced by automation. We can’t violate the laws of physics. The ability to utilize zero emission automated equipment is essential for terminal space that can only grow vertically to handle additional cargo volumes. It is one of the few ways to move away from our “grandfather’s infrastructure,” meet environmental goals and allow California port gateways to remain competitive. California’s ports have no more room to grow – except up. If we are to meet the needs of California consumers and importers and exporters, support hundreds of thousands of jobs and function as a competitive gateway, innovation along the waterfront should be encouraged – not stifled.
Like Scrooge in “A Christmas Carol,” asking the Ghost of Christmas Yet To Come: “Are these the shadows of the things that Will be, or are they shadows of things that May be, only?” I’ll offer a few suggestions to attempt to change our current course.
First, do no harm. Government should adopt policy goals that are not just aspirational, but also practical. If truck power is problematic and a cause of congestion, don’t adopt rules that will further limit truck capacity. Ironically, when you divert cargo from West Coast ports, in part due to public policy reasons, you increase worldwide greenhouse gas emissions – undermining some of the public policy goals behind many of the regulations. In addition, if you are making zero-emission mandates on the supply chain, make sure there is both reliable grid power and ample public charging units – otherwise you will fail miserably in trying to achieve your goals and will have negatively impacted tens of thousands of California businesses.
Second, government should utilize available funds to upgrade infrastructure for ports and transportation systems. This is a long-term solution, but funds are available, and awareness of the supply chain has never been higher among our elected officials. We need to seize the moment. West Coast ports deserve the generous financial support that has been provided to ports on the Gulf and East coasts. And we need a holistic planning process similar to that utilized by competing ports in Canada.
Finally, both government and industry need to seriously evaluate the possibility of transforming the supply chain from a pull system to a push system. Today, from an import standpoint, cargo sits until a cargo owner pulls that cargo from a marine terminal. A system that increases cargo velocity and increases system capacity would limit the amount of time cargo would be allowed to stay at a marine terminal and push cargo from the terminal to its final destination or to an off-dock facility as it arrives. This would provide additional space for exports, empties and increasing volume of imports.
There is an opportunity in 2023 to make substantial, long-lasting changes in the supply chain system that will benefit the port communities, the transportation network, and the exporters and importers of goods. The question is, can we push aside political agendas and aspirations for the common good?