The developer of a wheeled container storage site is suing the Port and City of Los Angeles, alleging that the project was derailed due to demands for longshoremen to be granted exclusive rights to be drayage drivers at the site.
In a complaint filed in Los Angeles County Superior Court, Jonathan Rosenthal, the head of private equity firm Saybrook, said the project was ended after Gene Seroka, Executive Director of the Port of Los Angeles, called it “infeasible.”
Rosenthal is seeking to overturn Seroka’s determination and that the project be allowed to go forward under existing agreements. The port declined to comment on the lawsuit.
Seroka’s letter to Rosenthal did not state why the project was infeasible. But Rosenthal’s lawsuit says the project ended because of a demand from the local International Longshore and Warehouse Union (ILWU) to have its members be the only intra-port drayage drivers for the site.
The project, known as the Harbor Performance Enhancement Center (HPEC), was to take up 142 acres of port-owned land on Terminal Island. When fully built, HPEC would provide off-terminal storage of up to 4,200 wheeled containers, amounting to 1.2 million twenty-foot equivalent (TEU) additional space at the port annually.
The site would allow for container “peel-piles” where drayage drivers could pull a container directly off the top, instead of waiting for a marine terminal to locate the container.
“The proposed Project would enhance terminal velocity by streamlining container moves and improving the flow of cargo between terminals, thereby reducing truck queuing at marine terminal gates and improving terminal efficiencies,” HPEC said in its environmental filing for the project.
Los Angeles had solicited bids to build the off-terminal drayage yard with Rosenthal’s project being selected in October 2015. Throughout 2016 and 2017, HPEC secured various agreements with the port for developing the site.
HPEC had also retained real estate advisory firm Jones Lang LaSalle to assist in securing $130 million of additional financing for the project. A fund run by Macquarie Infrastructure Partners become a 50 percent stakeholder in HPEC in March 2018.
About one month after the financing, Rosenthal alleges that Seroka delivered the “stunning news” that HPEC “would be required to guarantee that the International Longshore and Warehouse Union would be granted jurisdiction and exclusive rights to provide all intra-port trucking services to and from the project (i.e. drayage rights).”
Rosenthal said he was told that “the project could not go forward unless (HPEC) obtained the affirmative support of the ILWU, regardless of the cost or impact on the project.”
Rosenthal said he “was blindsided by this revelation” and that it was contrary to the disclosures that formed the basis of the original bid process and “completely undermined the express cost and strategic analyses” on which the project was built.
Rosenthal reached out to the union regarding drayage rights for the site. But he said, “the efforts were continually rebuffed by ILWU representatives, who insisted that their union be provided exclusivity over intra-port drayage.”
Seroka refused to mediate between HPEC and the ILWU, Rosenthal alleges, saying the project must accommodate the ILWU’s demand because “they (ILWU) run the port.”
HPEC spent over $2 million for a pilot study on the project. But with the ILWU’s rejection of the project, the port refused access to the test site.
In May 2019, Seroka sent a letter to Rosenthal effectively ending the project. But Rosenthal said, “absent from the letter was any indication that the Board of Harbor Commissioners or the City Council ever considered the issue of feasibility or any reason as to why Port of Los Angeles believes the project to be infeasible.”
A judge has scheduled a hearing on the lawsuit for September.
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Jonathan Rosenthal
Michael, you did a good job of capturing some of the story. But there is a much bigger story here. We believe this may be the first instance of a U.S. Port granting a labor union veto power over land use or tenant selection. If this stands as precedent we believe it could have catastrophic implications for west coast ports. If projects like HPEC, that are supported by virtually every major environmental group, regulators, the LA Chamber of Commerce, trade labor, and the trucking community. But if one union’s demand can derail the project, there is truly no hope to make major infrastructure improvements in west coast ports. And to introduce such a material condition 3 years after being selected calls into question the Port’s reliability. Investing is all about trust. Changes like this make it nearly impossible for investors to evaluate risk, making POLA a difficult place to invest. We want to work with all stakeholders including the ILWU, but the union has oddly refused to respond to more than a dozen attempts. The real culprit here is policy decision of the Port to demand that tenants first obtain union consent before proceeding, a dynamic that invites abuse.