Clear & Predictable Capacity Caps At America’s Seaports Need Addressing For Commercial & Security Reasons
The MOC
By
John D. McCown |
December 27, 2023
Today U.S. ports have returned more to normal operating status following a tumultuous few years when the pandemic set in motion factors resulting in congestion and gridlock. The epicenter of supply chain issues impacting everyone in America was container shipping and container terminals were ground zero. The direct impact of higher shipping costs for inbound containers absorbed into U.S. peaked near a $100 billion annualized rate. The knock-on effects from gummed up supply chains vibrated through the economy and added to that cost. While that period is in the rear-view mirror, it is not clear sailing ahead for U.S. ports. In the absence of taking steps to ensure that ports have sufficient capacity to handle the growth that is sure to come, problems will emerge. Container terminals with free-flowing boxes and available reserve capacity are vital for both economic and national security reasons.
The top 10 ports in the U.S. now handle four times as much inbound containers as they did in 1995 for a compound annual growth rate of 5.3%. That higher volume is being handled with basically the same group of container terminals that existed 27 years ago. The quadrupling of volume was achieved by using more of available capacity, productivity increases and stacking containers ever higher. Credit is due to many for this yeoman’s work. However, it is irrational to assume because it was done in the past that geometrically more capacity can be coaxed out of the same group of container terminals. Limits are being approached on each of the contributing factors. Pictures of U.S. container terminals show boxes stacked five and six high, approaching both physical and cargo-handling limits.
With inbound containers into the U.S. likely twice as many in 25 years and four times as many in 50 years, more container terminals are needed. A good start in addressing this matter is the development of a national port strategy similar to what was outlined in a May 2023 Center for Maritime Strategy article. While the cost of building more container terminal capacity will be significant, this should be balanced with the problems that arose during the pandemic. In addition to the staggering economic cost that results from port congestion and gridlock, an even higher price would be paid if a situation arose that required significant military sealift. An inadequate port system is an even greater national security risk than it is an economic risk.
In contrast to the long-term need for additional container terminal capacity, there are three initiatives at the state level that could have exactly the opposite effect and cap or reduce container terminal capacity. The people behind these initiatives are not fully aware of the detrimental economic and national security risks that come with what they want to do. That is another reminder of the need for a national port strategy. What happens at locally managed port authorities has identifiable national consequences. The three local initiatives that are contrary to what is in best national interest of the U.S. are all in California. Though one appears to have dissipated, the other two are moving forward and they will constrain the growth at America’s two largest ports.
The good news is that the Port of Oakland, the 10th largest in the U.S. based on inbound container volume, has backed away from a plan to turn over a 56-acre waterfront for a baseball stadium and real estate development. An October 2022 Medium article detailed criticism of that idea. This scarce land should be better put to use to build more container terminal capacity.
The California Air Resources Board (CARB) is selectively imposing new environmental regulations on tractors used in drayage operations at California ports. Regulations require all drayage tractors to register with CARB by 12/31/23. Only registered tractors will be allowed to access ports and only zero-emission tractors will be allowed to register with CARB from 1/01/24 on. The intent is to begin a long-term phase-out of combustion powered tractors. By 2035, all drayage tractors registered with CARB must be zero-emission. While CARB backed off some on having regulations apply to other sectors, it is standing firm with drayage driven by the fact that the state can control who has access to California ports.
CARB’s new regulations are unfairly targeting one trucking segment. In forcing a technology that isn’t yet ready, productivity will go down and costs will go up. The initial cost of an electric tractor is three times a diesel tractor. A hydrogen fuel cell tractor is four and one half times more. The electric charging station cost pushes the cost difference higher. Furthermore, the availability of high-capacity charging stations is limited, while there is presently almost no way to refuel hydrogen fuel cell tractors. A zero-emission tractor weighs from 6,000 to 12,000 pound more than a diesel tractor, resulting in a significant payload reduction. The range of electric tractors is limited to around 150 miles on flat roads with a light load. They can only run for 6-8 hours before they need a charge. This is difficult as most drivers work for up to twice as much time.
To work around this, drayage companies are buying extra diesel tractors, registering them with CARB and warehousing them to use in the future as zero-emission tractors result in a major cost disadvantage. This is another California regulation pushing companies and drivers from the drayage sector, a shortage that played a key role in the congestion of California ports during the pandemic.
The capacity issues resulting from CARB’s discriminatory regulation would be sharply compounded from action planned by the South Coast Air Quality Management District (SCAQMD). With proposed rule 2304, this regulatory agency seeks to establish emissions caps by port and by individual terminal. The details and emissions targets of the proposed rule have not been finalized, but evaluation by the Pacific Merchant Shipping Association shows the caps cannot be met without reducing container volume by diverting ships. This would preclude any growth. Given present demand it would immediately return California ports to an always-full condition with the attendant issues experienced during the pandemic.
What is being advocated by SCAQMD is problematic from many angles. Beyond causing congestion and gridlock, the economic impact on California will be pronounced as shippers and container lines divert to other ports. If that is the goal, a smarter and more effective SCAQMD regulation would be to disincentivize containers going across country by rail from being discharged at California ports. Moving containers from Asia by water to East Coast rather than to West Coast and then by rail through more than a dozen states reduces marginal emissions over 90% with existing technology. The cost is eight days of additional transit time. Still, that cost is far less than the high environmental and economic cost of speed.
Piecemeal actions by CARB and SCAQMD result in material economic consequences with questionable environmental benefits. To be effective, the latter are best addressed by national governments and even broader entities like the United Nations IMO. Ships and tractors are both geometrically cleaner than they were 15 years ago and are on a curve for further improvements, but mandates should not get in front of technology. More federal oversight is needed. The Maritime Administration can and should exert control through grant awards and the National Port Readiness Network.
Local governments and port authorities should not take actions that damage the national economy and national security. Related to the latter, note that if China invades Taiwan, the California ports will be the primary gateway through which military sealift occurs. If such an invasion were to occur at a time when those ports are full and in gridlock, the consequences would be dire. Indeed, such a condition could very well be a catalyst for China in the timing of such an invasion. The need for a national port strategy is more vital than ever.
John McCown is a Non-Resident Senior Fellow at the Center for Maritime Strategy.
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Center for Maritime Strategy
By John D. McCown |
Today U.S. ports have returned more to normal operating status following a tumultuous few years when the pandemic set in motion factors resulting in congestion and gridlock. The epicenter of supply chain issues impacting everyone in America was container shipping and container terminals were ground zero. The direct impact of higher shipping costs for inbound containers absorbed into U.S. peaked near a $100 billion annualized rate. The knock-on effects from gummed up supply chains vibrated through the economy and added to that cost. While that period is in the rear-view mirror, it is not clear sailing ahead for U.S. ports. In the absence of taking steps to ensure that ports have sufficient capacity to handle the growth that is sure to come, problems will emerge. Container terminals with free-flowing boxes and available reserve capacity are vital for both economic and national security reasons.
The top 10 ports in the U.S. now handle four times as much inbound containers as they did in 1995 for a compound annual growth rate of 5.3%. That higher volume is being handled with basically the same group of container terminals that existed 27 years ago. The quadrupling of volume was achieved by using more of available capacity, productivity increases and stacking containers ever higher. Credit is due to many for this yeoman’s work. However, it is irrational to assume because it was done in the past that geometrically more capacity can be coaxed out of the same group of container terminals. Limits are being approached on each of the contributing factors. Pictures of U.S. container terminals show boxes stacked five and six high, approaching both physical and cargo-handling limits.
With inbound containers into the U.S. likely twice as many in 25 years and four times as many in 50 years, more container terminals are needed. A good start in addressing this matter is the development of a national port strategy similar to what was outlined in a May 2023 Center for Maritime Strategy article. While the cost of building more container terminal capacity will be significant, this should be balanced with the problems that arose during the pandemic. In addition to the staggering economic cost that results from port congestion and gridlock, an even higher price would be paid if a situation arose that required significant military sealift. An inadequate port system is an even greater national security risk than it is an economic risk.
In contrast to the long-term need for additional container terminal capacity, there are three initiatives at the state level that could have exactly the opposite effect and cap or reduce container terminal capacity. The people behind these initiatives are not fully aware of the detrimental economic and national security risks that come with what they want to do. That is another reminder of the need for a national port strategy. What happens at locally managed port authorities has identifiable national consequences. The three local initiatives that are contrary to what is in best national interest of the U.S. are all in California. Though one appears to have dissipated, the other two are moving forward and they will constrain the growth at America’s two largest ports.
The good news is that the Port of Oakland, the 10th largest in the U.S. based on inbound container volume, has backed away from a plan to turn over a 56-acre waterfront for a baseball stadium and real estate development. An October 2022 Medium article detailed criticism of that idea. This scarce land should be better put to use to build more container terminal capacity.
The California Air Resources Board (CARB) is selectively imposing new environmental regulations on tractors used in drayage operations at California ports. Regulations require all drayage tractors to register with CARB by 12/31/23. Only registered tractors will be allowed to access ports and only zero-emission tractors will be allowed to register with CARB from 1/01/24 on. The intent is to begin a long-term phase-out of combustion powered tractors. By 2035, all drayage tractors registered with CARB must be zero-emission. While CARB backed off some on having regulations apply to other sectors, it is standing firm with drayage driven by the fact that the state can control who has access to California ports.
CARB’s new regulations are unfairly targeting one trucking segment. In forcing a technology that isn’t yet ready, productivity will go down and costs will go up. The initial cost of an electric tractor is three times a diesel tractor. A hydrogen fuel cell tractor is four and one half times more. The electric charging station cost pushes the cost difference higher. Furthermore, the availability of high-capacity charging stations is limited, while there is presently almost no way to refuel hydrogen fuel cell tractors. A zero-emission tractor weighs from 6,000 to 12,000 pound more than a diesel tractor, resulting in a significant payload reduction. The range of electric tractors is limited to around 150 miles on flat roads with a light load. They can only run for 6-8 hours before they need a charge. This is difficult as most drivers work for up to twice as much time.
To work around this, drayage companies are buying extra diesel tractors, registering them with CARB and warehousing them to use in the future as zero-emission tractors result in a major cost disadvantage. This is another California regulation pushing companies and drivers from the drayage sector, a shortage that played a key role in the congestion of California ports during the pandemic.
The capacity issues resulting from CARB’s discriminatory regulation would be sharply compounded from action planned by the South Coast Air Quality Management District (SCAQMD). With proposed rule 2304, this regulatory agency seeks to establish emissions caps by port and by individual terminal. The details and emissions targets of the proposed rule have not been finalized, but evaluation by the Pacific Merchant Shipping Association shows the caps cannot be met without reducing container volume by diverting ships. This would preclude any growth. Given present demand it would immediately return California ports to an always-full condition with the attendant issues experienced during the pandemic.
What is being advocated by SCAQMD is problematic from many angles. Beyond causing congestion and gridlock, the economic impact on California will be pronounced as shippers and container lines divert to other ports. If that is the goal, a smarter and more effective SCAQMD regulation would be to disincentivize containers going across country by rail from being discharged at California ports. Moving containers from Asia by water to East Coast rather than to West Coast and then by rail through more than a dozen states reduces marginal emissions over 90% with existing technology. The cost is eight days of additional transit time. Still, that cost is far less than the high environmental and economic cost of speed.
Piecemeal actions by CARB and SCAQMD result in material economic consequences with questionable environmental benefits. To be effective, the latter are best addressed by national governments and even broader entities like the United Nations IMO. Ships and tractors are both geometrically cleaner than they were 15 years ago and are on a curve for further improvements, but mandates should not get in front of technology. More federal oversight is needed. The Maritime Administration can and should exert control through grant awards and the National Port Readiness Network.
Local governments and port authorities should not take actions that damage the national economy and national security. Related to the latter, note that if China invades Taiwan, the California ports will be the primary gateway through which military sealift occurs. If such an invasion were to occur at a time when those ports are full and in gridlock, the consequences would be dire. Indeed, such a condition could very well be a catalyst for China in the timing of such an invasion. The need for a national port strategy is more vital than ever.
John McCown is a Non-Resident Senior Fellow at the Center for Maritime Strategy.