California Ports Day – A Day of Recognition or Remembrance

John R. McLaurin
President of the Pacific Merchant Shipping Association

February 21 has been designated “California Ports Day.” For those of us in the shipping and cargo handling industries, it’s about time.

According to recently introduced Assembly Concurrent Resolution (ACR) 170, California’s 11 public ports are responsible for one-third of the state’s economy and jobs, accounting for more than $700 billion in revenue and more than 5 million jobs. Not mentioned in ACR 170 is that many of these jobs and the ports’ economic bounty are at risk.

California’s ports compete in a hyper-competitive global market. Importers and exporters have many trade gateways at their disposal, ranging from Prince Rupert, Canada, to Lazaro Cardenas, Mexico to multiple ports in Gulf and East Coast in which to ship their goods. None of these trade gateways impose California’s stringent environmental regulations. But, most of these ports and states promote themselves in an aggressive fashion, something California refuses to do.

While California ports have recently announced “record” years in terms of cargo growth, lost in the news is the realization that it took 11 years for our ports to surpass cargo volume levels achieved in 2006. During the past 11 years, ports outside California have had record year after record year, while California’s container ports (Los Angeles, Long Beach and Oakland) have lost market share and now lag behind growth rates found at competing ports.

At the same time, California’s trade community has lived through the enactment of regulations, legislation and policy directives aimed at reducing pollution and more recently, greenhouse gas (GHG) emissions. Coupled with voluntary measures and programs, the ports and the trade community have achieved impressive results, with massive reductions in diesel particulate matter (96% reduction from trucks and marine terminal equipment) and almost equally large reductions in SOx and NOx. The emission reductions represent successful collaboration and combination of innovation, regulation and voluntary programs. But, it cost the supply chain billions of dollars to achieve these reductions.

In spite of this progress, the next phase of proposed regulations is under way. It will require California’s supply chain to be zero emission, starting in 2022, with completion by 2035 – at a pace much quicker than other California industrial sectors.

Unfortunately for the Golden State, the industry’s transition to zero emissions will have little impact on climate change. Based on 2015 inventories, marine terminal equipment for California’s three container ports amounts to only 0.0747 of one percent of the state’s GHG emissions. But, the cost to reduce this already minuscule amount even further is estimated to cost several billion dollars – costs that will borne by a handful of marine terminal operators.

Ironically, after spending billions converting to zero emissions, marine terminal operators will then be subjected to fines or limitations on their business activity (facility caps) as a proposed regulation would hold them legally responsible for the emissions of trucks, trains, ships and harbor craft that utilize their facilities. This regulation, called an Indirect Source Rule, is being contemplated by the South Coast Air Quality Management District.

What is the impact of multiple layers of regulation and the costs they impose? How will they influence California port competitiveness and, with it, the inevitable loss of cargo and jobs to other gateways? What about the potential increase in GHG emissions for cargo diverted from West Coast ports to East and Gulf Coast ports through the Panama or Suez Canal because California ports are cost prohibitive?

No one knows because none of this analysis is being done.

In July 2015, Governor Brown issued Executive Order B-32-15, ordering state agencies to develop a “sustainable freight plan.” His executive order acknowledged the importance of freight systems, including ports, but sought a balance of emission reductions along with “…clear targets to improve freight efficiency, transition to zero-emission technologies, and increase competitiveness of California’s freight system.” The supply chain and shipping industry enthusiastically embraced this goal and directive.

Unfortunately, almost three years later, California is on pace to achieve only one of Governor Brown’s three directives. So, is February 21 a day of recognition or one of remembrance for California ports?

 

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