The situation at California’s ports remains grim. Cargo volumes continue to drop at alarming rates. The Port of Long Beach reported the other day a 43% decline of imported cargo for February when compared to the same time period last year. The Port of Los Angeles experienced a similar decrease, continuing their downward spiral with a reported decline for imports of 36%.
The declines in volume translate into a massive drop off in work for longshoremen, truckers, railroads, warehouse workers and others in the supply chain. With close to 500 container ships now idle and not in use, predictions for cargo volumes for the rest of 2009 remain extremely pessimistic.
In addition to the negative impacts of the worldwide recession, Southern California ports have been experiencing a backlash from cargo owners for the development of container fee proposals along with attempts at re-regulating the port trucking industry. This rejection has manifested itself in the diversion of cargo from California ports prior to the economic collapse – something which continues to this day.
To the Ports of LA and Long Beach’s credit, they have recently recognized that they cannot take cargo interests for granted and have begun the process of postponing or eliminating some of their fees and programs and are offering short term incentives to entice cargo through their ports. It is a good start, and we are hopeful that it overcomes the existing ill will and long term barriers previously created by the ports.
While the Southern California ports move away from these flawed policies, the Port of Oakland is moving in the opposite direction – at great peril to their long term viability. The Port is debating the imposition of a container fee. The Port is in a difficult position given that it has extremely limited financial resources – demonstrated last year in layoffs of port personnel (with rumors of more layoffs in 2009).
The port also recently received a draft “Economic Impact Analysis” for a proposed “Truck Management Program.” In essence, the draft report advocates that the port re-regulate the port trucking industry, done at greater expense to cargo interests and something that is rejected by the trucking industry (currently the subject of costly litigation before the Ninth Circuit Court of Appeals for a similar program adopted by the Ports of Los Angeles and Long Beach). The proposed truck program appears to be a political solution that is being advocated at the expense of commercial relationships.
The Port of Oakland faces other challenges as well. The Port is a “discretionary” port call for ocean carriers – which is a function of geography, small local population base, high pilotage fees, limited terminal space and rail capacity. In addition, a large part of Oakland’s business comes from agricultural exports – historically a strong point for the Port. But because of several years of drought and limited (or no allocation) of state or federal water to farms in the Central Valley, tens of thousands of acres of farmland will go fallow this year – decreasing export opportunities for the Port.
More importantly, the dramatic decline in ocean freight rates has assured that every container that crosses a dock in California today does so at a loss – requiring the supply chain to consolidate operations in the hopes of minimizing costs. Faced with operational limitations in a rapidly declining and more competitive market, the Port of Oakland’s proposals to raise its operating costs are an incredibly risky strategy.