China, IT and regulations remain focus of US west coast ports
West Coast pressures are making themselves felt across the port industry, at a time when US Congress treats maritime regulations like a Christmas tree, writes Martin Rushmere
New York/New Jersey, which has remained behind Los Angeles and Long Beach as the country's third busiest container port for the past 27 years, will have overtaken Long
Beach for loaded container traffic by the end of this year.
This has been predicted for some time by industry watchers, and is the clearest indicator yet that pressures building up on the West Coast are now taking their toll. A combination of the enlarged Panama Canal, ever-tightening environmental/pollution rules, tariffs and trade wars, periodic congestion, higher costs of using the terminals and aggressive dockworker trade unions is causing the once unassailable walls of supremacy to crumble.
Shipping lines are also tired of holding their breath over clearly unachievable California regulations. Ballast water has been an example, with the state setting vessel discharge limits way beyond practical levels. Although the authorities have backed off, the industry knows that authorities will come up with other unrealistic regulations.
These issues, which are probably likely to continue indefinitely, have been shoved aside by the trade war with China. While there is definite evidence that this is bearing down
on the West Coast, a much longer term trend puts the trade war in greater perspective.
According to the pacific Merchant Shipping Association: "The five major West Coast ports have seen their collective share of the China import trade entering U.S. mainland seaports diminish over the past fifteen years from 75.8% in 2003 to 59.4% last year." Exports are suffering to a much smaller extent, as China accounts for only 7 percent of the US total compared with 20 percent of imports.
Jitters over the trade war have had their predicted effect on an import surge at the two Southern California ports and that has led to congestion at distribution centres and warehouses. Leasing rates for storage have risen sharply in Southern California and road haulage rates have also firmed sharply.
Yet in contrast to the traditional pattern of congestion, the bottlenecks have come when import volumes are falling at the two ports. This is a reflection of the uncertainty and confusion over both the extent and duration of the tariffs that the White House has imposed.
Some importers are stocking up as much as possible in the shortest time possible, while others are trying to mitigate the risks by going all out on the import accelerator and then easing back.
The uncertainty has also led to unexpected side effects. The Texas border town of Laredo in March outstripped Los Angeles as the busiest port of entry into the US with $20 billion in trade, which compared with $19.6 billion for LA.
Thankfully for the supply chain, much heavier reliance on IT and automation means a more efficient handling system. At the two Southern California ports, turn times for container cargo vehicles at the automated terminals of Long Beach Container Terminal and TraPac were the best in April of all similar-sized terminals, at 32 and 51 minutes, respectively. The average for all terminals was about 80 minutes.
Greater IT involvement coupled with expansion projects has certainly brought dividends at California's third port, Oakland. Average container vehicle transaction times were 62-to-72 minutes in May at marine terminals, down from a high of 92 minutes in January.
Maritime director John Driscoll attributes the improvement to the addition of gate night shifts to ease daytime terminal crowding, appointments for vehicles to pick up cargo and the completion of a 2-year, $67 million expansion at TraPac.
“It's an encouraging sign for all of us,” says John Driscoll. “It indicates that we're operating more efficiently for the benefit of the global supply chain.”
Oakland has been much less affected by the trade war, partly because exports, mainly agricultural, almost match imports. Containerised exports rose more than 8 percent in May, mostly to Asia, over the same month in 2018.
“Logic tells us that at some point, tariffs should drive down cargo volumes because they're making international trade more expensive,” affirms John Driscoll. “But our customers
have so far defied conventional wisdom by finding new markets for their products.”
Export growth centered on Vietnam, Taiwan, South Korea and Japan.
Mr Driscoll has told the Port's Efficiency Task Force that tariffs are squeezing customers who ship through his port. Fallout from an on-going U.S.-China trade war could include reductions in containerised cargo volume, he indicated.
“Our customers are impacted by tariffs,” the port executive said. “We're hoping we can get through this period because we believe the future can be bright.”
Seattle and Tacoma have now also realised the rewards to be gained from offering heavy vehicle operators more flexible gate hours. The Northwest Seaport Alliance has set aside $2 million to be paid to terminal operators for operating extended gate hours. A fee of $38 will be levied for each loaded export container being taken to a vessel, regardless of when the container arrives. "It takes the entire supply chain to make the Gate Efficiency Program successful as a long-term strategy in keeping our gateway competitive,” confirmed Dustin Stoker, the alliance's chief operations officer.
The start date is July 1, going through to December 31, 2020.
In what is seen as an imaginative solution to a potentially serious problem for Seattle, an agreement has been reached to develop the dormant Terminal 5 to handle multiple
14,000 TEU vessels and increase throughput significantly. The impasse has been overcome by a combination of tenants changing leases at other terminals in return for a slice
of the action at the terminal, which will cost $340 million - the biggest development since the Alliance was formed in 2015.
Credit rating agency Moody's calls the scheme a "credit positive". The agency rates both Seattle and Tacoma as A1-stable.
China's tariff retaliation has affected other West Coast ports. Soybean exports to China from the Port of Longview are off by 65%. The port says delayed shipments because of bad weather are part of the reason, but the trade war is the main cause.
Wheat and corn remain strong and have strongly supported the port. Grain represents 25% of the Port of Longview's operating revenue, and wheat and corn remain strong
commodities for export, officials said.
According to the biggest grain exporter in the Pacific Northwest, United Grain Corporation, the trade war will mean about 130 fewer shiploads of grain this year from the region.
Environmental issues are equally as important in the Pacific Northwest ports as in California. The Oregon Department of Environmental Quality has held up the Jordan Cove natural gas export project by withholding a water quality certificate.
The department says it is not convinced that the project "will comply with applicable Oregon water quality standards and because the available information shows that some standards are more likely than not to be violated."
The scheme was first mooted 15 years ago and has been through a number of lifecycles, with changes of investors, types of construction and capacity. Jordan Cove is being allowed to resubmit its application and resume negotiations with state authorities.
A different scenario is being played out in Washington, where the state is blocking the development of the Millennium Bulk Terminal coal export project in Longview. Wyoming, where most of the coal is coming from, has passed a law allowing the state to hire a private lawyer to sue Washington.
But this is not a case of whistling in the dark as the White House has issued an Executive Order scaling back the conditions on which state governments can block energy-related
The political philosophy is that energy is crucial for the US economy and efforts to limit it will affect the whole economy, coupled with hints that such actions are anti-American.
At the small Washington port of Everett, a legal tussle is being played out over property ownership. The port has declared it is taking over a disused site owned by Kimberley Clark (producers of face tissue products), while the owners say they have made an agreement to develop a fish processing centre. The port wants to develop both private and commercial harbour facilities.
A new set of regulations on computer and internet security implementation enforcement is causing head-scratching among ports while proving an embarrassment to the Coast
Guard, responsible for enforcement and implementation. "Bizarre" is how a maritime analyst describes it. "The regulations were slipped into the Federal Aviation Administration Bill last year for no sensible reason. Whoever drafted them assumed that seaports are the same as airports and applied a one size-fits-all approach."
One cause of confusion and embarrassment is the section that stipulates that the Coast Guard, together with the government department overseeing "critical infrastructure protection, cyber security" and related issues must develop a "maritime cyber security risk assessment model" in conjunction with the National Maritime Security Advisory Committee, and subsidiary regional committees. (The law was passed in October 2018 and the Coast Guard has one year to comply.)
Bundled with other aspects of container and terminal security, the cyber security legislation comes under the Maritime Security Improvement Act of 2018. The problem is that, following the fashion of the White House not bothering to fill government posts, the security committee no longer exists. Officially, it has "lapsed", meaning that terms of office have ended and no replacements have been appointed. What's more, it is unlikely that any replacements will be appointed, according to industry analysts.
Maritime officials criticise the law as being a confusing mix of general and vague requirements for more efficient methods and closer cooperation with the federal government. An
example of this is a section that calls for "a plan for detecting, responding to, and recovering from cyber security risks that may cause transportation security incidents."
Adding to the confusion is the stipulation that the U.S. Coast Guard must draw up a plan on "security and response in the port environment when a cyber-caused transportation security incident occurs, to include the use of cyber protection teams."
Other regulations already refer to this and there is considerable uncertainty about the need for the U.S. Coast Guard to be involved.
Ports' official responses to the effect of the regulations are terse and non-committal. "The U.S. Coast Guard headquarters in Washington, D.C. is developing guidance on the cyber security portions of the FAA Reauthorization Act of 2018.
Port of LA staff meets regularly with the U.S. Coast Guard and we will be advised when the U.S. Coast Guard finalises its guidance on this matter.
A spokesperson for the U.S. Coast Guard says: "We are aware of section 1805 of the FAA Reauthorization Act of 2018, which clarifies and emphasises the need to plan for cyber security risks at maritime facilities. The U.S. Coast Guard is responsible for implementing that provision. Paragraph (a) of section 1805 calls for the development of a maritime cyber security risk assessment model, which the U.S. Coast Guard is working on. We are communicating with port partners and have not encountered any substantial confusion."
Why the regulations were slipped into an aviation law stems from familiar Congressional wrangling. Maritime officials say that the U.S. Coast Guard has been keen for some time to get more efficient coordination between itself, terminal operators, port authorities and the government on IT security. At the moment ports and terminal operators work independently and there has long been a need for more unity and purpose.
However, when the U.S. Coast Guard asked Congress to get busy, the response was that nothing could be done before 2020 and the only way to get immediate action was to be included in the FAA law.
"The maritime section became a Christmas tree for various lawmakers to hang their own ornaments on," says a maritime official, "without knowing what is needed." Others see the regulations as more confirmation that Congress has too much time on its hands and meddles in industries that it knows nothing about.
The U.S. Coast Guard and ports are paying lip service to the regulations, hoping they will just go away. Says a maritime legal analyst: "The legislation is badly drafted and needs to be completely rewritten."
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