Market Overview

From Assembly Bill 5 To COVID-19

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From Assembly Bill 5 To COVID-19

A West Virginia senator got up to speed on a boatload of issues important to California ports and truckers in a video meeting hosted by the Harbor Trucking Association (HTA) this week.

Although she represents West Virginia, Republican Sen. Shelley Moore Capito casts votes that impact West Coast ports and intermodal providers as a member of the U.S. Senate's Environment and Public Works, Commerce, Science & Transportation, and Appropriations committees.

Port of Los Angeles Executive Director Gene Seroka dove in and told Capito during Tuesday's meeting that it's time to spend money piling up in the Harbor Maintenance Trust Fund. 

"We currently have a bank account approaching $10 billion. While some legislators felt that needed to be held for a rainy day, I would advocate that we're at that rainy day," Seroka said.

Money collected from the Harbor Maintenance Tax (HMT) feeds into the trust fund and is divvied up for port dredging projects. Seroka is far from alone in his criticism of the tax fund. All witnesses took issue with the HMT at a House subcommittee hearing in Washington last June.

"The ports of Los Angeles and Long Beach collect on an annual basis about $300 million in tax that we remit back to the federal government. In return, we get between $3 million and $5 million to use for our harbors, channels and water work that must be done at these ports to keep the depths and cargo flowing," Seroka said, suggesting "every dollar collected from customers should go back to the ports to ensure that we're really getting to use those funds as an investment on the dollars that our customers have paid in."

The HTA is a coalition of intermodal carriers serving U.S. West Coast ports in LA, Long Beach and Oakland, California, and Seattle and Tacoma, Washington. Seroka said the HMT hurts the Washington state ports as much if not more than those in California and asked for the Senate's support to help increase the competitiveness of U.S. ports.

"Our friends to the north in Seattle and Tacoma feel like they are getting hit every day by their neighbors to the north in British Columbia that do not have a tax in position like this. We have seen cargo flight from the state of Washington to BC on a regular basis, which makes those folks less competitive on average by about $200 per container and that makes a big difference, including the fact that the Canadian railroads have the ability to create pricing through subsidy. It's much more attractive than the American Class I railroads. So those two things combined are hurting our ports in the [Pacific Northwest]," Seroka said.

Capito took note of the $10 billion in the HMT Fund. "If we used it all, we'd have a heckuva lot of people working," she said.

Seroka responded, "That's right and we consider ourselves job multipliers at these ports. … Here in Southern California, one in nine jobs in our five-county region, more than a million people, go to work every day with jobs related to this port. And ports around the nation have similar stories about the economic impact of the jobs and the workers that surround their properties."

The Shipping Act 

Weston LaBar, executive director of the HTA, told Capito that the Shipping Act "has not been addressed since the early 1980s."

The No. 1 point of contention has been "around equitable detention and demurrage — essentially fees for not returning or picking up containers from a terminal within the allotted time that was given," LaBar said. "Our friends at the Federal Maritime Commission, led by Commissioner Rebecca Dye, have passed as of last week an interpretive rule."

The FMC's new rule determines how the agency will assess whether ocean carriers' and container terminal operators' demurrage and detention practices are reasonable.

"But I think to really make it work we're going to have to take a look at some provisions of the Shipping Act," LaBar said. "Some are very basic. When is a container available? Thirty years ago, it was available when it came off the ship. I would argue it's no longer available when it comes off the ship because we need an appointment to get it," he said. "For us, now that we have an interpretive rule from the Federal Maritime Commission, we have the groundwork to actually take a look at the Shipping Act."

Revisions to the Shipping Act of 1984 have been few and far between — through the Ocean Shipping Reform Act enacted in 1998 and as part of the Frank LoBiondo Coast Guard Authorization Act of 2018.

"The fact of the matter is many of the policies and procedures were put in place when we had a very vertical-ish supply chain" controlled by the ocean carriers, LaBar said, explaining now there are alliances among container lines, independent chassis equipment providers and terminals that may be owned by a group of private equity firms. "You may have a pink container you're picking up but it's coming on a blue ship and it's heading toward a green terminal. Trying to keep all those color-coded items in check is very difficult for many of our members."

Assembly Bill 5

California's Assembly Bill 5, which was to go into effect in January, in part limited the use of truck drivers as independent contractors. The California Trucking Association was among the plaintiffs that sued the state, and a federal judge granted an injunction preventing enforcement of AB5.

"This is a huge issue for us. Eighty percent of the men and women as truck drivers in our industry do so independently and do it by choice," LaBar said. 

He called the PRO Act, the Protecting the Right to Organize Act, "essentially the federal version of AB5."

"If you want to be independent, great. If you want to be an employee, great. If you want to be in a union, that's fantastic as well. We just think you should have all those opportunities and the PRO Act would take away that choice and it would spurn entrepreneurism in this industry," LaBar said.

Although the PRO Act passed in the House in early February, Capito does not expect it to sail through the Republican-controlled Senate. 

"I would say in the Senate, as it exists today, this doesn't have a prayer," she said.

Clean trucks

LaBar told Capito that the California Air Resources Board (CARB) "decided during this pandemic that they were going to move forward" on tougher truck emissions rules. 

CARB last week released a stricter version of its electric truck sales standard. If the standard is adopted, at least 20% of trucks on California roads would be electric by 2035. Originally, 4% of trucks were to be electric.

LaBar said the stricter Advanced Clean Truck rule "could create a difficult business situation, really hampering recovery [from the coronavirus pandemic], not just for the trucking industry but the entire supply chain coming in and out of California."

Capito said she wasn't optimistic that the federal government could influence CARB's actions.

"I think it would be a really heavy lift and I don't know that the will of the Congress is to fight this one out on a state issue," she said, suggesting that perhaps measures could be implemented gradually or equipment rebates could be offered.

Seroka said, "The cost of these vehicles in the next generation of cleaner equipment is just astronomical," about $225,000 per unit.

"The driver or small company will have to pay a state income tax on the entirety of that sales tag," he said, adding there will be a "double-barreled effect. The driver or company individually will pay income tax on the value of grants or incentives that are given to them."

Seroka said while a pilot of a hydrogen fuel cell electric truck at the ports of LA and Long Beach has been "great," those prototypes cost about $1 million apiece.

"Our twin ports represent only about two and a half weeks' worth of annual heavy-duty truck production in North America, and by state law, we only buy our trucks once every 13 years," he said. "So to the Peterbilts, the Freightliners, Mack Trucks of the world, we're not really an attractive customer yet.

"We've got to find ways — and one of them we believe is a manufacturing summit I've asked the governor to convene — to bring in these companies, show them what we need, not by regulation but rather by partnership, and how we could become a better customer in the future. Does that mean it's a market-maker approach? Are we the first entree to many other submarkets? It could be we band together with ports in certain areas or across the West Coast as a whole. So there's a lot more to this other than just saying, ‘Hey, we want a greener truck out on the roads,'" Seroka said.

Port Optimizer

Capito spoke to the HTA on Tuesday from her office in Washington, where she had returned as COVID-19 stay-at-home restrictions were being lifted across the country.

"I think everybody is really anxious to get back to work and get the economy working again," she said. "Nobody thinks it's going to be a V bounce anymore. Everybody believes it's going to be more of a U and we're gradually going to come out of it. But I would say by June 1 we should really have a good indication that we can begin to see life as normal at the end of the tunnel."

The Port Optimizer, which provides online access to LA terminal and container information to trucking and logistics companies, was touted as a way to help U.S. companies get back up to speed.

"As we come out of this pandemic and we begin to open up the country and prop up our American companies to get ready to do business again, if we had one lens by which we could see the entire country, where all these containers are located, where the trains are, where the ships will be and we could speed these products to market, from our agricultural companies, our beef, pork and poultry firms to the folks who are making the big John Deere equipment, International Harvester and we could look right over the top of the United States and we could zip all this cargo right out of the country or domestically to its place of sale, we could get this thing moving in a very fast fashion," Seroka said.

"Unfortunately we don't have a lot of entrepreneurial spirit within our port community nationwide," he continued. "The ability to connect all of these modes is very, very inexpensive. We have the ability to create standards right away, have underlying service providers that are American companies, with choice involved, and have this data collected inside the market so we could make great decisions."

He said visibility created through the Port Optimizer could "get this economy jump-started again with American companies. I could commit to you that we'd be moving in lightning time."

 

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