Policy Issues in Urban Goods Movement

1. Policy Issues in Urban Goods Movement Caltrans Research Connection June 23, 2005 Genevieve Giuliano University of Southern California

2. Introduction • What is the problem? • Primer on waterborne commerce • Southern California examples • AB 2650 • PierPass • 2002 Port shutdown • Policy discussion

3. What is the problem? • Growing freight volume in metropolitan areas • Limited supply of highway, rail, air, port capacity • Congestion, air pollution, neighborhood impacts, safety

4. Auto, truck and air transport

5. LA/OC Urbanized Area Source: Texas Transportation Institute

6. LAX 3rd largest air cargo volume in US SCAG 2005 State of the Region

7. LA/LB largest container port in US, 5th in world SCAG 2005 State of the Region

8. Other problems: PM10 and PM2.5 SCAG 2005 State of the Region

9. Primer on waterborne commerce

10. Example: LA/LB Ports • Background • Explosive growth in international trade • 1979 = $30B • 1998 = $180B • 2005 = $300B (est) • Economic benefits, environmental costs • 500,000 jobs • Ports single largest PM10 source • Complexity of the global supply chain

11. Major actors in supply chain • Manufacturers • Steamship lines • Ports and terminal operators • Dock labor • Customs brokers, freight forwarders, 3PLs, shippers • Truck, rail industries • Warehouse/distribution • Wholesalers, retailers • Governments

12. Supply chain, simplified Air Warehouse & distribution Import consumers Freight forwarders Steamship lines Secondary manufacturing Ports Major retailers Terminal operators US Coast Guard Trucking ILWU Rail Export producers US Customs 3PLs State, local governments

13. The supply chain imperative: Faster, cheaper • Time is money • Reduce transit time, dwell time • Cargo processing • Virtual warehouse • Trucking advantage • Scale economies • Bigger ships, hub systems • Warehouse/distribution centers • Rail long haul high volume advantage • Wal-Mart

14. Institutions and relationships - 1 • Natural allies: steamship lines, ports, terminal operators, major retailers • Steamship lines, major retailers as customers • Terminal operations to serve customers • 24/7 ship service; special gate hours for high volume importers; flexible dock storage rules • Added advantage: ports and terminals exempt from antitrust collaboration provisions • The powerbrokers: ILWU • Bargaining power of the west coast longshore union enhanced by Pacific trade growth • Labor power reflected in work rules, pay scales, control of workforce supply • Adversarial relationship of ILWU, PMA

15. Institutions and relationships - 2 • Sometimes at the table: rail, long distance trucking • Importance of rail for interstate transport • Size/scale of rail firms  bilateral negotiations • Alameda Corridor construction and fee structure • Economic weak link: independent drayage truckers • Mostly small firms and independent owner/operators • Low wages/income, old/dirty trucks • Subject to antitrust collaboration laws • “Price takers” • Paid by trip; responsible for chassis safety, but don’t own them; limited terminal truck gate service hours; delivery fees set by shippers, cargo owners

16. Institutions and relationships - 3 • Increasingly discontent: general public • Road congestion, trucks in neighborhoods, port-related diesel emissions • I-710 as “poster child” • Increasingly frustrated: state and local governments • Limited jurisdiction • Steamship lines are foreign owned • Rail exempt from local regulation under ICC • Ports are independent authorities • Limited scope for forcing change • AB 2650 – terminal gate appointment system • Defeat of AB 2042 (port emissions), SB 348 (equipment fees)

17. Competitive position of LA/LB • Despite the congestion problems, LA/LB remain competitive • LA/LB container volume much larger than others: • 2004 LA/LB = 13M TEU; Oakland = 2M, Seattle = 1.8M • Other west coast ports also have landside constraints • Southern California/Southwest consumer market • Scale and network economies in ocean shipping • larger vessels, hub systems • Consequences • Port congestion, landside congestion will increase • Short run problem can’t be solved with new capacity • As long as key players are not losing significant business, little incentive to make operations more productive

18. Some examples

19. AB 2650: terminal gate operations • Terminal gate problem: • Truck gates open generally M-F 8AM – 5PM • More container volume = more truck moves in same time interval • Truck queues at terminals • Truck traffic concentrated in daytime peak hours  more peak highway congestion • Stated purpose: reduce vehicle emissions • Intended purpose: extend terminal gate hours

20. AB 2650 provisions • Took effect 7/1/02; in force 7/1/03 • Fines terminal operator $250 for each truck idling more than 30 minutes while in queue • Terminals with extended gate hours (≥ 70 hrs/wk) exempt • Details • Applies only to queuing to designated gate entry (not to pedestal entry) • Applies only to idling, not standing with engine off • Applies only if truck has appointment • Does not apply to standing/idling within terminal • Terminals establish own rules re appointments • Availability, restrictions, priority access • Enforced by local air district

21. AB 2650 results - 1 • Enforcement • To date, no citations at LA/LB, 2 at Oakland • Extended gate hours • 3 of 14 terminals, none changed in response to the law • Extended hours viewed as too costly; chose appt system instead • Queues • Queues shorter, likely due to OCR implementation, computerization of cargo data

22. AB 2650 results - 2 • Appointments • Use varies by terminal, 1% to 30+% • Mixed review • Did queue shift to inside terminal? • Appointment to pick up vs cargo ready for pick up • Appointment windows and road congestion • Generally no priority at gate • Allows allocation of cargo moves • Allows truckers to schedule on contingency basis (no penalties for cancellations)

23. PierPass - 1 • Current effort to extend terminal gate hours • An industry response to legislative pressure (AB 2041, withdrawn) • Scheduled to start July 2005 • Provisions • Fee of $40/TEU for all road cargo entering/exiting during peak hours • Peak hours = M-F 3AM – 6 PM • Exemptions • Empty returns, chassis returns, domestic freight, transshipments to other ports, cargo subject to ACTA fee • System operated by PierPass; registration required • Net revenues allocated to terminals to offset costs

24. PierPass - 2 • Why extended gate hours are costly • Dock labor works in shifts, gangs • Shift differential pay • Costs of operating dock equipment • Potential landside barriers • Restrictions on cargo delivery • Lack of safe cargo storage options • Possible shortage of truck drivers • Some interesting questions • Why didn’t terminals set own rates? • Why is 3 AM “peak”?

25. The 2002 Port shutdown • Result of labor conflict, ILWU and PMA • Main issues • Use of information technology in cargo operations • Preservation of union jobs

26. What happened – port cargo

27. What happened – air cargo

28. After the shutdown • No plan for recovery • No change in terminal operating procedures • gate hours, container storage rules • Like road congestion, dock recovery period depends on arrivals, departures, capacity • Containers had accumulated on dock prior to shutdown • Container unload rate > container exit rate, so number of containers stored increased • As containers on dock increased, exit rate declined • Result: recovery over several months • Congestion costs imposed primarily on truckers, secondarily on wholesalers, retailers, consumers • Railroads had problems due to freight stuck on trains

29. Policy Discussion • What do these examples tell us? • Recall institutions and relationships • Unequal distribution of economic power within supply chain • Recall supply chain imperative • Faster, cheaper

30. Challenges to change • Dynamics and imperatives of international trade, global economy outside local or state (or national) control • Some key actors not subject to local or state government authority • Trade continues to increase, so limited incentive for changes that would increase costs for industry • Ports compete, so no incentive to incur unique local costs • To date, no obvious leadership for fundamental change within the supply chain • Trade carries powerful local economic argument • Good jobs, big multiplier

31. Opportunities for change • Growing effectiveness of environmental advocates, community activists • Documentation of health impacts on local communities • Brokered agreements • China shipping terminal • I-710, second round • State legislative pressure • 2005 – SB 761 (truck turn times), 764 (port emissions), 848 (collective bargaining for truckers), and many others • Most won’t pass, but the message is clear • Collaborative decision-making • PierPass, security issues have motivated cooperative action – establishes institutional relationships • Interest group advocacy • Freight user fee (container fee) proposal for infrastructure

32. Implications for Caltrans? • Sources of demand for freight transport not subject to state, local control • More demand in future a reasonable assumption • Prices, time, reliability matter, but relative to many other considerations • Efficient transportation system  transport small share of production costs  transport costs relatively less important • Developing, implementing solutions requires collaboration, cooperation • Partnerships with local agencies, industry, community • Increasing the efficiency, capacity of existing system of key importance

33. Thank you Contact information giuliano@usc.edu www.metrans.org