Ports Must Chart New Course in ’98

Rebuilding Southern California’s reputation as the gateway of choice for transpacific trade is the toughest task facing officials at the ports of Los Angeles and Long Beach in 1998.

And that job will be complicated by the uncertainty over how cargo traffic will be affected by the economic problems in Japan, South Korea and Southeast Asia, which account for more than 60% of the traffic that passes through the Los Angeles customs district.

“We are at the mercy of international economics, and the people here must also repair the damage that’s been done” to their image, said Jack Kyser, chief economist for the Los Angeles Economic Development Corp.

The massive congestion that resulted from Union Pacific Railroad’s trouble-plagued takeover of the Southern Pacific railway system this fall should be completely cleared in the weeks ahead, according to port officials. But it could take much longer to resurrect the region’s image among unhappy customers.

At the height of the Union Pacific fiasco in late

November, as many as 40 ships were backed up in the harbors of the nation’s leading port complex, containers awaiting rail cars were stacked up like pancakes on the docks, and shipments were reaching their destinations weeks late.

“This has created a question mark in some people’s minds as to our future ability and whether this area is best suited to handle both the local needs of these lines as well as the intermodal needs,” said Larry Keller, executive director of the Port of Los Angeles.

Port officials are still waiting to see how much of the transpacific cargo diverted to other West Coast ports or sent through the Suez and Panama canals to the East Coast will return to Southern California.

“One of our concerns was that carriers or shippers would find alternatives that they could get comfortable with,” said Richard Steinke, executive director of the Port of Long Beach.

Shippers can save $500 a container going the all-water route to the East Coast, but the disadvantage is that it takes at least 3 1/2 days longer for the cargo to get there, said Doug Coates, a principal at Manalytics, a San Francisco-based transportation consulting firm.

But East Coast ports capitalizing on Southern California’s woes are aggressively marketing themselves as the lower-cost, more reliable choice.

“If you don’t think your product is going to get there slogging its way through Missouri, then the other options look stronger,” Coates said.

Union Pacific officials said the railroad’s merger problems were aggravated by an unexpected increase in imports from Asia--nearly triple the volume originally expected.

They say they have taken the necessary steps to prevent a recurrence of rail gridlock by significantly expanding their car equipment supply and better integrating the two railroads’ operations, including their crews.

By early next year, Union Pacific will be able to handle a 7% to 10% growth in shipments through Southern California’s ports, according to Mike Kelly, a Union Pacific vice president.

Kelly expressed confidence that the international shipping community will return to Southern California because of the ports’ good reputation and the railroad’s commitment to cleaning up its act.

“The damage done in 1997 is there,” he said. “But the international shipping community still prefers to use Southern California.”

Shippers are still unsure how their business will be affected by the financial woes of Asia, which until this summer’s currency and stock market meltdown was the world’s fastest-growing region.

Exports to Asia are expected to drop off sharply since the cost of U.S. goods has risen dramatically there because of a strengthened dollar and a decreased appetite for imported goods.

But recent trade figures show that the export slump is being offset by a jump in imports from Asian manufacturers that are far more competitive now because of their weaker currencies.

“It could wind up being a standoff between an increase in imports and decrease in exports, but it’s too early to know,” said Robert Kleist, an advisor to Evergreen America, the giant shipping line.

Officials at both ports, convinced that the Asian economies will eventually return to a position of strong growth, are planning to continue their aggressive expansion programs next year.

At the Port of Long Beach, officials have budgeted $260 million for 1998 to construct five bridges, purchase additional container cranes and renovate and expand existing terminals.

The port is preparing an environmental impact statement for a controversial proposal to turn the shuttered Long Beach Naval Shipyard into a container terminal.

That project was sent back to the drawing board this year after environmentalists and preservationists were joined by congressional critics opposed to a plan to allow China Ocean Shipping, China’s state-owned line, to lease the space for a new terminal.

In Los Angeles, the port is building a 315-acre container terminal billed as the “largest in the Western Hemisphere” at Pier 400. The port expects to spend $1.3 billion to expand and modernize its facilities between 1993 and 2003.

Southern California’s reliability as a transportation center has also been clouded by labor disputes that have resulted in lengthy strikes, including this year’s pilots strike, and work stoppages or slowdowns. Joe Miniace, president and chief executive of the Pacific Maritime Assn., a San Francisco-based management group representing shippers and terminal operators, said the Union Pacific bottleneck created a huge labor shortage because cargo had to be handled numerous times as the delays worsened. The ports ended up importing workers from other cities.

Since then, the PMA has hired and trained 800 workers and is still expanding its payroll. Miniace said his group has already spent an additional $7 million to $8 million on training and development and that each shipper faces millions of dollars in extra payroll expenses.

Miniace predicts a quieter year ahead on the labor front because there are no major contracts up for negotiation in Southern California. He also believes the problems of the last three months have forced all parties--shippers, labor and port--to recognize the importance of working together to protect their golden egg.

“I think when you really start looking at your port and the devastating impact the reputation of being unreliable can have, it forces people to be more responsible,” he said. “We’ve had this impact brought home to us this fall.”

Domenick Miretti, senior liaison for the ports of Long Beach and Los Angeles for the International Longshore and Warehouse Union, agreed that the recent troubles illustrate “how fragile this industry is” and the need for a “cooperative, not confrontational, relationship.”

But Miretti said the ILWU, the chief union on the waterfront, is also worried about ensuring that future jobs in the ports of Los Angeles and Long Beach remain unionized.

He said the ILWU’s recent battle to secure union jobs at the $200-million Los Angeles Export Terminal, a newly opened coal facility on Terminal Island, will be repeated as the ports move more aggressively into privatization of their facilities.

The Los Angeles Export Terminal is a partnership between the Port of Los Angeles and 37 U.S. and Japanese companies involved in the coal business. When the terminal is fully operational, it is expected to create about 100 jobs, more than a third of them union.

“The LAXT situation was a classic example of what could happen in the future,” Miretti said. “We looked at the situation and tried to resolve this in a fashion where it wouldn’t be devastating to most of the other port tenants. We’re not pleased with the outcome, but I think all parties benefited to a certain degree.”

Miretti said the union is watching other new port projects and the construction of the Alameda Corridor, a high-speed rail project that will link the ports to national railway and highway systems, to make sure their members aren’t getting squeezed out of future business.

“The ILWU expects to be here and expects to be taken along,” he said. “Again, we’re not afraid of change. We just want to be part of that change.”