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Economists assess four major threats to San Pedro Bay fortunes

UNPREDICTABLE trade policy, loss of market share, ever-expanding environmental regulations and labour disputes over automation are the threats facing the ports of Los Angeles and Long Beach, say experts

Economists assess four major threats to San Pedro Bay fortunes

UNPREDICTABLE trade policy, loss of market share, ever-expanding environmental regulations and labour disputes over automation are the threats facing the ports of Los Angeles and Long Beach, say experts

25 April 2019 - 19:00

UNPREDICTABLE trade policy, loss of market share, ever-expanding environmental regulations and labour disputes over automation are the threats facing the ports of Los Angeles and Long Beach, say experts.

Inland Empire Economic Partnership economist John Husing said regulations proposed by the Southern Air Quality Management District (SCAQMD) ?a state agency that governs air quality monitoring and regulations in Southern California is a major threat.



The proposed 'indirect source rule', which the agency's board voted to begin crafting last May, would indirectly regulate emissions and air quality impacts caused by the movement of goods by assessing fines on their destination points - warehouses, rail yards and airports.



An initial concept floated at a SCAQMD working group meeting in August suggested requiring warehouses to do business with trucking companies that have cleaner air emissions than the California Air Resources Board (CARB) requires, reported the Long Beach Business Journal.



'It's essentially the air quality management district attempting to do what the law specifically doesn't allow them to do, and that is to regulate the movement of goods,' Mr Husing said.



Jock O'Connell, trade advisor for LA-based Beacon Economics, said that paying for changes required by environmental regulations is another dilemma.



'The ports are going to have to acquire lots of energy efficient, zero-emission vehicles to move containers around . . . and this is going to be a very costly endeavour that has to be financed,' he said.



'The fear is that if the ports impose higher fees on container traffic, they will drive the container traffic away.'



While automation is a solution for moving goods, the International Longshore and Warehouse Union (ILWU) by a show of force induced LA Harbour Commissioners to not grant Maersk a permit to lay the ground work for self-driving yard trucks.



This despite the ILWU promise not to object to automation at the ports. 'This is going to be a very contentious issue. It's not going to be a very pleasant as we near the expiration of the current contract,' said Mr O'Connell.



Then there is the White House trade war. 'It's a difficult period in which to forecast anything,' he said.



Last year, the White House levied tariffs on billions of dollars worth of Chinese imports and threatened to raise them by another 25 per cent by January 1 if a deal could not be reached.



President Donald Trump and Chinese President Xi Jinping, agreed to push that deadline to March 1 and the Trump administration allowed the date to pass again while talks continued.



As a result of looming deadlines, there was a surge during the last quarter of 2018 as importers realised they might be faced with big tariffs.



'The surge continued through December, and very abruptly started to end in January and February. While we saw an import surge in anticipation of higher tariffs, we have seen a decline in exports going to China because of the retaliatory tariffs that the Chinese have erected,' said Mr O'Connell.



US Census Bureau said exports by California businesses declined 2.2 per cent in February compared to the same month last year.



But when it comes to these figures, there were factors at play beyond the tariffs. The strength of the US dollar gained 5.6 per cent over the Chinese yuan, Beacon Economics estimated.



Specific to the San Pedro Bay ports, challenges relate to their market share of container trade among the other ports in the nation and those along the west coast of Canada.



'We have seen a declining market share for the west coast ports generally, and particularly for the ports of LA and Long Beach,' Mr O'Connell said. 'They will likely to see year-over-year increases in container volumes, but their share of the trade will continue to diminish as more and more vessels take all-water route via the widened Panama Canal to ports along the East and Gulf Coasts.



'We always have to keep in mind that while the [San Pedro Bay] ports are important and they are big marvellous facilities, [that] most Americans still live on the other side of the Rockies,' Mr O'Connell noted.



Nearly three years since the Panama Canal Expansion opened, TEU volume continues to grow - especially for east coast ports. The expansion added a new lane of traffic with increased depth and width to accommodate bigger ships.



Since 2008, TEU volumes on east coast ports' have increased 46.8 per cent. East coast ports have become equipped to handle mega-ships with capacities up to 15,000 TEU, compared with the 5,000 TEU before.



Nearly two-thirds of the US population lives east of the Mississippi. With the rise of e-commerce and the population base, east coast-bound container volumes are expected to increase.



'Increasingly, decisions are being made to move by all-water routes through Panama, and to some extent through the Suez Canal, to bring goods directly to east and Gulf Coast ports to bypass west coast ports.'


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