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American Shipper

‘Change agent’

Knatz, former L.A. port director, leaves this month after a four-decade career at SoCal ports.

   There’s never a quiet time to be head of the Western Hemisphere’s biggest container port.
  
But it would be hard to find a more consequential eight-year stretch than the one Geraldine Knatz presided over as executive director of the Port of Los Angeles.
  
Knatz handed over the reins in early November but has stayed on to aid with the transition to a new director through the end of January. In an early December interview with American Shipper from the port’s newly opened archives building, Knatz recalled her time leading Los Angeles through some trying times.
  
She said the substantial and ever-changing workload was partly by design and partly by chance.
  
“The mayor (Antonio Villaraigosa) brought me in as a change agent,” she said. “We took on a lot of issues that people had been letting go,” she said. “The board (also appointed by Villaraigosa) wasn’t afraid to tackle these problems.”
  
When Knatz took over in January 2006, it was a vastly different landscape. The transpacific trade was in the midst of its halcyon days. Consistent double-digit annual growth in container trade meant problems centered around managing this growth long term. That manifested itself in two ways — terminal redevelopment and environmental improvement.
  
Essentially, Knatz’s first brief was to get the wheels greased on a capital improvement process that had been gummed up by environmental concerns. A number of key projects were stalled at the environmental impact review (EIR) stage, while tenants worried about their ability to handle bigger ships and ever-growing cargo volumes.
  
That changed over the course of Knatz’s stewardship. The port’s capital expenditure in 2006 was around $60 million — now it’s around $400 million.

Knatz

  
“Every customer had an idea for a terminal improvement plan, and that led to a lot of EIRs,” she said.
  
The worries of environmental groups watching the port in 2006 were different than today — they wanted to make sure the ports grew responsibly and reduced their contribution to poor air quality in Southern California.
  
Knatz, an environmental engineer with a doctorate in biological science, took the conflict to heart. Working closely with her former boss, then Port of Long Beach Executive Director Richard Steinke, the two ports worked on the San Pedro Bay Ports Clean Air Action Plan (CAAP), designed to reduce air emissions from berthing vessels, trains serving the port, drayage trucks, and yard equipment.
  
Ten months after taking charge in Los Angeles, the two ports (along with Los Angeles and Long Beach city officials) convened an historic meeting to hash out how they would jointly address air quality. They decided on a five-year plan that primarily zeroed in on cleaning up emissions from the roughly 10,000 drayage trucks operating in the region.
  
The signature element of the program was requiring drayage drivers to obtain stickers certifying that their trucks met emissions standards stipulated by the program. Knatz said one of the most prominent memories of her stint was the day before the clean air program was to take effect in 2008.
  
“I remember the day before the truck program started, I was driving around the port and I didn’t see any stickers,” she said. “I thought ‘I’m going to be toast.’ I went to bed that night thinking about whether any trucks were actually going to show up with the stickers. But the next day, everyone had the stickers. They must have put them on overnight because we had nearly 90 percent compliance.”
  
In the midst of the development of CAAP, economic conditions were changing, however. Knatz said the port started noticing stagnation in volumes well before the sub-prime mortgage crisis signaled that something was seriously wrong.
  
The ensuing global economic downturn colored the rest of her time as executive director. From thinking about ways to accommodate more cargo on the port’s existing footprint, the mindset changed to preserving whatever cargo the port could amidst dropping container volume.
  
That led to offering incentives on berthing fees designed to attract more liner services against fierce competition from neighboring Long Beach. It didn’t help that liner carriers were struggling with the same issue — falling container volumes were crippling carrier cash flow and forcing them into uncomfortable decisions. Services were pulled, ships laid up, new vessel-sharing agreements and alliances were forming.
  
Knatz’s budget shrank as volumes, and thus revenue, dissipated. The days of planning for a port complex that needed to handle 20 or 30 million TEUs were a distant memory. From a collective 15.7 million TEUs handled in 2007, the two ports handled 11.8 million TEUs in 2009.
  
Though volumes have steadily rebounded (they collectively handled 14.2 million TEUs in 2012), the dynamic has changed. Knatz said in all her years working at the two ports, she can’t recall a time when competition has been so cutthroat over cargo. 2013 was particularly trying for Los Angeles, as it struggled with the loss of cargo to Long Beach. Through October, Long Beach’s volume was up 13.2 percent while Los Angeles’ was down 5.4 percent.
  
Knatz sought some perspective on the issue, reminding that jobs and economic prosperity for the region are not affected by which port a carrier chooses to call. But she acknowledged that low growth rates are negatively impacting the competitive relationship between the two ports.
  
“These incentives we have to offer, you hope it doesn’t lead to a race to the bottom,” she said. “It’s sort of what we used to chide the carriers about.”
  
It’s not just lower economic growth that the ports are contending with — during Knatz’s stint, the ports have seen some projected alternatives become real alternatives. Namely, the opening of a port in Prince Rupert, British Columbia, aimed at snagging some of the Southern California ports’ discretionary cargo bound for inland U.S. destinations.
  
Knatz said the cohesion of the Canadian government, the Canadian National Railway, and the port developers in Prince Rupert in getting the project built is sometimes lacking at U.S. ports. Her roles as past chairman of the American Association of Port Authorities (AAPA) and president of the International Association of Ports and Harbors (IAPH) has given her insight into how other governments and ports function.
  
“When I travel, I look at port governance,” she said. “I haven’t seen a model that’s perfect. Every port is different and the circumstances are different. But in the U.S., I don’t see us doing a lot to be proactive.”
  
While Canada, for example, has a national port policy, that is lacking in the United States. Even on a more micro-level, there isn’t often the coordination there could be between Los Angeles and Long Beach.
  
Knatz said she’s thought often about how the ports could potentially be more effective as one entity.
  
“There have been 100 years of efforts to merge these two ports,” she said.
  
But the plans have never taken root, typically because one port or the other doesn’t see equal benefit from a merger. Knatz suggested Los Angeles has been the more hesitant historically, whether because of Long Beach’s perceived advantages in developing oil production, or because there remains prestige in Los Angeles being slightly bigger than Long Beach in terms of container volume.
  
“I’m not in favor of a state port authority,” she said. “But L.A. and Long Beach could do something on their own. It’s worth looking at, to see how the competitiveness plays out. For most people, it’s just the San Pedro Bay port.”
  
Another factor clouding the situation: the emergence of the proposed P3 alliance between the world’s three biggest carriers, Maersk Line, Mediterranean Shipping Co., and CMA CGM.
  
The two ports are intently focused on which terminals such an alliance, if approved by regulators, might use. Maersk sister company APM Terminals operates the biggest terminal in either port, Pier 400 in Los Angeles, while MSC has shifted a noticeable portion of its cargo from Los Angeles to Long Beach this year. The alliance has indicated it would use terminals in both ports for calls, but would make ongoing decisions based presumably on the most favorable conditions offered.
  
Knatz said a set of incentives approved by Los Angeles in her final board meeting were aimed squarely at making the port competitive with Long Beach in terms of landing P3 calls.
  
While the P3 doesn’t seem to have the same market share strength on the transpacific trade (the most crucial trade for Los Angeles) as it might have on the Asia-Europe or transatlantic trades, it has still garnered major attention in the Southern California ports.
  
“It’s a little different because they’ve set up a separate operational structure,” Knatz said. “It’s piqued everyone’s interest.”
  
Aside from declining container volumes in 2013, Knatz’s position became vulnerable this year due to two developments (one internal and one external). First, port staffers were criticized by Los Angeles’ elected officials for approving cost overruns on improvements to the TraPac container terminal.
  
The cost overruns, which the city council approved in mid-November anyway, drove the project from $245 million to $510 million, according to reports. The city, which oversees the port, has argued that such steep increases should have been approved by the city, not the port.
  
Some have countered that the overall value of the 30-year lease for the improved terminal — estimated at nearly $2.3 billion justifies the increased investment.
  
Meanwhile, the external factor was Eric Garcetti’s victory in the May mayoral race in Los Angeles. Garcetti required all city department heads, including Knatz, to reapply for their positions.
  
In any case, Knatz appears at ease with her departure. She noted to Los Angeles-based blog L.A. Observed that she was prepared to stay on this year as port tenants negotiate a new contract with unionized longshoremen, “but as soon as I got an indication that they wanted to make a change, I was cool about retiring.” She also noted to the blog that her eight years was longer than the average for Port of Los Angeles executive directors (6.5 years).
  
The location of the interview was also poignant. Set amidst a bustling and noisy intersection in the port, with drayage trucks and Pacific Harbor Line trains whistling nearby, the archives might be the best place to spot Knatz these days. Described by port officials as a major port history buff, Knatz has been spending more and more time poring through and organizing historical documents at the archives, which opened to the public six months ago.
  
There’s a reason Knatz finds the history of the port so enchanting — she’s spent the better part of four decades working for either the port of Los Angeles or Long Beach. Prior to being named executive director in Los Angeles from January 2006, she served as managing director at the neighboring Port of Long Beach.
  
Her port career started in 1973, where as a grad student at the University of Southern California she worked on environmental research projects for the port (Los Angeles was the first port in the nation to have an environmental director). That translated into a full-time gig in the port’s environmental division. Among her initial responsibilities was transferring kelp from Catalina Island to the breakwater for the San Pedro Bay ports.
  
It was the lure of Catalina that initially brought East Coast-bred Knatz to USC for grad school, where she had designs on being a marine biologist.
  
Knatz said she’ll still be busy once she formally steps downs at the port, though she will sleep in a little longer — teaching at the USC School of Engineering (she’s also in talks to revive the school’s port policy program), volunteering at the port archives, and just generally watching developments at the ports she’s called home since 1973.
  
Showing off a decades-old black-and-white photo of a bearded hermit smoking a pipe and cleaning lobsters on Terminal Island (the photo and back story are going up on the port archive blog, to which she contributes), Knatz clearly has an affinity for this most important of places. And she’s proud of her place in its history.
  
“The goal was to leave things better than when I found it,” she said. “We accomplished a lot.”