Even before the Covid-19 pandemic swept into the Pacific states, the ports on the West Coast were facing serious challenges that could frame the region’s outlook for decades to come. Some issues like “climate change” or the ongoing tariff wars and the economic downturn impact the entire region and indeed the world. Some impacts are more regional in nature like West Coast ports working to regain lost market share. While others are entirely local like the relocation of the Oakland A’s ballpark to the port area. However, the tsunami of trauma unleashed by Covid-19 stands to impact all decision making in 2020…and potentially beyond. And this situation is like no other, or as Beacon Economist Jock O’Connell said, past economic models have no relevance, “no one has a clear idea of the future.”
The Covid-19 pandemic has placed an enormous amount of unexpected pressure on the West Coast ports and the connecting supply chain. In late March, Port of Long Beach Executive Director Mario Cordero in an interview with the AJOT said of the crisis, “We are coping with an unpredicted crisis caused by COVID-19 virus and the threats it poses to the supply chain. Adding, “our first priority is the protection of the work force and ensuring that all of the people that work at the Port of Long Beach complex are safe and protected from contamination.”
In the case of Long Beach, the ILWU and PMA agreed to set aside one hour for the cleaning of equipment and machinery between shifts. Although, as Cordero noted, “this means that trucks are backed up at the gates waiting to pick up and deliver containers and so this adds a complication to the process, but so far there have been no serious disruptions.”
Cordero also observed, “We are facing a problem with containers that are not being picked up and are being stranded at the port because of problems with the end user and other dislocations. This situation has prompted calls to relax demurrage rules. We hope that people will not take advantage of the situation. The MTOs [Marine Terminal Operators] are doing their best to keep the flow of containers moving.”
It’s also important to note how the Californian ports, cities and the State are collaborating their efforts during the crisis. Recently, the Port of Los Angeles Executive Director Gene Seroka was appointed Los Angeles Chief Logistics Officer by LA Mayor Eric Garcetti. As the chief logistics officer, Seroka says expediting medical supplies “is at a crisis stage.”
While maintaining his duties as the Port’s executive director, Seroka now also leads a team expediting deliveries of critical health care and emergency supplies into the hands of those who need them most. Seroka outlined the responsibilities and challenges he and his staff are facing. A major goal of the group is to continue the fast importation of medical supplies and goods through “our airport and seaport in Los Angeles.”
Seroka said, “We are looking to source new supplies from manufacturers including N95 respirator masks and surgical masks, gowns, face protection, ventilators, and equipment used for intravenous drips. We are coordinating these efforts with the Hospital Association of Southern California, Los Angeles County Department of Public Health, City of Los Angeles public health officials and local hospitals. We are seeking to understand the needs, not compete for sourcing with the goal of aggregating demand.”
His office is supporting new manufacturing and distributing of face shields, masks, gowns and personal protective equipment (PPE): “We are working with the California Manufacturing and Technology Association to find companies to either produce these products or retool to produce these products.”
Seroka is also working with “the Harbor Trucking Association (HTA) and its president, Weston LaBar, as well as with Alex Cherin, executive director of the California Trucking Association (CTA). We are staying close to the trucking industry and have periodic conference calls.”
His office is “relying on the support of eighteen dedicated volunteers from City of Los Angeles departments who are helping to coordinate these efforts.”
Working through the Port of Los Angeles, “we have been able to obtain additional supplies of masks and sanitary equipment that we have been distributing to harbor truck drivers as well as to the Teamsters Union members. While the Teamsters represent only a small percentage of the harbor drivers, they represent workers in a number of different fields and have been supporting our outreach efforts.”
As part of the selection process, “we have had to discard 95% of the leads and offers we receive, because they do not perform or match up to requirements.” In some cases, Seroka is seeing “counterfeit producers and a number of opportunists trying to take advantage of the situation. The result is that we have identified the 5% of those contacting us who can provide good faith sourcing of product… we have benefitted from the personnel and experience of the (Los Angeles) Emergency Management Department.”
It is important to note that “while we are focusing on frontline workers such as doctors, nurses and EMTs, we also need to be supplying janitors and other hospital workers. In addition, there are a number of other workers who also play a critical role. They include construction workers, food service workers, bank employees, truck drivers and others.”
In Northern California, another Covid-19 supply chain effort is under way as a number of freight forwarders, customs brokers, stevedores and U.S. Customs officials are working together with truckers, longshore labor and Port of Oakland officials to expedite import containers reaching end users - especially those that contain medical supplies and other important products during the Coronavirus emergency.
The maritime logistics group is primarily focused on the Port of Oakland but could expand to include participants at other California ports.
In interviews with AJOT, the participants have emphasized the importance of a team work approach between maritime partners, U.S. Customs and other federal and regulatory officials.
They say that shelter-in-place mandates for working at home and shutting down offices and businesses will place stresses on the supply chain that are likely to worsen as the restrictions continue into the months ahead. However, as their businesses are associated with port operations that are essential in the movement of goods, port stakeholders are necessarily exempt from the mandate and so as to continue facilitating trade.
Two priorities have emerged from discussions within the group:
- Expedite U.S. Customs clearances of priority containers including medical supplies and sanitary products so as to reach end users in the U.S. as soon as possible.
- Share information between stevedores, customs brokers, freight forwarders, truckers, Port of Oakland officials and U.S. Customs officials so as to identify potential bottle necks and anticipate challenges caused by health mandated shut downs.
By planning ahead and instituting a task force approach that includes all maritime partners operating at the Port of Oakland, the participants believe, dislocations can be minimized and the public can have the confidence that the maritime industry will serve the public interest at this time of crisis.
Market Share and Working on the Railroads
West Coast ports – particularly the San Pedro mega-ports of Long Beach and Los Angeles - have for decades been the de facto gateway to the nation’s consumers. And rail connections to the East made it happen for West Coast ports. While the West Coast is still dominant, the widening of the Panama Canal and the terminal and infrastructure expansion on the US East Coast in ports like New York/New Jersey, Savanah, Georgia and Charleston, South Carolina, not to mention the Gulf ports is shifting the narrative.
However, the West Coast ports are aware of the dynamic and seek to reverse the trend. In February, Jim McKenna, president of the PMA (Pacific Maritime Association), an industry group largely composed of West Coast waterfront employers and Willie Adams, president of the ILWU (International Longshore and Warehouse Union) at the Propeller Club of Northern California meeting pledged to work together to help West Coast ports regain lost market share. Both leaders agreed that it was vital to lobby the two West Coast rail providers, the Union Pacific (UP) and the Burlington Northern and Santa Fe (BNSF), to reduce the rates they charge for transporting containers to and from the West Coast ports. Willie Adams said the West Coast ports “need to make sure our voices are heard in Washington, DC... our competitors on the East and Gulf Coasts are being heard and it is costing us.”
McKenna agreed that a reduction in rail rates charged by the BNSF and UP could make a major contribution to West Coast competitiveness. Right now, he estimates West Coast costs are $200 per container, higher than East and Gulf Coast ports. Reduced rail rates can close the gap: “The railroads are losing rail business as the West Coast ports lose discretionary cargo and so they know they can contribute to make up the difference and win back some of this cargo.”
For McKenna, another point of contention tied to the rail costs is that Canada does not have a Harbor Maintenance Tax and so the Western Canadian Port of Prince Rupert has a built-in cost advantage in transporting containers by rail to Chicago and other Midwest destinations. The result is the U.S. West Coast ports are also losing business to Prince Rupert.
Still McKenna feels it is more than just what the other ports are doing. He is not alone with the charge of West Coast ports of being complacent about the higher costs of doing business, especially in California, citing: high land costs, high costs of environmental regulations and high charges to reduce truck congestion and institute a clean truck program: “These charges are driving away discretionary cargoes and they’re killing us.”
McKenna agreed that a reduction in rail rates charged by the BNSF and UP could make a major contribution to West Coast competitiveness.
Many of McKenna’s views are shared by others on the West Coast. Gene Seroka, the Port of Los Angeles executive director, also agrees that steps must be taken to regain market share. In an interview with the AJOT, following his “State of the Port 2020” address in Los Angeles in late January, organized by the Pacific Merchant Shipping Association (PMSA), Seroka outlined the new strategy to tackle the trend. Seroka said the Port had to go on the offensive to check the loss of market share: “Well, this market share erosion is now 18 years old, so it’s not a recent phenomenon, right? The markets have shifted. I don’t think we’re going to bring every percentage point back to the West Coast, but we’re going to do three things:
- We’re going to continue to try to promote our supply chain optimization work, which makes this a seamless gateway to use as a gateway of choice.
- We are going to push as hard as we can and double down on digitization (of port)
- And third is collaboration. We want to put together like-minded people. So, West Coast ports, Western railroads, and the MOU (Memorandum of Understanding) we’re signing with the Asia countries.”
As an example, in his State of the Port speech, Seroka said that the Ports of Long Beach and Los Angeles have also signed a Memorandum of Understanding to enhance cooperation between the two ports.
Seroka said he expects the process of regaining the market share initiative to be a gradual one: “...it’s going to be one day at a time, one step at a time to try to earn the business that we need to. We also have to reinvent ourselves because some of that import cargo is not going to come back to us. It’s found other pathways through the Suez Canal.” As an example, he said: “we are going to have to be much more assertive on the export side of the business.” An important focus will be on the service providers, “whether they’re the liner shipping companies, the railroads, the truck firms, they want to execute roundtrip economics. So, I think we need to continue to be aggressive on the export side of cargo that can move through our gateway...”
