Driven by a late-year crest of exports, California’s undermined trade competitiveness, amplified by the recession, ended in 2010. Surging volumes erased much of the approximately 20 percent loss in containerized volume at the state’s ports since their 2006 peak.
But let’s not start patting ourselves on the back just yet. While the recession’s end and faster-than-expected export growth have buoyed California’s trade and transportation industries, we’d be fooling ourselves if we let this volume growth lead us to believe our long-term competitiveness issues are resolved.
In fact, just the opposite is true; reclaiming our market share on the West Coast won’t occur through future economic growth alone.
We ignore the long-term threats to our trade dominance at our own peril. Our challenges are rooted in this fact: An estimated 75 percent of cargo moving through California is discretionary, subject to diversion even with small increases in relative costs. Yet, our port infrastructure and our environmental regulations were financed through the assumption that cargo would never leave and always grow at what now appears to be unsustainable levels.
The Panama Canal’s expansion and infrastructure investment in ports throughout North America aimed at luring intermodal volumes away from the West Coast are well-known and don’t bear dwelling on, except to point out that 2014 is only 36 months away.
That’s also the year California’s ports will fully implement the world’s only large-scale cold-ironing rule, estimated to cost the industry a collective $1.8 billion. It’s also when Alameda Corridor debt service is scheduled to jump by several hundred millions of dollars a year, an additional cost financed on the back of revenue at the ports of Los Angeles and Long Beach.
All of this means the time is now for California’s policymakers to finally demonstrate a commitment to long-term trade competitiveness and put the tools in place to increase trade volumes in the long term. In practical terms, the state should demonstrate this commitment by holding the line on any new, additional costs and by creating additional incentives to ship through, and invest in, California’s ports.
Holding the line on supply chain costs falls under the basic principle of treating a sick patient: “First, do no harm.” For California’s trade to recover, ports must refrain from imposing new fees, mandates or environmental burdens on their customers. It means making sure no new container fees are contemplated by the state Legislature. It means rejecting higher pilotage tariffs. It means not enacting new environmental rules before the current regulations — and their more than $5 billion price tag — are fully implemented.
It means letting terminals and truckers work through logistics challenges privately without new state mandates on terminal operations. And it means not allowing any more raids on port funds by local jurisdictions looking for a fast buck.
And that’s the easy part.
We also need to create additional incentives for investors and shippers to increase cargo volumes over the long term. There’s plenty California can do, including:
- Enact a state tax credit bill, based on Louisiana’s 2009 legislation, that would incentivize and subsidize investments in trade-supporting infrastructure that will help make our ports more efficient and reliable while reducing emissions.
- Extend this tax credit directly to California’s importers and exporters.
- Start construction of large infrastructure projects, such as the Gerald Desmond Bridge, as soon as possible.
- Streamline our project approval and environmental improvement processes so new projects can get off the books and into construction.
- Meaningfully re-establish the states’ trade promotion functions without the junkets and photo ops.
- Spend already identified state funds on cold-ironing infrastructure without additional strings and matching requirements.
- Fight for our fair share of federal Harbor Maintenance Tax revenue and customs district fees. If we don’t, our competitors will.
We can work to take these steps to recommit ourselves to growth and success — or we can do nothing, rest on our laurels and risk stunting our ability to finance new infrastructure and environmental mitigation and create thousands of new trade and logistics jobs.
The choice is clear. Now’s the time it must be made.
Mike Jacob is vice president at the Pacific Merchant Shipping Association in San Francisco. Contact him at email@example.com.