CAN ILWU RESTORE PACIFIC PORT COMPETITIVENESS?

Posted on: July 27th, 2015 by Stas

CAN ILWU RESTORE PACIFIC PORT COMPETITIVENESS?

BY STAS MARGARONIS

 

Introduction

International Longshore and Warehouse Union (ILWU) executives told California agricultural exporters at the recent Agriculture Transportation Coalition (AgTC) conference that the ILWU can make ports more competitive. However, there must be collaboration between the ILWU and the Pacific Maritime Association (PMA), they said.

The1960 contract agreement between the ILWU-PMA laid the foundation for mechanization of cargo-handling and the introduction of containerization that made West coast ports the most competitive in the United States. A similar ILWU-PMA collaboration today may be what is needed to restore port competitiveness.

In 2015, West coast ports are losing market share as a result of shipper preferences for the less disruptive cargo handling environment provided by the International Longshore Association (ILA) at Atlantic and Gulf coast ports. According to the Journal of Commerce, “East coast ports grew their share of the U.S. import market to 44 percent between January and April this year…..  Meanwhile, West coast ports share of U.S. container imports shrank from 54 percent to 49 percent in the first quarter.”[1]

In 2002, 39% of U.S. imports passed through the ports of Long Beach and Los Angeles, but that market share declined to 32% by 2013.[2] In 2014, the situation worsened as a result of the ILWU-PMA contract dispute and labor slow down that stranded imports and exports, including the containers of agricultural exporters. New, more automated container terminals at Los Angeles and Long Beach, supported by the ILWU, will improve productivity with the arrival of bigger container ships, but more needs to be done.

Hub and Spoke System

The arrival of mega container ships at West coast ports is largely centered at the ports of Long Beach and Los Angeles because they have the terminal capacity to handle the larger ships. New automated terminals at Los Angeles and Long Beach enhance the two ports’ ability to load and unload these ships. The newly automated Long Beach Container Terminal (LBCT), scheduled to open in 2016, will deploy super efficient dual-hoist cranes, automated guided vehicles and automated stacking systems to dramatically speed up loading and unloading of ships for transportation by road and rail. LBCT’s design is based on automated container terminals at the Port of Rotterdam and will be the most productive in the United States.

However, one problem at LBCT and other Long Beach and Los Angeles terminals is that there is no provision to move containers by water in contrast to Rotterdam where coastal/short sea shipping and inland barge services are well-established. Moving containers by water can relieve port congestion and allow container traffic to travel from Los Angeles and Long Beach to other West coast ports by ship rather than by truck along the I-5 freeway corridor. As the smaller ports cannot handle the bigger ships, these coastal/short sea ships can support a maritime hub and spoke system via a new Marine 5 Highway. This concept is promoted by the U.S. Maritime Administration.

A new strategy attracting shippers back to West coast ports must focus on higher productivity, less port congestion and no work slow downs. In the 1960’s, the ILWU took the lead in mechanization and productivity improvements.

ILWU and the Mechanization of West Coast Ports

In 1960, the ILWU and the Pacific Maritime Association signed an historic agreement to mechanize cargo-handling operations and lay the foundation for containerization at West coast ports. The Mechanization and Modernization agreement (known as M&M) recognized the need for advanced mechanized cargo-handling.  The PMA was demanding productivity changes that the ILWU accepted. The concept was supported by the ILWU’s founding president, Harry Bridges. Bridges, a Marxist, came to national prominence after his leadership of the 1934 West coast longshore strike that led to better wages and working conditions for longshore workers. In 1942, with the United States at war, Bridges successfully promoted labor-management collaboration, known as the Bridges Plan, to speed up cargo-handling at West coast ports and established a precedent for labor-management collaboration prior to M&M.[3] Beginning in 1956, Bridges began an extensive educational campaign that won rank and file ILWU members support for M&M provisions. ILWU members accepted these changes because they benefited longshore workers and the industry. Reduced longshore manning provisions were compensated for by a generous severance package. Initially, PMA members failed to make the promised investment in new equipment to improve productivity. In 1965, the ILWU won a grievance against PMA employers that forced the terminals to invest in new equipment. The result was a modernization of West coast ports at a time of growing U.S. trade with Asia. Ocean carriers chose to dock at West coast ports because of faster loading and unloading than at East coast and Gulf ports where there was resistance to mechanization. The importance of Bridges and the ILWU in making containerization possible was recognized in Marc Levinson’s history of maritime containerization entitled “The Box”.[4]

Today, one means of improving port services and reducing both congestion and emissions at ports would be for the ILWU and the PMA to support a Marine 5 Highway coastal shipping system. U.S. built ships could then link the larger ports of Long Beach and Los Angeles to other West coast ports located along the Pacific coasts’ I-5 freeway corridor. This would relieve on-dock congestion by moving some containers by water rather than road or rail, and allow truckers to avoid long-haul trucking so as to make pick ups and deliveries closer to importers and exporters. Truck turn-around times would improve. Otherwise, increased freeway congestion increases the need for widening freeways, such as the 710 freeway, the main corridor for the ports of Long Beach and Los Angeles. The 710 widening is estimated to cost $10 billion.

Oakland/Stockton-Southern California

California importers and agricultural exporters are increasingly frustrated by delays and operational problems at the port of Oakland, especially after incurring losses during the 2014-2015 slow down. Shippers have discussed transporting containers directly to Long Beach and Los Angeles via the inland California port of Stockton. They propose a tug/barge service or new coastal ships from Stockton to connect to the Southern California ports where mega-container ships sail to Asia. Stockton adjoins the I-5 freeway in Northern California and is located in California’s agricultural center, the San Joaquin Valley.

Cargo that is best moved to and from the port of Oakland could be supported by a separate Marine 5 Highway service linking Oakland to the Southern California ports.

Shipping export containers through the port of Stockton would save San Joaquin Valley (SJV) agricultural exporters time and money as opposed to trucking their goods an additional 75 miles to the port of Oakland.

Deputy Stockton port director Mark Tollini says the port has two Liebherr mobile harbor cranes to load and unload ships and barges. The cranes would support a service connecting Stockton to Long Beach/Los Angeles. Tollini estimates that there are one thousand import containers coming into the SJV per day and a similar number of export containers departing the SJV per day. This market might account for as many as 500,000 forty foot containers per year and require a sizeable fleet of new U.S. built ships.

Portland-Southern California

At the AgTC conference, Oregon agricultural exporters and ILWU officials expressed concern about the loss of ocean carrier container service at the port of Portland, Oregon. Historically, agricultural shippers from Oregon, Washington and Idaho could export their goods on barges traveling on the Columbia River to Portland and then onto ocean-going container ships to Asia and Europe. Since the discontinuation of scheduled container service at Portland, this inland shipping service has been undermined.

As services to Portland have been cut back, agricultural exporters have resorted to trucking containers to the ports of Seattle and Tacoma, Washington at greater expense than via Columbia River barges to Portland. The port of Portland estimates that exporters are paying an additional $1,000 for trucking to Seattle/Tacoma. 88,000 truckloads per year go from Oregon to Seattle/Tacoma.[5]

Privately, ILWU officials have begun to discuss whether a short sea/marine highway service might offer an alternative for agricultural shippers and revive longshore container work at Portland.

Export containers from Portland might be shipped to Long Beach and Los Angeles for loading onto mega container ships headed to Asia and other export destinations. This will require a new fleet of U.S. built coastal ships. Imports to Oregon could be the return cargo coming off the mega container ships.

New Marine 5 Highway Ships

While technically a tug/barge service could carry goods from Portland, Stockton and Oakland to Long Beach/Los Angeles, ocean-going ships would provide faster and more reliable service.

A tug/barge service between Stockton and Oakland was discontinued by the port of Stockton in September, 2014 due to a lack of support. However, many agricultural exporters reconsidered their participation in the service after November, 2014 as a result of the West coast port slow down and continued disruptions due to labor management disputes at the port of Oakland. Some shippers have been discussing avoiding Oakland altogether and going directly to the Southern California ports.

An ocean-going ship could make the one way trip between Stockton and Long Beach in about 33 hours. This would fit into the time window for a regularly scheduled ocean carrier service to Asia. A tug/barge sailing in the Pacific Ocean would be slower and unreliable due to weather and sea-going conditions.

The Jones Act and New Shipbuilding

Foreign-owned carriers and terminal operators have discouraged U.S. ports from considering Marine Highway shipping because ships going between two U.S. ports must be built in the United States, manned by U.S. crews and owned by U.S. citizens as per the Jones Act (Merchant Marine Act, 1920). One of the concerns is higher cost: a Jones Act ship will be more expensive to build and operate than, for example, a ship built in China and manned by a Chinese crew. However, as Marine Highway ships are more fuel and cost efficient than U.S. long-haul trucks, the objection is not relevant. These ships are designed as long-haul truck substitutes for containerized truckloads traveling along the I-5 on the Pacific coast, I-95 on the Atlantic coast and other coastal freeway corridors.

Reducing truck congestion and emissions along the I-5 freeway can be realized by a ship carrying 700 forty foot containers and requiring a 24,000 horsepower engine. In contrast, 700 long-haul trucks, each operating with a 375 horsepower engine, require 262,500 horsepower (700 x 375). The ship requires 10% of the horsepower required for 700 trucks, reducing fuel consumption and providing a significant reduction in emissions.

The challenge is that new ships linking Portland, Oakland, Stockton and other Pacific coast ports to Southern California ports will be expensive to build when using existing U.S. shipyards that lack modern shipbuilding production methods. A new U.S. shipyard could save millions of dollars in vessel construction costs and incorporate the most modern, fuel efficient and low emission designs.

Unfortunately, most U.S, ports are not receptive to locating a shipyard on port property because they see a shipyard as a ‘lost business opportunity’ compared to attracting higher paying cargo ships, cruise ships, a sports arena, restaurants and other high end waterfront customers. One Southern California port official who opposes a shipyard being located in California proposes that new ships and jobs be located at a Texas location because of fewer permit requirements. Otherwise, he argues, the shipyard construction will be delayed by California’s lengthy permit approval process and possible lawsuits by interests opposed to shipbuilding.

Finance and Implementation

A new Marine Transportation Authority (MTA) sponsored by the ports of Long Beach and Los Angeles might be the vehicle to finance the construction and deployment of Marine Highway vessels based on the existing model of the Alameda Corridor Transportation Authority (ACTA).

ACTA is the operator of the 20-mile rail express corridor that links the ports of Long Beach and Los Angeles with the transcontinental rail network. ACTA was backed by $2.4 billion in funds that included $1.2 billion in revenue bonds, a $428 million federal loan, a $394 million contribution from the ports of Los Angeles (LA) and Long Beach (LB), as well as other California contributions, according to the U.S. Department of Transportation.[6]

Following the April 2002 corridor opening, “operations and maintenance decisions are made by a four-member Alameda Corridor Operating Committee that is independent of the Authority, which includes one representative each from the Port of Long Beach, Port of Los Angeles, Burlington Northern Santa Fe Railway, and Union Pacific Railroad. These decisions are then implemented and managed by the Authority.”[7]

A 2013 Journal of Commerce report notes: “Under the terms of their agreement with ACTA, the (LA/LB) ports must cover any shortfalls the (ACTA) authority faces in payments on its debt of $1.8 billion. Because of a 25 percent decline in cargo volume during the economic recession, each port paid $2.95 million in 2010 and the same amount again in 2011 to cover ACTA shortfalls.”[8]

An ACTA use fee is assessed on all rail cargo passing through the corridor, with loaded containers generating most of the revenue. The use fee increased 2.8% in 2012 to $22.25 per 20-foot container unit.[9]

If new U.S. ships were built with long-term freight charters (leases) from ocean carriers, the Marine Highway service might be largely self-supporting. The service may still require a use fee similar to the one used by ACTA.

A new shipyard in California might cost $50-$100 million to build, but could be self-supporting by new Marine 5 Highway ship orders. Other shipbuilding products could include desalination ships to create new fresh water supplies and floating wind turbines to mass produce utility-scale renewable energy development off the California coast where substantial wind resources exist.

A new shipyard using modern methods and designs could also reduce shipbuilding costs compared to existing U.S. shipyards by as much as 50%. The shipyard could generate as many as 250 direct jobs and an additional 250 indirect jobs for welders, fitters and crane operators. Shipyard workers can make as much as $100,000 per year, including wages and benefits. There are possible shipyard sites at the ports of Los Angeles and Long Beach.

Conclusion

A new Marine 5 Highway service could improve export and import services at West coast ports linking low-cost mega container ships arriving at Long Beach and Los Angeles to smaller ports such as Stockton, Oakland, Portland as well as Seattle/Tacoma and San Diego.

The Marine 5 Highway ships would relieve truck congestion at LA/LB and smaller ports improving productivity, reducing emissions and creating new business and jobs.

A new shipyard can generate new jobs, economic development and cleaner freight transportation in California. The shipyard could provide modern, cost-efficient production methods to build Marine 5 Highway ships.

Peter Friedmann, AgTC executive director, said that he was impressed by the willingness of the ILWU to pay for their attendance at the 2014 AgTC conference so they could “sit and listen.” When the ILWU paid to attend this year’s meeting, Friedmann decided to ask the union to participate in a panel discussion. He noted that agricultural exporters couldn’t afford to avoid West coast ports. If other importers and exporters abandoned West coast ports and shifted their business to Gulf and East coast ports, “we and the ILWU may be the only ones left.”

Robert Olvera, president of ILWU Local 13 representing longshore workers at the LA/LB ports told AgTC members that the ILWU wants to help farmers and growers. He said that there are many things the ILWU could do to improve productivity at the ports, but longshore workers are constrained by terminal management.

Perhaps the ILWU could be the catalyst for the Marine 5 Highway service and support the revival of West coast port competitiveness.

 

[1] http://www.joc.com/port-news/us-ports/port-savannah/record-savannah-volume-suggests-diversions-becoming-permanent_20150518.html?mgs1=7a12k5fP7Z

[2] Los Angeles  Times, ‘L.A., Long Beach ports losing to rivals amid struggle with giant ships’ June 2, 2015: “ The ports handled  39% of U.S. container imports in 2002; that fell to 32% by 2013, according to U.S. census data. They have lost business to competitors at a time when, overall, global trade is booming and imports are rising at all ports, including L.A. and Long Beach…”The dominance of Southern California as the Asia gateway is facing a lot more competition,” said maritime consultant John Martin, who analyzed the trade data.” See: http://www.latimes.com/business/la-fi-big-ships-ports-20150602-story.html#page=1

[3] Charles Larrowe, Harry Bridges: The Rise and Fall of Radical Labor in the U.S. (1972), p. 254

[4] Marc Levinson, The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger   (2006). The story of the ILWU forcing PMA members to invest in more forklifts and other equipment is told on page 117.

[5] file:///I:/Documents%20and%20Settings/Owner/Desktop/downloads/factsheet.pdf

[6] http://www.fhwa.dot.gov/ipd/project_delivery/lessons_learned/success_stories_alameda.aspx

[7] http://www.acta.org/about/governance.asp

[8] http://www.joc.com/rail-intermodal/intermodal-shipping/alameda-corridor-paying-its-way_20130219.html

[9] Ibid

 

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