The Lows and Highs of the 2022 California Legislative Session for Maritime Commerce (Copy)
By Mike Jacob, Vice President & General Counsel, Pacific Merchant Shipping Association
While the official start of the 2022 Legislative Session in California was January 3rd when Assemblymembers and Senators returned to Sacramento and gavels are struck, the focus on the unrelenting supply chain crisis and congestion from one year ago meant that the 2022 session really started at the end of the summer of 2021. Legislators and officials in the Newsom Administration were very aggressively looking to the industry and to ports for proposals to help unlock the port backup, unsnarl supply chains, and get products moving freely – and fast.
By September 2021, the Governor’s Office of Business and Economic Development and California State Transportation Agency co-hosted a Supply Chain summit to try and find consensus solutions across the intermodal spectrum of container shipping. It was a tall task, but some consensus was reached. This included agreement around the need for a clear point of contact for intermodal and maritime issues at the State. People envisioned a state-level Port Envoy in the Governor’s office who would be given the resources necessary to successfully advocate within the Administration and at the Legislature for investment, flexibility, and solutions to problems at ports and in the supply chain as they arise.
This was followed by multiple legislative hearings, highlighted by frustrated parties all around including exasperated agricultural exporters. As 2021 ended and 2022 began, despite the success of the implementation of the new queueing system to reduce near-shore vessel congestion by PMSA, PMA, and the Southern California Marine Exchange, legislative demands for action were loud and consistent.
PMSA, along with its partners at the California Association of Port Authorities (CAPA), sponsored or supported a suite of bills to address many of these issues head-on. The package was extensive. It included a bill to create two new tax credits to offset costs for all California exporters, both for the costs of their cargo and for the costs of moving and repositioning intermodal equipment prior to export. Two bills were introduced to create a state-level envoy – one to create the position for a new Supply Chain Coordinator and another to create an office with staffing for the new position. A bill was introduced to create a manufacturing tax credit for intermodal chassis and chassis component manufacturers. Another bill would extend the local building permit streamlining provisions recently adopted to address the current housing crisis and shortage to industrial and agricultural properties looking to build temporary intermodal parking, storage, and distribution yards. Plus two resolutions – one proclaiming a supply chain crisis for the purposes of managing state policy and another to demand that California get its fair share of federal port infrastructure funding.
Meanwhile, other issues in the intermodal supply chain aside from congestion demanded attention as well. A pilotage bill was introduced with the intent to address state-licensed pilotage rates in the San Francisco Bay in the wake of the pandemic, but also with looming costs associated with the next round of regulatory tightening on air emissions from the marine sector on the horizon. With overwhelming and brazen freight theft plaguing the railroads and cargo owners in Southern California, multiple bills and budget proposals were rolled out to address the lack of prosecution and law enforcement responsiveness to these challenges. And, unsure of the fate of federal Shipping Act reform measures in Congress, truckers and cargo owners introduced parallel legislation to address detention and demurrage issues at the state level as well.
But for all the anxiety, anticipation, and desire to address these challenges, it seems that just as vessel congestion was peaking in January 2022, so was legislative interest in addressing the supply chain. As terminals, ocean carriers, and longshore labor were working hard to minimize vessel queues offshore in Southern California, these successes in the field seemed to also work to dampen the enthusiasm of legislators for the need for aid to the maritime industry and intermodal supply chain.
The first bills to get chopped were the tax credit proposals. Despite ongoing equipment availability issues, the Legislature didn’t want to invest in direct support for new chassis and chassis component manufacturers in California. The Legislature also decided that it wasn’t worth offsetting equipment repositioning costs for agricultural exporters, and then across the board costs for all exporters was also not in the cards. For the most part, the freight theft bills didn’t even get hearings.
While congestion issues persisted and began to pop-up at seaports in the Far East as well as on the US Gulf and Atlantic coasts, the urgency by policymakers continued to cool. When both Supply Chain Coordinator bills failed to make it through the Appropriations Committee, it was a real shock. Legislative staff pointed at the lack of consensus and enthusiasm around the idea, including from the Administration, even though it was the number one consensus item to come out of the Administration’s own summit to address supply chain congestion issues. Even the legislative resolution proclaiming a supply chain crisis in the state — which had no opposition — failed to move past the Senate.
At the end of session, not many of the bills which were so urgently necessary last fall ended up commanding much legislative attention. While the permit streamlining bill provisions were extremely popular with lawmakers when it came to producing new housing units, they were not easily passed when it came to allowing for more chassis and intermodal yards in industrial parks and agricultural areas, although that bill was significantly watered down at least it made it to the Governor’s desk and was signed. Of the original PMSA and CAPA package, only that bill and the resolution on fair share of federal funding for California ports made it through the Legislature.
Two other bills of significant maritime interest made it through the session and to the Governor’s desk as well. First, the California detention and demurrage bill was sent to the Governor’s desk and signed over the objections of PMSA and the World Shipping Council. This bill is significant, because even though it was rendered nearly irrelevant and mostly unnecessary by the Congressional passage of the Ocean Shipping Reform Act, it nonetheless inserts the state of California directly into the interpretation of international and interstate contracts for container transactions and intermodal carriage of goods. This bill will ultimately require the system to consider whether international and interstate bills of lading, contracts of carriage, and interchange agreements should have shifting legal standards and interpretations applied to them as equipment and cargo crosses sub-national jurisdictional lines, or if federal law will allow for uniform application of universal principles of intermodalism. The potential for unintended consequences here abounds.
Second, after seven years of work both at the negotiating table and away from the negotiating table, the industry representatives of PMSA, cruise lines, and tanker industry and the San Francisco Bar Pilots were able to come to a suite of compromise agreements on a whole range of issues from how to pay for future new pilot boats which are required to meet new strict air quality rules, to temporary and one-time increases in pilot rates to address pandemic impacts, to implementing an entirely new and reformed rate setting system for pilotage tariffs. Of all the bills passed and signed this year, this one may have the smallest geographic reach and impact to the global supply chain, but it represents the biggest win for the proposition that disparate commercial groups can come together and achieve structural change for the betterment of a system.
Finally, aside from the lack of action on bills, one might also point out that the Legislature and the Governor did agree to a $1.2 billion investment in the state budget for Port and freight infrastructure this past year. Obviously PMSA supports such an investment, but these are long-term capital investments that in the grand scheme of things are likely irrelevant to the short-term needs of the current supply chain and not able to address pandemic congestion issues. While the $1.2 billion is a large investment by the state, that is also part of the challenge because it is but a small component of the outstanding needs of the system as a whole with respect to the infrastructure that is already largely underwritten by supply chain stakeholders and users. In any event, the benefits of these projects are years away, as the programming for this funding won’t even occur until 2023 and were never intended to be a substitute for our short-term proposals.
As we prepare for a future with anticipated downturns in global demand, higher inflation, more market volatility, the lasting lesson of the 2022 legislative session is that the attention and commitment of the state to our supply chain can be tough to maintain across the finish line. While the pandemic and its impacts may be lasting, we need to be mindful that the attention of our policymakers may not be.