California is a highly diversified state, and so too are its ports. Dominating the state’s maritime picture are the bustling twin ports of Los Angeles and Long Beach. They are the state’s largest ports through which more than one third of the imports for the entire United States pass, largely in the form of containers from Asia. These two ports are in stark contrast to the State’s other ports, such as the Humboldt Bay Harbor District at Eureka, with its focus on the export of forest products, the Port of San Diego, with its focus on imported tropical fruit and automobile industries, and the Port of Hueneme, near Oxnard, with a similar cargo mix.
Statewide fee on containers for northern and southern CA ports? Oakland says NO
By Wes Starratt, Senior Editor
Published: August, 2005
California is a highly diversified state, and so too are its ports. Dominating the state’s maritime picture are the bustling twin ports of Los Angeles and Long Beach. They are the state’s largest ports through which more than one third of the imports for the entire United States pass, largely in the form of containers from Asia. These two ports are in stark contrast to the State’s other ports, such as the Humboldt Bay Harbor District at Eureka, with its focus on the export of forest products, the Port of San Diego, with its focus on imported tropical fruit and automobile industries, and the Port of Hueneme, near Oxnard, with a similar cargo mix.
San Francisco Bay also has a group of highly diversified ports. The Port of Oakland handles imports for a regional market less than half the size of the southern California market and exports from much of the state’s agricultural industry. Inbound containers also have traditionally moved through Oakland by rail to midwestern markets, and those numbers are again increasing as cargo is diverted from the congested ports of Los Angeles and Long Beach. The ports of Sacramento and Stockton are closely tied to the agricultural industry. Other Bay Area ports serve niche markets, with San Francisco oriented toward cruise ships, Richmond tied to the petroleum industry, Redwood City handling a variety of bulk cargos, and Benicia serving the automobile industry.
Thus, the ports of California serve widely different markets; yet, in some areas, the economic interests clash, having created some intense competition over the years.
The Port of Stockton competes head on with Sacramento; Los Angeles competes directly with Long Beach for imported containers in the same local and national markets; and Oakland competes with all of them, for containers destined for Midwest markets. Thus, it will prove to be difficult to develop a state-wide strategic maritime plan, as has been proposed, that will satisfy the needs of the diversified and competing interests of California’s maritime industry. It will be equally difficult to devise a funding mechanism that can be used to fund the infrastructure needs of the state’s ports.
The Perfect Storm at LA/Long Beach
Los Angeles and Long Beach have two major advantages over the state’s other ports: first of all, they have good rail connections to Texas and the Gulf States, as well as the Midwest, and secondly, there is the enormous local market of southern California with a consuming population of more than 17 million persons. Another factor is that many of the mammoth container ships are too large to pass through the Panama Canal and deliver containers to Gulf and East Coast destinations. These factors have created a magnet that attracts inbound cargo to LA/Long Beach from throughout the Pacific Basin, and will continue to do so.
Last year, as the number of inbound container ships grew, the congestion at the two ports grew into what some have called The Perfect Storm. Everything that could go wrong went wrong. Trains were backed up across the country due to inadequate equipment, over-taxed railroad yards, and insufficient double-tracking, as well as inadequate staffing of the trains. Truck drivers were in short supply, yet the freeways were clogged with trucks hauling containers. On the docks, there were insufficient numbers of longshoremen. The result was that more than 40 ships were frequently waiting to dock at the two ports. At the same time, southern California was experiencing increasing air-pollution, some of it as a result of maritime activities.
Since last year, many steps have been taken to prevent a repetition of the congestion, but it will take years to build the double-track railroad lines, the railroad yards, the tunnels, the grade separations, the bridges, the freeways, and the other high-cost infrastructure needed to transport what is expected to be an increasing number of inbound containers … unless this country starts making a lot of the goods in those containers, which doesn’t seem likely.
A State-Wide Port Master Plan
When southern California’s maritime congestion started becoming a national issue, the US Maritime Administration and the Department of Transportation expressed their concerns to the state. As a result, Long Beach’s Assemblyman, and now Senator, Alan Lowenthal, introduced Assembly Bill 2043 that called for the preparation, not of a regional plan for southern California, but of a statewide port master plan, due for submission to the state legislature by January 1, 2006. To prepare the plan, an existing government/industry/labor group called the California Marine and Intermodal Transportation System Advisory Council or Cal-MITSAC was called upon.
Cal-MITSAC has been involved in developing port security protocols for southern California ports since 9/11. It is headed by Gill V. Hicks, former head of the Alameda Corridor Transportation Authority that built and operates the vital sub-level rail connection between the ports and mainline railroad yards in southern California. In testimony before the state legislature, Hicks said, We continue to vigorously lobby for more federal support, but we all agree that the federal government will not be able to provide all the funds required to keep the goods flowing efficiently. Therefore, one of the tasks of the Council is to develop a feasible funding plan that must include state and local and private sources.
Cal-MITSAC has already assessed the port infrastructure needs for southern California, from San Diego to the Port of Hueneme, at $16 billion, and for northern California, from San Francisco to Humboldt Bay, at $7 billion. Unfortunately, these costs are not broken down between the direct needs of the ports and the requirements for improved railroad and highway infrastructure. The tiny port of Humboldt Bay is in for $279 million, while the Port of Richmond is at the bottom for only $7 million. It would appear that there are a lot of apples and oranges mixed together, and one must seriously question these figures.
The Infrastructure Projects
Earlier this year, the new Senator Lowenthal of Long Beach, introduced SB 760, which addressed the question of funding the vast amount of infrastructure upgrades. As amended on May 27, 2005the bill provides a funding mechanism to allow the ports of Los Angeles and Long Beach to remain the leading economic engine in the State of California, and proposes a levy of $30 per 20-ft-container user-fee for the two ports.
One-third on this income would go for projects to alleviate highway and railroad congestion, one third would go to the South Coast Air Quality Management District to mitigate pollution, and one third would go to the ports of Los Angeles and Long Beach to improve security. Meantime, the Los Angeles Economic Development Corp. (LAEDC), which calls itself the region’s premiere business leadership organization, has entered the picture and called for raising the fee to $100 on each container off-loaded at the two ports.
SB 760 is still in committee, and changes can be expected, as diversified economic interests decide on whether to make this a regional or a statewide user fee. Hicks believes that there are only three means of funding the improvements needed to improve the ability of the state’s ports to move an increasing number of containers: carving out funds from US Customs receipts, state tax-credit bonds, or a Statewide cargo fee. Note that the orientation appears to be changing from a regional to a statewide approach, and that has the Port of Oakland very concerned.
Regional or Statewide
So, is this a statewide or a regional funding issue? Ship congestion problems are confined to the ports of Los Angeles and Long Beach. They do not exist elsewhere. The state’s only other major container port, Oakland, is currently operating at only about 50 percent of capacity, and is not experiencing any congestion. It continues receiving containers diverted from southern California and would like to receive more. Oakland’s major problem is the deepening of its channels; and a federally funded dredging program is underway.
As for the rest of the state’s ports, they are largely local, specialized niche ports that do not play any role at all in the massive movement of containerized goods from Asia. So, the congestion problems and the solutions appear to be regionally based in southern California.
Larger Issues
Over the next few years, southern California’s ports will be facing growing competition from other Pacific Coast ports, from Canada’s Prince Rupert in the north (which is almost two days closer to Asian suppliers) to an array of existing Mexican ports, such as Manzanillo, and a proposed new port just south of the border. Thus, Los Angeles and Long Beach do have restraints regarding how high they can raise their container fees.
There is also the legal question of how far a state’s rights extend when it comes to the federal prerogatives to regulate foreign trade and interstate commerce.
Oakland is Concerned
The Port of Oakland expressed surprise and concern about the possible imposition of statewide container fees. California ports already raise revenue through user fees to cover their cost of doing business and making harbor improvements. But, the proposed fees would cover infrastructure beyond the jurisdiction of the ports.
We heard the same comments from the office of Harold Jones, Director of Communications and from Marilyn Sandifur, Manager of Media Relations: The proposed container fees would be devastating to the Port of Oakland. Basically, we would no longer be a competitive place in which to do business.
Oakland is a unique port, a discretionary port, meaning that containers destined for the Midwest or the Gulf States can either move through Oakland or through southern California. The Port claims that the Bay Area’s regional market is not large enough to accommodate container fees. The demand base in southern California might be able to sustain additional fees, but our situation is very different. Basically, we function as a cost effective and convenient shipping facility without congestion. So, container fees would put us at a severe disadvantage.
In addition, Oakland is an export-oriented port with 55 percent of its trade in the form of containerized, agricultural products destined for world markets. The agricultural and export community say that container fees would affect their ability to compete in the global marketplace. Their profit margin is already low, and the imposition of container fees would strike a critical blow to the agricultural export business of California.
Constitutional
Sandifur said, We believe that these fees are unconstitutional and pre-empted by Federal law, since all of the containers passing through California ports are either inter-state or foreign and do not involve in-state commerce.
Oakland would support general obligation bonds to fund infrastructure projects for the state’s ports. We believe that there should be a statewide solution to movement of containers through California’s ports, the Port claims, with Oakland serving as a relief valve to southern California port congestion.
We have yet to hear the last word on what could become one more north-south controversy in one of America’s most highly diversified states, California.
