By Jack Humphreville.
The growth of the Port of Los Angeles and its ability to maintain and create good paying jobs and its market share of imported cargo are under siege by external market forces as well as the demand by the San Pedro and Wilmington communities to finance $400 million of public benefits over the next ten years.
The Harbor Department, one of the City’s three proprietary departments, is responsible for the operation of the Port of Los Angeles, the largest port in the county. Last year, the Port handled over 8 million containers and, along with the Port of Long Beach, controlled over 70% of the West Coast market.
Together with the Ports of Oakland and Seattle-Tacoma, the West Coast ports handle about 65% of the imports from East Asia.
However, based on a recent report (“Wide Open: How the Panama Canal is Redrawing the Logistics Map”) by The Boston Consulting Group and C. H. Robinson, a leading, worldwide third party logistics firm, the West Coast’s market share of imports from East Asia could dip to 50% by 2020 as a result of the opening of the expanded Panama Canal in 2016.
Fueling this shift in market share is the lower cost to reach Chicago and other Midwest markets by an all water service in massive container ships as opposed to the faster, but more expensive intermodal service that relies on railroads and trucks to reach these battleground markets from Los Angeles.
The Port of Los Angeles is also experiencing competitive threats from not only Oakland and Seattle-Tacoma, but from the expanded ports in Prince Rupert, British Columbia, Canada, and Lazaro Cardenas, located in the Mexican state of Michoacán, about 300 miles west of Mexico City on the Pacific Ocean.
While the Port’s market share and business model are threatened by aggressive competitors, City Hall is continuing to milk this cash cow.
Earlier this year, the Port and its politically appointed Board of Harbor Commissioners agreed to allocate $400 million over the next ten years for the development of the LA Waterfront in San Pedro and Wilmington. This includes a capital improvement program for six projects totaling about $140 million, the creation of an overly ambitious economic development plan, and an operating budget to fund numerous public benefit programs.
This $400 million allocation is addition to the $600 million that has been spent over the last ten years.
But none of this $1 billion in expenditures will make the Port a more efficient operation in this highly competitive dog-eat-dog world.
City Hall has also managed to alienate Walmart by not allowing its stores in our City. As a result, the company, the largest importer in the country by a wide margin, has diverted a significant portion of its business to other ports around the country.
The Port has also damaged its reputation as a reliable partner because of labor problems, including a recent slowdown that created a significant backlog that is still an issue for shippers and their customers.
The Port was also a dumping ground for 200 to 300 surplus employees during the Villaraigosa administration. This resulted in not only higher costs, but the infiltration of political operatives with no industry or business experience into the management ranks, tarnishing the Port’s reputation in the industry.
The City is also hitting up the Port for about $40 to $50 million a year for its services such as fire protection, museum and Park maintenance, utilities, and legal services. It would be interesting to see the supporting documentation.
The Port of Los Angeles is an important part of the Southern California economy. According to Mayor Eric Garcetti, more than 3 million direct, indirect, and induced jobs are related cargo movement at the two San Pedro ports.
As part of his Back to Basics program, Mayor Eric Garcetti needs to review the governance, management, and finances of the Port of Los Angeles. The Port is too important to be plundered by the pirates that occupy City Hall.
Cross-posted at City Watch LA.