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High energy costs are challenging California ports

Port of Los Angeles executive director says maintaining the region’s competitiveness will be tough as ports pursue goals in the Clean Air Action Plan.

Drayage trucks outside APM Terminal's Pier 400 at the Port of Los Angeles. (Image: Jim Allen/FreightWaves)

The effect of high energy prices and other challenges to the competitiveness of California ports were discussed at the Dec. 5 meeting of the Port of Los Angeles Harbor Commissioners.

Commissioner Diane Middleton pointed to what she felt were “shocking figures” in a recent article in the November issue of the West Coast Trade Report of the Pacific Merchant Shipping Association that reported the average price of diesel fuel in California in October was 37.8% higher than the average for the rest of the U.S.

The disparity in electrical prices was even higher. The article said that California’s average commercial price for electricity in the 12 months ending in August was 16.56 cents/kWh, 63.6% higher, and the average industrial price in the same period was 13.25 cents/kWh, 102.9% higher than the average for states other than California.

“When I looked at those numbers, particularly on energy, that’s a tough factor in terms of attracting (cargo),” said Middleton. “No matter how much you talk to someone about what great a port this is and how they should come here.”

Gene Seroka, the executive director of the port, told Middleton said “as we move forward to our goals and aspirations of being a zero emissions port and having zero emissions heavy duty trucks, the energy numbers you have quoted are going to be a strong deterrent to reaching those aspirations.”

He said the port does not “sugarcoat things” when discussing the competitiveness of the port, saying that has been called into question for a generation.

The 2002 lockout of longshoremen at the port aided momentum for cargo owners to look at port diversification, where cargo is routed through multiple ports. In some cases, shippers have opted for a “four corners” strategy — continuing to move some cargo through Southern California, but also through ports in the Pacific Northwest, U.S. Southeast and the Port of New York and New Jersey.

Before 2002, West Coast ports managed 80% of trans-Pacific cargo moving to the U.S. That percentage has fallen to 60%, he said.

“The criticism around what we do is that we are very pricey, we tend to be overregulated and some people believe that the folks that go to work here every day are a little bit finicky,” said Seroka. “That’s unfortunate, but that is the perception today.”

Port of Los Angeles monthly share of of U.S. Customs maritime import shipments 2018-2019. (Source: SONAR)

Seroka said the port is trying to reverse market share erosion and improve efficiency with the help of labor, private-sector businesses and companies that decide how to route cargo.

“All of that is a work in progress and I will attest to you today that it is like moving mountains on some occasions,” he said. “We’ve got supply chain participants that compete fiercely with each other, but we are asking them to work together. We have a labor force that is absolutely the best in the world, but they have their own politics and their own issues they must solve.”

He said the presidents of International Longshore and Warehouse Union locals have done outreach to cargo owners and other stakeholders and have committed to working with the port on areas such as digitization and supply chain efficiencies.

“We’ve not had a major congestion issue in three years here and that is because everyone has pulled together,” he said.

“I like the momentum we have, but we are still losing share,” said Seroka. He contended that if the port had “simply kept up with organic growth in the marketplace over the past 17 years, we would have earned an additional $1 billion in top-line revenue that would have been invested directly in our communities, our supply chain and our endeavors to be strong environmental stewards. We also would have created an additional 200,000 work hours.

“That’s the real question here: Can we create enough value here that people choose us as their gateway in the United States and can that be shared with this community?” he added.

Seroka told Middleton that the higher cost of energy in California will be challenging as the Port of Los Angeles and neighboring Port of Long Beach pursue goals in their Clean Air Action Plan.

In 2018 the mayors of Los Angeles and Long Beach signed an agreement directing their ports to reduce air pollution by moving to zero-emissions trucks and marine terminal equipment.

Seroka said that he has encouraged “all who we work with to get in front of the original equipment manufacturers” that produce zero-emission and near-zero-emission equipment such as drayage trucks to work with the port.

He noted that 17,000 trucks are licensed to do business at the port, about half of which move cargo on a regular basis to and from its marine terminals.

“But the interesting thing is that we represent less than two weeks’ worth of annual heavy-duty truck production, and we only buy our trucks as an industry only once every 13 years. So, becoming a good customer for the folks like Mack Truck, Volvo, Peterbilt, Freightliner and Kenworth — we have to show we are that good customer and we can buy their products,” Seroka said.

“It cost about $2 million an hour for a manufacturing line of a heavy-duty truck in the United States for these companies to switch their lines and produce a new type of engine, a cleaner one that we will purchase here in Southern California.

“When we have other competitors who put up signs saying, ‘Bring your trucks here if L.A. doesn’t want them,’ that creates a level of competitiveness too. So what we have done is we have created a concept called the ‘market maker’ where we are banding together with other ports along the West Coast and in British Columbia to see if that number of trucks would be enticing to the manufacturers” and what can be done to equipment used to move containers within marine terminals, Seroka explained.

A spokesman clarified that these are informal discussions Seroka has been having with ports and others.  

The port is working on 16 demonstration projects involving hundreds of pieces of new equipment, “but we need thousands and we need them today,” said Seroka. “We need them to work towards this aspiration of zero emissions with specific milestones where we can have proven equipment on the ground with the duty cycles necessary to move our cargo in a clean fashion. But they also must be affordable.”

This fall the health organization Breathe California of Los Angeles County launched a campaign seeking to ban diesel fuel in order to eliminate diesel particulate matter in California.

At the commission meeting, Raj Dhillon, the manager of advocacy and public policy for Breathe California, said there were 8,000 pre-2010 drayage trucks that call the Ports of Los Angeles and Long Beach that will have to be replaced by 2023 according to state law.

He noted that in 2007 the two ports had charged shippers a $35-per-TEU fee to help truckers afford new equipment.

In a television interview, Marc Carrell, the president and CEO of Breathe California, said a similar or higher fee was needed to help subsidize the trucks that will be needed in 2023 and that the ports should insist truckers not use diesel equipment.

Seroka said the port has reduced emissions of diesel particulates by 90%, nitrogen oxides (NOx) by 60%, sulfur oxides by 98% and greenhouse gases by double digits while growing cargo.

Seroka noted a recent announcement that Cummins Inc. is laying off 2,000 workers. A joint venture, Cummins-Westport, manufactures low NOx engines that have been certified as meeting the California Air Resources Board’s low NOx standard.

“These engines are not selling,” said Seroka. “We have some juice, but we don’t have it all.”

Chris Dupin

Chris Dupin has written about trade and transportation and other business subjects for a variety of publications before joining American Shipper and Freightwaves.