The Los Angeles Harbor Commission Thursday delayed for at least two weeks a vote on a controversial proposal to adopt an annual general rate increase based on the consumer price index.
The board’s action gives shipping lines and terminal operators a little more time to formulate an action plan in opposition to an automatic GRI. The ports of Long Beach and Oakland are considering adopting the same plan.
The three container ports operate with antitrust immunity under an umbrella organization known as the California Association of Port Authorities. They normally prefer to address rate actions in unison under CAPA so no port will use its wharfage, dockage and similar charges as mechanisms for diverting cargo from the other California ports.
Los Angeles is the first of the ports to take up the new policy proposed by CAPA. The Oakland commission will address it next week, and Long Beach will follow. Under the proposal, California’s container ports each year would automatically implement a GRI using the CPI as the index for determining what the increase would be.
For example, if the plan is adopted, the 2013-14 increase would be 1.7 percent, said Kathryn McDermott, the port’s deputy executive director. That would increase rates about 68 cents per container. For a port customer that pays fees of several million dollars, the increase would be $25,000 to $35,000. For larger terminals that pay $45 million a year, the increase would be about $750,000, she said.
Each year thereafter, port staff would formally request from the harbor commission an increase based on the CPI. Port staff would also engage in outreach to port tenants and their customers to discuss the rate action and solicit input on the impact it would have on commerce at the port.
Although the GRI is described as automatic, the harbor commission would decide whether to accept the staff’s recommendation, modify the proposed increase or turn it down for that year, McDermott said.
California’s container ports currently take rate actions on an as-needed basis. The last CAPA increases were in 2004 and 2005. When times are difficult, as they were during the economic downturn of 2008-11, the ports actually gave $60 million back to tenants in the form of rebates and incentives, McDermott noted.
The Pacific Merchant Shipping Association, which represents shipping lines and terminal operators on the West Coast, the Los Angeles Customs Brokers and Forwarders Association and the International Longshore and Warehouse Union spoke in opposition to the automatic annual GRI.
PMSA Vice President Michelle Grubbs said port charges should be determined by port needs, with due consideration given to the competitive position of California’s ports in relation to ports in Canada, Mexico and on the East Coast. Basing an annual increase on an index such as the CPI just to keep up with the national rate of inflation does not take these commercial factors into consideration, she said.
The best way for a port to increase its revenue is to increase its cargo volume, and the fact is that California’s ports have been losing market share in recent years, Grubbs said. The competition is increasing, with larger ships now calling at East Coast ports via the Suez Canal route from Asia, and with the Panama Canal expansion project scheduled for completion in 2015, she said.
Dan Meylor, chairman of the brokers association, said that when brokers and forwarders in California talk to beneficial cargo owners across the country, they are invariably told that the ports’ charges are the highest in the country. “You have to consider that automatic rate increases will be heard by our customers,” he said.
Harbor Commissioner David Arian said that what is needed in this matter is balance. The port needs revenue in order to continue building world-class facilities, which give the port its true competitive edge in the industry. However, if port fees are increased without paying close attention to the commercial marketplace, it is likely that cargo will move elsewhere.
Arian suggested delaying the vote until the next meeting, and using the next two weeks to engage in further discussions with port stakeholders. The motion was adopted.