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John Porcari Q&A: Current volumes are ‘floor, not the ceiling’ for the future

Port envoy to White House Supply Chain Disruptions Task Force looks at key issues

During a time when many Americans are struggling with inflation as a result of low inventories and passed-down supply chain costs, John Porcari, the port envoy to the White House Supply Chain Disruptions Task Force, sat down for an extensive and exclusive interview to discuss the state of the ports, the challenges at hand and his outlook for the future.

LORI ANN LaROCCO: Let’s start off on West Coast labor contract negotiations. The contract is set to expire on July 1. I have been told by multiple sources that because of the massive congestion on the West Coast, logistics managers planning ahead will start to reroute cargo as early as April to build some East Coast credibility if labor disruption occurs. What is your outlook and federal government involvement?

JOHN PORCARI: “I need to thank the ILWU and labor in general for working through the pandemic. They literally redefined front-line workers. As a starting point for this discussion, it is important to note they lost members, they have had difficulties with omicron that have impacted operations. So going forward we need to recognize that. 

“As we work towards rebuilding the system, it is clear we need to build out in a more resilient way. We are working with labor and management in a very cooperative way on this. It is the primary responsibility for management  and labor who are the negotiators. The federal government … can certainly be needed to be an honest broker, a convening authority. But it’s never too early to start discussing some of the relevant issues for collective bargaining. Some of those issues are in play and being discussed right now.”

LaROCCO: Anything you can shed light on there?

PORCARI: “There is clearly a need for training for the future. As the industry evolves, making sure the training capability, training facilities are there for the next generation of labor force. And if you accept the premise that today’s volumes are a floor and not the ceiling — which I truly believe — we are going to have more labor in the future to handle the increasing volumes that are out there.”

LaROCCO: What would be your line in the sand before the federal government stepped in?

PORCARI: “We will encourage labor and management to have those discussions as early as possible. If necessary, the government will act as an honest broker and convener. But at this point we are just talking to and encouraging both parties to start discussions.”

LaROCCO: The amount of product coming into the ports of Los Angeles and Long Beach is wiping out any gains in terms of product leaving. Land capacity in Los Angeles is around 90%. What can be done to have that land capacity go back down to around 70% so there can be better efficiency? What is broken? Over the short term, what needs to be hit on?

PORCARI: “The pandemic laid bare the reality that the goods movement chain at the ports and the last-mile delivery was barely clicking along. It was brittle and at capacity — if not beyond capacity. What we are dealing with now are these increased volumes … and for the most part, you will not be able to create more real estate around the country.  You will have to be more efficient with how you are using that precious real estate resource. 

“Restoring the fluidity of the ports has been an early operational imperative. It is something we have made real progress on. Now we have to turn to the next step, and that’s building out more capacity into the entire system. And while the inside the fence of ports is the most visible part of the goods movement chain, all of it actually needs significant new capacity and redundancy in the future. 

“We started with the operational response. At the ports of LA/Long Beach and other coastal ports around the country, we focused on the strategic part of it — implementing the bipartisan infrastructure law and translating that into projects both inside the fence line and outside of the fence line at the ports that really make a difference.

“In the longer term, we have to build together a more resilient goods movement chain with much more capacity  and eliminate, systemically, the single points of failure that we had found out the hard way during the pandemic.”

Inland yards

LaROCCO: One of the things we have seen is the creation of more inland yards with containers similar to Georgia’s ports. Will we see more of them?

PORCARI: “Both LA and Long Beach took some early and immediate moves to maximize the space they both have in the port complex and near port on both public and private properties. They are using areas that were underutilized in the past. They are now using those areas for both imports and outgoing empties. That will continue.

“The kind of innovation you saw with the Georgia Ports Authority, a comprehensive system of inland pop-up sites, is something we encouraged them to look at. You are seeing this with multiple other ports as well.

“If you look at the entire goods movement chain, and how difficult operations can be actually on the docks, given the limited real estate, moving those containers inland to an intermodal transfer site makes a lot of sense. There are multiple ports we are in discussions with around the country on ways to do that.

“The bipartisan infrastructure law is one of the primary implementing mechanisms so we will very shortly have a round of competitive grants under the port infrastructure development program where this would be eligible use, so ports can be innovative and add capacity and a little further inland than on dock. So that is one mechanism to actually build more capacity.”

Port of Oakland. (Photo courtesy of Port of Oakland)

LaROCCO: Can you disclose which ports you are speaking with?

PORCARI: “I would let the ports speak for themselves, but what the ports excel at is figuring out innovative ways to accommodate more volumes. 

“I would point out one that was announced earlier this week on the export side at the Port of Oakland  where a pop-up site within the fast lane side of the port is being used specifically to incentivize agricultural exports — including its own gate, which should greatly help operations there.

“But a number of ports are looking at variations of that same theme of inland sites. It is important to point out they need to have and they do have good partners in both the Class 1 railroads and the short-line railroads because that is a critical component obviously.”

LaROCCO: The future of agriculture comes from the future of transportation. Ocean carriers limit the number of boxes going inland because they want the empties to go back to be filled with Chinese exports. Even if you get boxes, it is very hard to get that box on a vessel. I have data which shows a tremendous disparity between empty containers to U.S. exports. I know this is a point you are having with your discussions, but I also know ocean carriers have their government relations representatives on. They personally are not on the call. Where are we in this because you and I both know exports equal GDP?

PORCARI:  Exports do equal GDP. Agricultural exports are the foundation, literally, of U.S. exports. We are having direct discussions with the ocean carriers. This is not simply at the public relations level. 

“I would point out it’s a fundamental primary mission of the Federal Maritime Commission to actually promote U.S. exports. It’s part of their core mission. We are working with the FMC on this as well.

“We are having very blunt discussions about our expectations for U.S. exports, whether it is agricultural, manufacturing or any other exports. The  fundamental economics right now  incentivize bringing empty containers back to point of origin as quickly as possible so they can be refilled. We need to balance that. And we are using every lever at our disposal to do that. That’s an ongoing issue and one we are very, very focused on.”

Truck capacity

LaROCCO: There is a lot of talk about incentivizing to increase trucking capacity.  What steps is the government overall considering to help promote more truck capacity? Is it helping drivers finance their rigs? Helping with insurance? Incentives for nighttime pickup to help balance the capacity of day vs. night?

PORCARI: “There is some pretty successful work underway right now. The U.S. Department of Labor apprenticeship program is an example. You may remember — to bring new entrant drivers in, they were typically paying for their own training, which could be a substantial barrier to joining the workforce in trucking. The apprenticeship programs actually pay for that training, and a number of trucking companies across the country signed up with the Department of Labor for this program. That’s part of it.

“Wages, benefits and working conditions are part of this equation here and we can’t ignore them. The turnover in this industry is one indication of what we already know. These are hard jobs; they are not always competitive in wage and benefit terms with other jobs out there. That has to be part of the response as well. 

“But what we want to do wherever possible with trucking relating to ports — drayage, for example — we want to make this as consistent and predictable as possible.”

LaROCCO: While that is true, LA and Long Beach as you know are landlord ports. In Georgia, they control their destiny. So how can you get that reliability when the terminals and the ocean carriers run the house, not the Port of Long Beach or LA?

PORCARI: “Yes you have obviously two totally different operating models with an operating port versus a landlord port. But one of the reasons in San Pedro with Los Angeles and Long Beach that we have an operations group focus on short-term actions is to have everyone at the table. Yes you have port leadership but you also have terminal operators, the ocean carriers, you have trucking, rail, labor, management and it is a little more complicated in a landlord port.

“But I think we have shown with the increased fluidity with imports in those two ports, it can be done. We are now focused on exports and empties to make sure that real estate on dock is utilized as efficiently as possible and at its highest use.”

The chassis issue

(Photo by Jim Allen/FreightWaves)

LaROCCO: The chassis supply from China has dried up due to tariffs and countervailing tariffs. Is the domestic supply or other foreign sources picking up the slack?

PORCARI: “The domestic sources are picking up the slack. We recognized the short-term dislocations that have happened. I would point out that domestic manufacturers have increased the efficiency in their operations in terms of the amount of hours required to assemble chassis. That’s a very good sign.

“The actual output is increasing dramatically, with further plans for more domestic capacity. The tariffs this administration inherited that are in place — we are working basically to make the best of that by encouraging domestic manufacturing and reshoring those activities. There are encouraging signs. 

“We know there is a shortage across the board of chassis, containers, drivers, capacity in the system, but it’s important to point out the obvious here, which is this is a private-sector system that is fairly siloed and the different silos in the goods movement chain were not talking to each other very much. What we have tried to do is function as a convener and an honest broker and rather than have people pointing fingers at each other, work together. I think that has largely been successful. Now we need to capitalize on that.”

LaROCCO: What about parts for chassis and trucks that are also under these tariffs?

PORCARI:  “On all fronts for the U.S. manufacturing agenda, that is an important priority and one that has the undivided attention of both the White House and the rest of the executive branch.”

Data sharing

LaROCCO: You touched on data sharing earlier. I spoke with Walmart, UPS and Target back during the Christmas push. They are sharing container location information, which helped them make peel piles for faster container deployment. Why can’t this information sharing be mandated? Terminals do not need to know what’s inside the box. They need to know the container number. That will only expedite the deployment of those containers.

PORCARI: “That is an excellent point, Lori Ann. It’s a very traditional industry in a way and they walled off data from each other even if it was helpful to them to share it. I mentioned some of the longer-term efforts underway that will build a resilient goods movement chain. Data sharing is one of them. You’ll see more efforts going forward. 

“I contrast this directly for example with the airline industry, which competes fiercely but data is very transparent. You know exactly what is going on, you also know what exactly your competitors are up to and the industry is stronger for that. That is something that is way overdue in the service transportation movement chain. It is one where we are working hard to break down those barriers. There are models going forward that make a lot of sense to build a more efficient industry as one where everyone, businesses both small and large, would have visibility throughout the entire goods movement chain.”

LaROCCO: Is one of those models the “you fly, you pay” model chain?

PORCARI: “In general terms, if you want to benefit from the data exchange, you have to participate in the data exchange. That is the principle going forward. Again it’s long overdue and although this is a private-sector-run process, this is exactly where through numerous conversations I have heard loud and clear that our private-sector partners want a governmental role in the data sharing. So they have a trusted partner essentially. That is the clearinghouse for that objective. It’s every bit as important as the brick-and-mortar construction that’s required by both the private sector and the public sector. There is no use to building physical infrastructure if the data sharing isn’t keeping up. I would flag that as an issue that’s right at the very top of the agenda.”

LaROCCO: When you are looking at the government’s role, is it to provide aid for terminals to upgrade their software? A stamp of approval by the government can give that confidence in sharing that data.

PORCARI: “There are a number of ways that are being done. For example, some ports are pretty far along in building what they call ‘port community systems,’ where there is data sharing within the port. But that’s only as good as the port compound itself. 

“So, we actually need to have that data horizontally across the goods movement chain to the last mile or until it gets to Main Street, or your front porch. There is an honest broker role we see as very important. And you have seen in other industries like airlines where it has worked out very successfully. There is a lot of work happening on this behind the scenes right now. More to talk about down the road but it’s as important as the physical infrastructure.”

 LaROCCO: In terms of physical infrastructure and efficiency, one of the biggest contributors to the port congestion at the Port of LA  is the large amounts of free time big-box retailers have at the ports. That of course is part of the contract between the ocean carrier and the importer. Is there anything you can do to negotiate down the amount of free time ocean carriers are negotiating with the larger importers?

PORCARI: “Without talking about specific cargo owners here,  we have had direct discussions with cargo owners. We basically have what we call frequent flier lists of some of the BCOs that are taking full advantage … right now we have a much better operational sense of who is clogging up the ports. While these are private one-on-one discussions, they won’t always be. If we need to be more public about it, we will be.”

LaROCCO: What kind of “minimum service standards” will be required from the ocean carriers due to the Ocean Shipping Reform Act?

PORCARI: “I can’t speculate on that now; we don’t have a bill passed yet in both houses. I think down the road that will be something to talk about.”

LaROCCO: Anything I didn’t ask?

PORCARI: “From first responder status focusing almost entirely on operational issues and pivoting, we now have the groundwork in place for a longer-term response to rebuild in a more resilient way. Physical infrastructure projects, whether it is data, whether it is operating procedures that make for an efficient system, we are focused on all that right now.

“It has been a collaborative process with industry and we expect that to continue. We know if we are going to serve the nation’s economic interests in the future, we need a very different and much more resilient supply chain than we have today.”

Watch: Bringing the ports inland

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Lori Ann LaRocco

Lori Ann LaRocco is senior editor of guests for CNBC business news. She coordinates high profile interviews and special multi-million dollar on-location productions for all shows on the network. Her specialty is in politics, working with titans of industry. LaRocco is the author of: “Trade War: Containers Don’t Lie, Navigating the Bluster” (Marine Money Inc., 2019) “Dynasties of the Sea: The Untold Stories of the Postwar Shipping Pioneers” (Marine Money Inc., 2018), “Opportunity Knocking” (Agate Publishing, 2014), “Dynasties of the Sea: The Ships and Entrepreneurs Who Ushered in the Era of Free Trade” (Marine Money, 2012), and “Thriving in the New Economy: Lessons from Today’s Top Business Minds” (Wiley, 2010).