Refrigerated shipments are expected to grow along with the world’s middle class, but a representative for U.S. food exporters warns Southern California ports could lose some of their market share if they don’t fix a few problems.
“PierPass fees make it difficult for U.S. food exporters to compete globally,” said Peter Friedmann, executive director of the Agriculture Transportation Coalition. PierPass charges a fee to shippers dropping off or picking up containers at terminals in Los Angeles and Long Beach during daytime gate hours. The traffic mitigation fee increased from $100 to $120 per 40-foot equivalent container unit in August, an increase that many agriculture shippers can’t shoulder, Friedmann said.
“Reefer must operate on day gates,” he said during a March Webcast sponsored by The Journal of Commerce. “A lot of reefer cargo is coming from small growers and is coming straight from the fields. General cargo is handled in large distribution centers nearby that can more easily adjust to night gate hours and avoid the fees.”
He noted the fees have increased as the number of night and weekend gates has declined. “Ag exports have very thin (profit) margins, and that could be enough to lose a sale.” If the PierPass fees cannot be eliminated, he said calculations should be done to make the fees not a penny more than needed to run the gates.
“This is a serious challenge,” Friedmann said. “One major exporter who is a member of AgTC — one of the largest reefer shippers in the U.S. — has decided not to ship through Los Angeles or Long Beach because of the PierPass fee. That decision is a boon for other ports and a warning for Southern California.”
Some reefer shippers say the PierPass fee isn’t helpful, but wouldn’t be the sole factor in choosing what port to use for exports. “PierPass is part of the calculation, and every trader needs to keep it in mind,” said Lee Doud, senior vice president of Paramount Exports, a San Francisco-based company that imports and exports fresh fruit and vegetables. “If we can avoid the fee by using Oakland, we do. If we are using Southern California by choice, we try to turn the boxes at times when you don’t have to pay the fee.”
Because Paramount is dealing with perishables, it sometimes has no choice, he said. “Trucking from Southern California to Oakland costs more than the $120 PierPass fee,” Doud said. “And in the produce business, there are late loads that just got picked in the fields or a last-minute sales order. Southern California ports are too big, and the number of vessels that call there is too great to just quit using them.”
Sometimes that means adjusting and absorbing the fee. “We’re not going to lose a load to avoid the fee,” Doud said.
Shippers of frozen cargo have more opportunity to pick and choose what ports to use, according to Jeff Siewert, vice president of operations for Interra International, a Georgia-based company that sells meat, poultry and frozen vegetables.
PierPass is not a factor for most of his shipments, but “is just one in a list of things that make it easier to ship out of alternative ports,” Siewert said. “We end up shipping a lot out of Oakland.
“If you think about the thin margins on food, every little fee adds up. At some point, it reaches the level where you don’t have the margin to make the sale anymore,” Siewert said. “Unlike the often-used example, we are not shipping a container of iPods where such a fee is a minimal percentage.”
He said food shippers that want to be competitive optimize every cost they can. “Exports are largely discretionary cargo. In theory, we can send them through just about any port,” he said. “So you add up all the pieces of getting to the end-destination and decide what is the best way to flow the cargo.”
Minimizing costs doesn’t mean “hopping from carrier to carrier looking for the lowest rate that day; we’re looking at our entire chain,” Siewert said.
A major reason to use Oakland is because of logistics involved in transloading. Frozen meat and poultry is often shipped in rail boxcars and transloaded. “We have a transload service provider in Oakland that has a facility right across from the terminals. They transload the containers and dray them across the street, and we don’t have to worry about overweight containers.”
Southern California has many rail services, Siewert said, but the streamlined rail network going to Oakland improves chances schedules will be met. “Port congestion and port delays are especially harmful to exports like ours,” he said.
Port congestion is another point of contention for Friedmann. Containers can be delayed at marine terminals for a number of reasons, but the end-result is invariably a loss of business opportunities, he told the Pulse of the Port seminar sponsored by the Port of Long Beach.
When West Coast ports were shut down for 10 days in 2002 because of an employer lockout of longshoremen, confectioners in Japan and elsewhere turned to Turkey to replace the almonds that should have come from California. Growers in California still haven’t recovered the entire market share they lost in 2002, Friedmann said.
Delays at marine terminals can be very costly for perishables shippers. A container load of fresh pork sells for $175,000 in Asia, but if the shipment is delayed at a marine terminal for several days and the shipper has to freeze the pork to preserve it, the shipment will be worth only $50,000 in Asia, he said.
Chris Lytle, executive director at the Port of Long Beach, has been vocal in recent months about his desire to eliminate the PierPass fee by moving to a reservations-only system at the terminals. “It’s clear that a portwide reservation system would improve terminal efficiency,” he said. “I’m encouraged that the terminal operators are in agreement. We are working on developing such a system, and I’m optimistic that we can implement it in the near future.”
Oakland has become the country’s busiest port for reefer exports, but one official said the business has been coming mainly because of infrastructure investment decisions.
One factor at the Oakland port area is an overweight truck corridor that allows trucks of more than 80,000 pounds to legally haul goods to the terminals, according to Lawrence Dunnigan, marketing director at the Port of Oakland. “Price is important, but we look at the situation holistically: How can we position ourselves to be competitive and let our customers be more efficient?”
Dunnigan said port officials and staff members are studying plans on how to convert the Oakland Army Base into freight and logistics uses for the port.
“We have a real opportunity to develop and build it right,” he said. “Most of the frozen stuff is overweight — exporters load it heavy and bring it to the ports. We have the transload facilities here and it’s one of the factors why we are strong in that market. But the facilities we have are less than optimal. We are looking to get some economy of scale and expand the rail-to-terminal transload model.”
Transload facilities are available near most ports, he said, but are sprinkled throughout the area surrounding a port. “We’d like those facilities right here,” Dunnigan said. “The real estate on the Army base gives us the chance to do that.”
Bill Mongelluzzo, firstname.lastname@example.org, contributed to this report.
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