M-580: HOW CONTAINER HANDLING COSTS UNDERMINED SERVICE

M-580 : HOW CONTAINER HANDLING COSTS UNDERMINED SERVICE

BY STAS MARGARONIS,  RBTUS.COM

In September, the Port of Stockton says  it is discontinuing the M-580 tug/barge service between the California Ports of Stockton and Oakland. One factor:  high costs for loading and unloading containers.

The suspension comes as a result of an $8 million loss to the Port of Stockton which had received a $12 million federal grant for crane, tug, barge and pier upgrades.

High costs incurred by stevedoring companies and their  longshore union to load and unload the M-580 barge may have been avoidable, according to a logistics executive familiar with the service. The executive suggested: 1) working with an ocean carrier in Oakland to share manning costs servicing one of its ships and the barge and 2) improving productivity to lower costs in Stockton. The costs overshadowed the fact that the tugboat powered service was very efficient,  used substantially less fuel and generated 80% less carbon emissions than trucks, according to the Port of Stockton. The service, supported by a U.S. Department of Transportation grant, also relieved congestion on a crowded highway – I-580 – and created new jobs and new business at the Port of Stockton that will be lost. The M-580 suspension sets back efforts by the U.S. Maritime Administration and the U.S. Department of Transportation to encourage new marine highway services to reduce trucking congestion and pollution on U.S. highways. Without expensive loading and unloading costs, the marine highway service can be a cost effective alternative to congestion and emissions on the I-95 corridor on the Atlantic coast, the I-5 corridor on the Pacific coast and other coastal and river corridors. In California, a marine highway service might be used to avoid widening the I-710 freeway that links the Ports of Long Beach and Los Angeles to the I-5 and will cost taxpayers at least $6 billion.

TRUCKING IMPACT

The M-580 shutdown will occur as the harbor trucking situation at Oakland and other U.S. ports worsens. This is the result of increasing delays at terminals, drivers unionizing and drivers leaving the harbor business.  The M-580 service was diverting hundreds of containerized truckloads per week onto a tug/barge. When it shuts down, there will be added trucks  and pollution on the I-580 freeway. This freeway is a major freight corridor linking Stockton area distribution centers and agricultural exporters to the Port of Oakland and the San Francisco Bay Area.

Trucking executive Joe Antonini, president of Antonini Enterprises in Stockton, says that the M-580 service allowed truckers, trucking companies and shippers to avoid delays at the Port of Oakland. Local truckers could make multiple container pickups and deliveries at the nearby Port of Stockton and allow the barge to transport containers to and from Oakland on the Sacramento River. Stockton is 75 miles from Oakland. There are 7,000 trucks per day traveling along the I-580 and 205 freeways, according to the Port of Stockton.

Antonini said it was only possible to make one truck trip to Oakland per day from the Stockton area on I-580 and that delays picking up or delivering containers at the Port were as long as five hours. He saw no prospect for any improvement at the Port of Oakland and argued that the M-580 service improved trucker and driver profitability by increasing the number of daily pick ups and deliveries.

LOADING AND UNLOADING COSTS

Loading and unloading costs contribute to 86% of the waterborne transportation cost per container rate. This conclusion is based on data provided by a source familiar with the service’s operations. The costs vary depending on container loads. However, in a best case scenario where the barge is nearly fully loaded and carrying 200 containers per trip, the source provided the following cost breakdown:

• Port of Oakland container handling cost is around $170 per container
• Port of Stockton container handling cost is around $140 per container
• Tug/barge operations is about  $50 per container
• A total cost of transporting one container by water between Oakland and Stockton is $360.

Thus, total loading and unloading costs are $310 or 86% of the M-580’s waterborne freight rate.

In addition, users of the M-580 service must factor an additional $100 per container for trucking charges from the Port of Stockton to and from the distribution centers and other customers in the San Joaquin area, according to the source.

Thus, in a best case the M-580 cost is $460 per container versus about $491 (including fuel adjustment) for trucking the container to and from Oakland, the source said.

This small difference – subject to many variances – did not make the tug/barge service overwhelmingly competitive with trucking.  Furthermore, as the M-580 service struggled to gain container business, it operated with less than 200 containers per voyage making the service more costly than going by truck.

An added problem was the M-580 service only utilized  a one way charge between Oakland and Stockton. The competing  truck charge included delivering a loaded container and returning an empty container. This added cost was being addressed. A large ocean carrier,  Mediterranean Shipping Company was importing so many containers into Stockton on the M-580 barge that it could offset the cost of returning empty containers. However, this model began to break down over the last several months when the Port of Stockton cut back on its service. It caused  exporters to stop using the service and reduced demand for the containers going  back to Oakland on the barge, according to the logistics source. This  made the service more costly.

A stevedore familiar with California container handling operations said that the $310 per container costs charged at Oakland and Stockton could have been cut by 50% based on a more efficient operation. This slimmed down operation was possible even within work rules established by the Pacific Maritime Association and unionized longshore workers represented by the International Longshore and Warehouse Union (ILWU).

If the stevedore is correct, then the M-580 service might have cost $205 ($85+$70+$50) plus $100 short distance trucking equals $305 versus $491 for the trucking cost.

ILWU OPPOSITION TO MARINE HIGHWAY

The ILWU should have been an ally for development of the marine highway service as it generates new jobs at smaller ports and should not adversely impact jobs at bigger ports.

There is a precedent for this type of labor-management cooperation. In 1960, under the leadership of then union president Harry Bridges, the ILWU agreed to a mechanization agreement  (the Mechanization and Modernization Agreement) with the Pacific Maritime Association that increased productivity at West Coast ports. The agreement facilitated development of new containerized cargoes and made Pacific Coast ports the most productive in the United States. Longshore workers were compensated by higher pay and severance benefits.

Unfortunately, the leadership of the ILWU has expressed opposition to the marine highway. The current president of the ILWU, Robert McEllrath told a reporter at a Propeller Club luncheon in Oakland in 2013 that he was opposed to “short sea shipping” as the marine highway is generically called.  The logistics source said that he was told by an ILWU official that the union was not opposed to the M-580 barge service.

An ILWU position paper entitled ‘The Case Against Short Sea Shipping,” explains the union’s opposition: “Most longshore workers, particularly those of us registered in small ports, have heard the rhetoric associated with short sea shipping (SSS), sometimes referred to as marine highways….The Coast Committee, supported by the Coast Longshore Division Caucus, opposes the United States government’s usage of scarce tax dollars to promote and subsidize SSS in the north/south movement of containers on the West Coast of the Americas. Such water trade movement, by its very nature, cannot compete economically with truck and rail (even if subsidized) and will only serve to further drive down our sector’s wages and our working conditions. It will establish the framework for non-union and non-ILWU predatory union challenges to the Coast Longshore Division’s jurisdiction.”[1]

In October 2012, a dispute with the ILWU local in Stockton delayed the start of the M-580 service by eight months. An unnamed ILWU official representing Local 54 told the Stockton RECORD that the union objected to the attempt by the stevedoring company at the time, Ports America, to reduce the cargo manning of the barge service, compared to other maritime ship operations in Stockton, by 50 percent and “if the union gives in on this thing and someone gets killed, then we’re responsible.”

The service eventually commenced in June, 2013. A crucial eight months was lost that could have allowed the Port to reduce costs and improve service. The high costs for loading and unloading the M-580 service suggest that the Port did not win significant concessions from the ILWU.

As a result, productivity was low and costs were high. Crane operators were only processing 8 container moves per hour utilizing the Port’s Liebherr Mobile Harbor cranes, according to deputy Stockton Port director Mark Tollini. Tollini admitted the 8 moves per hour rate was much lower than at other U.S. ports using the same crane. One U.S. terminal operator reports an average of over 16 moves per hour on the Liebherr. A New Jersey terminal operator was observed doing over 30 container moves per hour on the Liebherr.

In its first year of operation, the Port of Stockton said, the M-580 service generated over $4 million in income for harbor workers, primarily ILWU longshore workers. When the service shuts down, this income will be lost.

CONCLUSION

The Port of Stockton and the Mediterranean Shipping Company may still be able to negotiate an agreement to save the M-580 service, if they do so before the Port’s September deadline.