We Were Warned About the Ports - The American Prospect

2022-06-15 16:15:55 By : Mr. Jack Wang

A 2015 federal report predicted the entire slowdown that’s come to pass.

This article appears in The American Prospect magazine’s February 2022 special issue, “How We Broke the Supply Chain.” Subscribe here.

In July 2015, the Federal Maritime Commission, a federal agency with little name recognition and even less influence, released a report sounding the alarm about the state of America’s ports. A congestion crisis had been building for years and was fast becoming untenable; even the country’s relatively tepid economic-growth rate was straining against decades of disinvestment at its most critical trading hubs. Chassis weren’t available, trucks couldn’t get in or out, and terminals stayed perpetually clogged.

That crisis had “resulted from events that have developed or emerged over a considerable period of time and from within the system itself, rather than being the result of external shocks, such as unanticipated surges in container volumes or management-labor issues,” the report surmised. “Many seem to think it is inevitable that embracing ‘business as usual’ will lead to significant further declines in the performance of the U.S. intermodal transportation system.”

And then, of course, business went on as usual. Almost five years passed before the coronavirus announced itself on American shores, and another year after that before the disease gave an already fissured supply chain the nudge it needed to fully rupture. And while the circumstances of a global pandemic, its shutdowns and labor shortages, seemed exceptional, it was something as routine as a double-digit import growth, feared specifically by the FMC since at least 2006, that sent shipping container volume skyrocketing and brought the system to a grinding halt. A prophecy that few heard and no one heeded had finally come true.

Before the Biden administration was even sworn in, the ports were already in a state of chaos. It got worse throughout the year, and by the time the administration appointed its ports czar John Porcari and began looking toward emergency intervention, only minor measures were even available to remedy decades of bipartisan mismanagement.

Today, congestion at the twin ports of Los Angeles and Long Beach, collectively the nation’s largest, is “at historic high levels,” as the shipping giant Maersk announced in a customer advisory in late December. Reporting indicated that there were 133 vessels en route to San Pedro Bay, with delays stretching upward of 41 days. One ship in particular had left Busan, South Korea, on November 17 and was not scheduled to dock until January 2, a 47-day duration for a routine voyage that should take, at most, half that time. “It took Columbus less time to cross the Atlantic,” said Sal Mercogliano, an associate professor and maritime historian at Campbell University.

Despite problems in manufacturing, shipping, trucking, and warehousing, it’s been ports that have taken the brunt of the criticism for their role in a breakdown that has seen everything from stranded Halloween costumes to rapidly rising prices. Ports sit in the middle of a tangled nest of unwise policy choices made over the past half-century, having to deal with the consequences despite a lack of investment and manpower to handle the ever-burgeoning flood of cargo.

As the country’s most cynical economists and credulous news anchors would tell it, the breaking of the ports was the natural result of lavishing stimulus checks upon lower-income Americans, who nearly ruined Christmas with their indomitable desire for foldable furniture and Tickle Me Elmo. In reality, it’s the combination of some of the worst sins in economic policy: privatization, deregulation, cartelization, with some parasitic private equity sprinkled in too, all of which sacrificed resiliency, long-term planning, and even the country’s aptitude for economic growth in favor of corporate profits.

LIKE SO MANY OF THE COUNTRY’S late-breaking societal failures, the story of America’s modern ports began in the 1980s. First under the Reagan administration and later until Bill Clinton, the U.S. radically deregulated the ocean shipping industry. Out went the public-utility model, with prices overseen by a robust Federal Maritime Commission that helped offset that natural monopoly status that ruled the industry; in came the cartelized free-market system that has ruled ever since. (Incidentally, one of the early heads of the enervated FMC under Reagan was none other than Elaine Chao, the scion of a family shipping business, eventual wife of Mitch McConnell, and transportation secretary under Trump.)

Shipping deregulation quickly led to a cartelized private sector trudging ever-larger container vessels across the oceans. This intersected with a host of other trends in the economy: the outsourcing wave of the 1980s, the deregulation of the trucking and rail industries, the weakening of unions, and the desire among businesses to efficiently speed to retail stores only what consumers needed in the moment, just in time. Ports were the intersection point of all of these trends, and as the trade imbalance grew, the critical choke point for U.S. commerce.

For many years, the system succeeded in reducing prices and upping profits to the companies involved. “For a really long time, it was really cheap,” said Mercogliano. “That deregulation was what everybody loved.” But the price of cheapness was consolidation. As containers and ships got bigger, the ports had to get bigger as well. Ports dredged furiously to stay passable for increasingly deep-riding ships—the Port of Los Angeles isn’t even a deep bay by nature—and strained to clear out other obstacles like bridges, which had to be raised, to accommodate ships carrying as many as 16,000 containers each. On the West Coast, this meant that smaller ports like San Diego, which lacked the rail infrastructure to get cargo eastward, and Oakland, with its famously bridged bay, were passed over. (Vancouver boasts a sizable port with the cranes needed to offload large ships, but it was taken offline for weeks in 2021 due to flooding and torrential rains, adding to the supply chain crunch.)

Ports sit in the middle of a tangled nest of unwise policy choices made over the past half-century.

By 2014, the top three ports—L.A., Long Beach, and New York/New Jersey—brought in nearly half of all containerized imports, and the top 11 brought in over 85 percent. Concentration in other elements of global shipping led to concentration at the ports. That would magnify future disruptions.

As the American economy became increasingly reliant on goods made in East Asia, so too did it rely on the only port that could readily receive them, L.A./Long Beach, which strained against its own limitations. The expansive nearby population of Southern California, once seen as an asset to finding cheap and ample labor to unload containers and drive trucks and staff warehouses, soon became a hindrance to expansion, as land around the ports was ringed with housing, making growth impossible. Instead, the ports began expanding out into the sea, with major terraforming initiatives to conjure more dock space from the ocean floor, a process that still couldn’t keep up with the strains of a growing e-commerce sector that relied overwhelmingly on Chinese manufacturing. (This led to a separate problem during the supply crunch: where to put the empty containers. Often they were dumped in residential neighborhoods, towering above modest homes and subdivisions.)

Private investment had begun to replace public investment. While port authorities still control some ports, others like L.A./Long Beach became landlords to a tiny group of shipping cartels that operate most marine terminals where ships docked. While data is scarce, ships typically dock at the terminals within their own shipping alliances, like gate slots at an airport, and disfavor rival ships. Other marine terminal owners include private equity firms; the largest marine terminal operator on the continent, Ports America, went through multiple private equity owners before being sold to a Canadian pension fund last September.

While private capital has delighted in the passive income available at marine terminals, they’ve done next to nothing in the way of technological or infrastructural upgrades. Meanwhile, the combination of potential preferential treatment and financiers seeking alpha portended even further bottlenecks.

By the mid 2000s, the whole thing was primed for meltdown. With global liner cargo growing 10 percent annually during the 25-year period beginning in 1980, port infrastructure was on the edge of faltering, bailed out only by the economic constriction of the financial crisis. Just like that, “the issues being faced in 2006 went into hiding,” the 2015 FMC report recounted, “but they did not disappear.”

THE FMC SET OUT NEARLY ALL of the issues that would be blamed on COVID a half-decade later, which were evident another ten years before that: things like chassis availability, terminal operations, truck turn time, and gate hours. These factors “must be addressed in the near term to ensure an efficient and reliable international ocean transportation system and the relevant supply chain,” said FMC chairman Mario Cordero at the time (he now runs the Port of Long Beach). The report’s subheader exclaimed: “Congestion is a serious challenge to America’s continuing economic growth and competitive position in the world economy.”

Availability of chassis, the semitrailers that containers get attached to after coming off ships, was seen as a particular cause of congestion. The shortage was being exacerbated by the growth of ever-larger ships, and the outstanding monopolistic reach of the shipping companies. Chassis usage was being built into the freight rate negotiated between the ocean carrier and its customer as a bundled service. “The practice of shipping lines owning the chassis is unique to the U.S. In most other countries, the motor carrier provides the chassis with which to move the container,” the report noted. This created exceptional issues of unaligned priorities in clearing out shipments, and deferred maintenance of aging, decrepit equipment in dire need of repair.

Terminal operations had become a similarly elevated concern. Vessels are supposed to arrive on precise schedules, spaced out enough to give time for longshoremen to unload and move cargo to the container yard. But ships had been “slow steaming” across the ocean to conserve fuel, falling behind schedule and leading to significant bunching at marine terminals, the report explained, a habit they’d picked up as a cost-cutting measure in the wake of the Great Recession. “Bunching can put enormous pressures on the terminal because resources available to work the vessels are finite … overcrowded container stacks lead to shuffling containers multiple times to get to the required container and this slows the process, delays and congestion build, and in-terminal dwell-time lengthens.”

The Port of Long Beach (shown here) sits in the bottom half of the World Bank Group’s worldwide port performance rankings.

That’s become the norm in today’s ports, a process which Mercogliano described to me as “a big game of Tetris in the terminal,” where empty containers piled high have to be moved around ceaselessly to facilitate unloading. The report, too, raised concern about the impact of a new ocean carrier consolidation that was just emerging at publication date, resulting in three major shipping alliances running the vast majority of operations. The alliances were already “a factor contributing to port congestion,” with “the potential to cause severe dislocation of chassis,” which are not shared across alliances.

A third area of concern came from slow “turn times,” or the time a truck spends at the marine terminal. While trucking deregulation and the conversion to an independent-contractor model made interventions difficult, the report keyed on low-cost suggestions that could be implemented without high price tags: setting up appointment systems through communication between truckers and marine terminal operators, for example, or “free-flow” strategies that stack containers from one cargo owner for quick loading to chassis.

Still, because deregulation brought a broader dealignment of priorities—a number of independent corporations merely looking out for themselves, rather than the holistic operation of the port—even those suggestions were impossible to implement. In one instance, the FMC referenced another report that found “queuing constitutes a significant portion of the 25 percent of truck visits that take two hours or more, but it is not being addressed because the marine terminals … do not consider the long lines outside the gates as their problem.”

Finally, the report looked at expanded gate hours as a possible solution to congestion, a tool with a track record. Ten years prior to the 2015 publication, the Ports of L.A. and Long Beach had pioneered an extended-hours approach, with mixed results. The costs of running an extended operation were substantial, with wages one-third to one-half higher during night and weekend shifts, the authors noted. Meanwhile, for those shifts to be functional required warehouses, manufacturers, and steamship lines, as well as their various help desks and support services, to also be operational, an expensive staffing requirement beyond just longshoremen and truckers. While the aim was to continue truck movement through terminals on nights and weekends, the report relayed, “anecdotal reports indicate this aim has not been achieved.”

Nearly everything that that 2015 report warned about came to nightmarish fruition amid the pandemic, in one way or another. Trucking backlogs, chassis shortages, container clusters, and bunching of ships have all reached extreme levels; and the solutions on offer, like extended hours, were largely ones that had been tried and failed. The shipping companies, still milking the cost-cutting measures that they implemented during the previous recession, felt little impulse to implement expensive changes, and were all too happy to convert chaos into record quarterly profits.

WHEN THE PORTS SLOWED TO A CRAWL, the disempowered federal agencies could do little in the face of outsourcing and deregulation and corporate capture. The White House response team, spearheaded by Port Envoy Porcari, along with Transportation and Commerce Secretaries Pete Buttigieg and Gina Raimondo, settled on stopgap solutions that were well-intended, but crashed into the underlying poor structure of the system.

In October, President Biden announced a plan to run the port of L.A. 24 hours, following Long Beach’s commitment weeks earlier. But as the 2015 FMC report showed, running ports around the clock would have required the entire logistics industry to run at that same pace, mandating a major hiring surge. If ships were being unloaded at 3 a.m. but had no chassis to load those containers onto, the backlog would only have moved a few feet. And if the warehouses weren’t open at 3 a.m. to take those container loads, the truckers would have merely been parked or idled on and around the docks, waiting for the warehouses to open. Given that port truckers are overwhelmingly independent contractors and not hourly employees, that would have cost them personally. Fully staffing a third shift of warehouse workers would have made such a move more viable, but warehouses, where COVID has run rampant and wages are low, were already having a hard enough time finding enough workers for the primary shifts. All of those sectors would require support staff, too. To nobody’s surprise, records of port activity showed in the months following the announcement that the ports were definitively not operating around the clock.

Even if all of that had fallen into place, it would have required a regulated, centralized port system to coordinate and share data about ships and containers and load times. In reality, with a dizzying array of different and sometimes overlapping systems governing each stage of the process, getting real-time data proved impossible. As Robert Kuttner reported for the Prospect, even identifying the location of cargo proved too much. Cargo owners often don’t know what ship their product is on, where it’s located, or when it will arrive; the federal government, without any authority or visibility, knows even less.

A second solution arose to deal with ship congestion. The backlog of nearly 100 ships clustered in San Pedro Bay had become one of the most glaring indications of the supply chain problems, with environmental advocates sounding the alarm about the impact of ships idling offshore, burning fuel and billowing exhaust.

Without consulting the White House, a coalition of ocean shipping company–owned associations and the Marine Exchange of Southern California, a nonprofit vessel management organization, fashioned a solution: a new queuing system that moved the ships from 40 miles offshore to 150 miles, putting them out of sight. That aimed to solve multiple problems: It would facilitate better communication of berthing availability, ships would stay further from one another in the open water to increase safety, and the environmental damage from the “parking lot” of smokestacks would be minimized.

If economic expansion is correctly a priority of the Biden administration, then having a functioning port system is essential.

But not everyone was convinced. While the number of ships near shore halved, a nearly identical number of boats began queuing at greater distance. When all those ships were counted, the total remained stubbornly high, with even more on the way. “What they’re doing is a shell game,” said Mercogliano. “They say they’re 150 miles off; they’re not. They’re 500 miles, burning more fuel than they would.” And while it may look better from shore, being out at sea is not easy on workers. “When vessels are 500 miles out at sea, and guys are out of sight of land for months with no internet, it’s a black hole out there. That’s a lot of fatigue, a lot of pressure on the crews,” Mercogliano said. In January, over 100 ships remained clustered in the farther reaches of San Pedro Bay.

Perhaps the most touted solution was the advent of a “container dwell fee.” The congestion of empty containers cluttering up the docks, where companies effectively warehoused their empty crates for free, was identified as one of the major impediments to offloading cargo from the port. The Biden administration sought to “impose a fee on ocean carriers for containers that sit on the docks for more than eight days” at the Ports of L.A. and Long Beach. The ports would charge $100 per container dwelling on the dock for the first nine days, and an additional $100 for each day beyond that.

The announcement may have had some impact in clearing the backlog, as long-dwelling containers sitting on the docks reduced “by almost 50 percent” from the beginning of November to mid-December, according to the White House. But the fees, hotly contested by retailers and freight shippers, most certainly did not impact anything, because they were never implemented. The date for enactment of the empty-container penalty was pushed back throughout October, November, and December. In January, it was re-upped, with the intention of going into effect at the end of the month, but that was delayed once more. Given that the threat has failed to materialize after four months, cargo owners may reasonably assume it never will, and the threat could lose its staying power.

If it ever happens, it would fly in the face of the usual policy at the ports. For years, ports advertised to shippers that they’d be able to leave their containers in the yard for free. Meanwhile, the Port of Los Angeles currently pays shipping companies volume incentives to bring a certain number of containers through their port instead of the Port of Long Beach. Those incentives can run as much as seven figures in value; if the ports began implementing penalties for empty containers, they’d merely be debiting the penalty out of the incentive payments they’d be sending those same shipping companies in the first place.

Not every port has proven so stubborn to fixes as the West Coast’s flagship. The Port of Savannah’s pop-up, inland container depots have allowed processing and storage of the added volume, and reduced port congestion. But that’s an expression of real estate prices more than anything else; the land surrounding that port is not nearly as pricey as the land surrounding the South Bay of Los Angeles. While the White House’s initial executive order in October directed California to find locations to “address short-term storage needs,” little has been able to get done.

THE PORTS MAY BE BIDEN’S PROBLEM, but they’re far from Biden’s fault. As the 2015 FMC report identifies, much of the antiquated essential infrastructure remains hamstrung by cost-saving measures adopted in the wake of the Great Recession, a phrase that appears repeatedly in its 83 pages. The story of America’s ports is one of decades of bad policy and tragic disinvestment. In the World Bank Group’s performance rankings of 500 ports worldwide, no U.S. port appears in the top 50, and L.A. and Long Beach, the critical node for 40 percent of American seaborne imports, languish in the 300s.

All of the elements that made the supply chain breakdown so catastrophic remain in place. COVID continues to snarl production centers in China; its ports continue to close to prevent outbreaks. The behavior at American ports remains largely unchanged; the infrastructure does as well. And the mess is taking its toll; container imports at L.A. and Long Beach actually fell in November, as smaller ships made their way into port while the bigger ones stayed at sea. More ships are fleeing to the East Coast, exporting the problems in L.A. and Long Beach across the country. “It’s almost like a game of whack-a-mole,” Port of L.A. executive director Gene Seroka told The Wall Street Journal. “We try to get after one issue, and then two or three more pop up.”

The current structure is not only poorly positioned to absorb the shocks and uncertainties of the COVID era, it’s also an enemy of growth. If economic expansion is correctly a priority of the Biden administration, then having a functioning port system is essential, even with the commitment to onshoring jobs and manufacturing.

While giant ports like Singapore’s have produced the most stunning infrastructural adaptations with terraforming projects of unparalleled ambition, the ports of Europe provide a blueprint as well. European ports have much better data sharing than their American counterparts. Their port authorities, dock-operating logistics companies, and shipping companies are all on a centralized database looking at the same data. None of that exists in American ports. Meanwhile, European ports are able to take in ships much larger than even the biggest American behemoth, accommodating vessels with 20,000 to 25,000 containers without problem. Perhaps unsurprisingly, a 2005 campaign to deregulate EU ports failed.

The investment issue is beginning to change. In late December, the Department of Transportation awarded $241 million in grants for infrastructure investment at the ports, and the bipartisan infrastructure bill holds $17 billion in total for port upgrades.

But building up capacity can be slow, just like clearing a backlog. The infamous Ever Given was stuck for just six days in the Suez Canal, and shipping companies are still sorting through the aftermath. At the same time, while investment is essential, re-regulating American ports would not require decade-long building projects.

Something as simple as re-establishing price transparency would prevent some of the most opportunistic profiteering and weaken the stranglehold of large shipping cabals. Congressional investigations into these firms could pave the way for public involvement in price-setting. The challenge of the unwinding of deregulation will not be a simple one, but it’s proven to be a fundamental point of departure for America’s post-COVID economy.

Alexander Sammon is a staff writer at The American Prospect.

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