Hamlet is alive and well in San Pedro

Ship in the Port of Los Angeles LA waiting for resolution to US-China trade issues

Working together, trade wars and cyber threats are all on the agendas of the two ports which comprise the massive San Pedro complex, as Martin Rushmere discovers.

To some observers, Long Beach and Los Angeles ports' denials over the last 15 years about a closer business relationship brings to mind "The lady doth protest too much" from Shakespeare's Hamlet.

The Clean Air Action Plan partnership has been an outstanding success and industry expectation was that this was the limit of closer cooperation. Suggestions and queries about
steps to a business tie up have met an official "no". Now the two are proposing a broader joint effort, although not in a straightforward commercial and business sense.

Executive director at Los Angeles, Gene Seroka, says the memorandum of understanding between the two covers efficiency improvements at "landside transfer points" (presumably dockside and rail loading/unloading), cargo transfer predictability, supply chain connectivity, workforce development, training, cyber security, and "metrics" (again presumably, KPIs such as vehicle turnarounds and crane moves per hour).

The respective boards of harbour commissions must give their approvals / recommendations and the Federal Maritime Commission must give its blessing. Gene Seroka stresses that the proposal is distinct from that between Washington's Seattle and Tacoma (the Northwest Seaport alliance), where revenue and traffic are shared.

Mr. Seroka said: "The fight is not Los Angeles versus Long Beach for that last container. It’s about keeping cargo here in southern California. That is the battle that we face - price competitiveness, labor cost, environmental cost, regulations."

Industry executives welcome the proposal, saying it is overdue, with developments over the last few years giving clear signs of changes in cargo handling, traffic patterns and port efficiency. They also say that closer business cooperation is the way to go if the San Pedro ports want to stop the growing leakage of cargo.

Consultant Dan Smith, a principal at The Tioga Group, says: "Long Beach and Los Angeles still view each other as friendly competitors. I do not see anything like Northwest Seaport Authority in the works.

"What do industry critics want the ports to do?" he asks, adding, "What business matters should they coordinate on? I do not see the two port organisations taking divergent directions on anything of consequence. Remember, they are landlord ports. They can’t make vessels run on time, control demurrage claims, or widen the freeways. Most of the improvements and changes industry participants are seeking, such as improved appointment systems' and faster truck turn times, are on the terminal level, not at the port level."

Mr. Smith continue this theme, stating: "Likewise, concerns such as chassis supply during the “frontloading” earlier this year are not under the control of either port. They have certainly not ignored loss of market share to other ports. On the port level, Los Angeles started the GE (now WABTEC) Port Optimizer information system a couple years ago, and Long Beach is now part of it. Long Beach and Los Angeles now have the two most advanced terminals in North America and they are spending serious money on rail improvements."

Mr. Smith also points out that most of the shift to other coasts has been driven by changing trade patterns (e.g. sourcing from Vietnam and India rather than China), the new Panama Canal locks, and strong economic development in the Southeast.

"If developers of new factories and distribution centers have a choice, they build outside California because California has become too difficult and expensive. The ports can’t control that," he says.

For the moment, the ports are more concerned about the effects of the trade war – about which there is no difference of opinion. Gene Seroka has presented a pessimistic scenario of how it will play out for the ports. He said that 55% of cargo that comes into the port has a tariff or tax on it and 98% of Chinese goods have tariffs.

China was the largest foreign trading partner with the port last year, with $153 billion in cargo value. Its second-largest trade partner was Japan, with $36 billion in cargo value.

To assertions that other countries will make up for the loss of China volumes (Vietnam's TEU cargo in 2018 rose 8% to 13 million), Mr. Seroka adds perspective. "It takes seven Vietnams to make a China." He confirms, saying that for every shipping container the port gains from other countries, it loses two and a half from what it got from China.

"We don't see a way out of this until (the U.S. and China) come to an active negotiated settlement," the Los Angeles executive director says. "Realistically speaking, the growth is in southeast Asia. I think we're well-poised to capture that growth."

He says the White House has very little interest in Southern California's problems. "During the last administration, I had four cabinet members' numbers on speed dial. Today, I find it very difficult to make it to even mid-level staff."

In a letter to the US Trade Representative agency, he said 50% of exports by value, 50% by tonnage and 78% by container volumes are at risk of China's retaliatory tariffs.

According to the Pacific Maritime Association (which represents employers at the ports), the two ports in 2003 accounted for at least 55% of discretionary imports from Asia,
which fell to almost 45% in 2018.

An equally alarming issue, which everyone seems to have glossed over, is the return of militancy by the ILWU dockworker union. With very little warning, the union objected strongly to automation at the Pier 400 APM terminal at Los Angeles. This had been accepted and established in the last contract with the ILWU, due to end in 2022.

The port is legally and financially a division of the city council and industry speculation is that the union piled unspecified pressure on City Hall, which led to Mayor Eric Garcetti abruptly ordering the port to halt plans for automation (even though the terminal is owned and operated by commercial companies).

A workforce "training programme" will be established for the local branch of the union and, the union's biggest victory, automation will be delayed until at least July 2022. Of wider
concern is that the California legislature is debating a proposal for all projects in the state involving automation to be decided on a case-by-case basis.

The resulting "resolution" is a familiar example of public relations spin. Julie A. Su, California Labor Secretary, spoke of "career mobility" and guaranteed "economic security for
California’s working people.”

Jim McKenna, head of the Pacific Maritime Association said: “This will help longshore workers prepare for the port jobs of the future.” Cynics note that usually when the PMA tries to do this, the dockworkers' union finds new objections and threatens strikes.

The two ports are taking a more recent threat, cyber security, seriously. Los Angeles has issued a request for proposals for a "Cyber Resilience Centre" which customers will use to identify and share security threats and get information after a cyber attack.

The centre will include two ISP connections with a minimum of one gigabyte per second capacity each, a video wall with at least six monitors plus video wall controller, and include machine learning/artificial intelligence capability.

Confusingly, the centre will be separate from the existing Cyber Security Operations Centre. Long Beach foresees itself as being junior to Los Angeles for at least the next 20 years. Its draft master plan covering 2020 to 2040 (issued in July this year), forecasts its container throughput as 18.5 million TEU, 45% of the combined total of 41.1 million TEU.

"Container capacity is approximately 13.6 million TEU per year, which is roughly double the throughput in 2017, says the port. "The is sufficient capacity to accommodate 45% of the demand forecasted for San Pedro Bay up to year 2032."

Long Beach acknowledges that the two ports will need to deal with vessel cascading. It confirmed: "Studies indicate there will be a cascading effect on the size of container vessels between 10,000 and 16,000 TEUs, which will affect the number and capacity of terminal services. In the long term, future navigation needs may require accommodation of the emerging 20,000TEU - 24,000TEU vessels."

Los Angeles is set to remain the main container port for some years yet, but Long Beach and New York/New Jersey are slugging it out for second place. The East Coast port handled more boxes for two months, but Long Beach reasserted itself later.


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