Shippers must remain vigilant if California’s ports are to recover

The Pacific Coast Council of Custom Brokers and Freight Forwarders Association, Inc. stages its annual conference – WESCCON – at this time of year to bring shippers up to date on the latest ocean freight trends and practices. It also gives industry experts a chance to speculate on “worst case scenarios.”

John McLaurin, president of the San Francisco-based Pacific Merchant Shipping Association (PMSA) was hardly surprised to address a question that is top-of-mind in 2016: “Will West Coast Ports Recover?”

“I am assuming that the question is referring to the congestion that occurred during prolonged waterfront contract negotiations which resulted in congestion, the diversion of cargo and damaged the reputation of West Coast Ports,” he said. “The short answer based on conventional wisdom and port press releases would be a firm yes”

He noted that publications like Logistics Management have recently reported that cargo volumes that had been diverted to Gulf and East Coast ports are making their way back to the traditional West Coast gateways. 

“There are multiple reasons for the return of cargo to West Coast ports ranging from congestion at East Coast ports, geography, faster transit time, cost, population and an extensive warehouse, distribution and rail service network,” he noted.  “However, the cynic in me would respond to the question by asking, ‘Recover from what?’”

Unfortunately, observed McLaurin, life is not static.  He said West Coast ports continue to face a number of challenges that threaten future growth and market share.  These challenges include an uncertain regulatory environment – and the associated cost of compliance; waterfront contract negotiations in 2016 – at least for the ports of Los Angeles and Long Beach; continued development of competitive alternative gateways, whether found in Prince Rupert, the Panama Canal, the Suez Canal, shifting overseas manufacturing locations with accompanying changes in supply chains and ongoing concerns about reliability.

“In addition, we are a victim of our own success – or luck,” said McLaurin. “We work in a supply chain system that, while in many instances is extremely innovative, at its core it remains focused and based on the unannounced random pick-up and delivery of cargo.  Should cargo volumes continue to grow through West Coast ports, we will eventually choke on our own success – or, restated a different way, choke on our own stubbornness.”

Absent a willingness by all elements of the supply chain to change, if we maintain our current culture and cargo delivery systems, our current practices will not be sustainable over time.

“Unless all of us are willing to take a hard and honest look in the mirror and are willing to be open about changing business practices throughout the supply chain, we are simply putting off the inevitable – more congestion, less reliability, higher costs, loss of reputation, diversion of cargo and fewer job opportunities. 

McLaurin said that in addition to “self-inflicted wounds,” California recovery will also depend on future environmental policies and regulations currently under discussion. 

“As part of the Governor of California’s plan to reduce greenhouse gas emissions 40% below 1990 levels along with a 50% reduction in the use of petroleum in cars and trucks from current levels by 2030, in late July of this year, Governor Jerry Brown issued an Executive Order, requiring various state agencies to work together,” he said.

According to McLaurin, Governor Brown has pledged to develop an integrated action plan by July 2016 that establishes clear targets to improve freight efficiency, transition to zero-emission technologies, and increase competitiveness of California’s freight system.

“The Governor’s policy directive will impact everyone that handles or receives domestic or international freight, including warehouses, distribution facilities, airports, airplanes, ports, trucks, railroads, ships, manufacturers, agriculture, retailers and final mile delivery,” said McLaurin.

PMSA cautioned, however, that this effort will be transformative and very expensive. 

“If drafted and implemented poorly, this policy directive will negatively impact everyone in this room that moves cargo through California and negatively impact the ability of California’s ports to compete with alternative gateways,” said McLaurin. 

Fortunately, the Governor’s Executive Order acknowledged the importance of California’s freight transportation system, noting that it is responsible for one-third of the State’s economy and jobs.  However, the development of a zero-emissions strategy for California’s freight system will require not only immense creativity by the private sector to overcome technological challenges in achieving zero emissions, it will also require an equal amount of creativity by state regulators in the formation of a public policy strategy to successfully transform California’s freight industry while ensuring that the State remains positioned as a global economic leader. 

“Alleviating and preventing congestion at West Coast ports and achieving an innovative and sensible Sustainable Freight Strategy in California represents a call for action,” said McLaurin. 

He told shippers to be fully engaged and to express their opinions. 

“Silence equates to acceptance,” he said. “Acceptance will lead to failure.”