Farmers are rejoicing as shipping costs continue to drop and a sense of reliability has returned when booking shipments with ocean carriers. Yet California has lost a significant amount of competition to other ports and persistent labor issues at shipyards along with clean energy mandates are adding new hurdles.
During a panel discussion at the Almond Conference last month, industry experts explained how these rising issues can impact growers in the year ahead.
“The best way to describe it is a dumpster fire for more than two years,” Bill Rooney told the almond farmers. “It’s that bad.”
As vice president of strategic development at Kuehne + Nagel International AG, a shipping and logistics company based in Switzerland, Rooney has nearly 50 years of experience in the industry and has dealt with strikes, typhoons and sunken ships. Adding up all that “mayhem” and multiplying it by five “still wouldn't be anywhere close to what the whole world and everybody's really been going through.”
Stuart McAllister, president of Oakland-based almond shippers Terra Nova Trading Inc., detailed how disruption to a finely tuned global supply chain led to “huge knock-on effects” for growers, ranging from canceled bookings to rolled vessels, changing vessel schedules and “impossible” last-minute delivery slots. Rates for containers coming from Asia to California ports peaked at $20,000, but fetched only $1,000 on the return trip, creating an enormous incentive for shipping lines to maximize profits, according to McAllister. Detention and demurrage fees became another revenue source. Almond containers stalled at ports for months at a time over the summer became hotbeds for pest infestations, further eroding export profits and trade relationships, he added.
Yet bookings are now readily available, vessels are turning up on time and the extraordinarily high import rates have collapsed and returned to normal. McAllister expects those trends to continue through 2023, though he did share frustration that only one shipping line travels from Oakland to the Mediterranean.
Rooney was less optimistic when projecting the long-term outlook for California’s export sector. He watched as shipping issues delayed exports three times longer than normal, leading carriers to instead send more ships to ports in Savannah, Charleston, Houston and New York. Though the delays are now gone, the cargo has not returned to California ports. Rooney attributed that to ongoing labor contract negotiations between the employers at the Pacific Maritime Association and the International Longshore and Warehouse Union (ILWU).
“The reason that cargo has left and may not come back is because people don't want to deal with the laborers anymore,” he said, noting that up to 90% of the growth in new cargo for the Port of New York and New Jersey is attributed to West Coast cargo.
The short-term risk with the labor negotiations, he explained, is that a strike would lead to an immediate work stoppage, shutting down California ports. It also carries a long-term risk as well. As a PMA board member for five years, Rooney saw the union pushback on automation “because they can pay very high salaries” and said that reluctance to automate will obstruct any potential for ports to increase productivity and grow their cargo capacity.
“I don't think there's ever going to be another facility built on the West Coast,” he said, adding: “The local populations don't seem to like them. They pollute, they're loud and they don’t want the trucking.”
Rooney is also eyeing PMA negotiations with the ILWU clerical unit, since those contracts are set to expire in June and those workers “have the potential to shut down the ports as well.” With cargo demand dropping this year due to skyrocketing inflation, he expects to see a rise in canceled sailings through at least spring, leaving fewer options for agricultural exporters. The rail network, meanwhile, has not fully recovered from congestion that began in 2021, he added.
Peter Schneider, president of Fresno-based TGS Logistics, delivered the hopeful news that growers who have been saddled with per diem fees on containers can now expect some savings, thanks to the federal Ocean Shipping Reform Act (OSRA). As soon as the legislation was signed into law, per diem fees were considered null and void if the invoice failed to meet 13 new standards enacted in OSRA, shifting the onus to the shipping lines. Schneider’s company fights all per diem requests on behalf of its shippers and wins nearly every time.
But the trucking industry is bracing for changes at California ports as well. The California Air Resources Board (CARB) has set new requirements for heavy-duty truck owners that began this month. Pre-2010 models are now prohibited from driving on California roadways. According to Schneider, this is an issue for companies that drive just 20,000 miles a year and have older trucks that are still in good shape. He said the Port of Oakland and rail freight companies are not policing the law but the ports of Long Beach and Los Angeles will stop those trucks at their automated gate entry systems, which scan each truck’s RFID tag and takes pictures of the license plate to access the DMV record. As of December, about 18% of the trucks entering the ports were older models, meaning that about a fifth of the cargo would be turned back at the gates under the CARB rules.
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The air quality agency is also requiring drayage truck operators at ports to transition their fleets to zero-emission models starting in 2024. Schneider pointed out that no such trucks are commercially available today and the state would need tens of thousands of new zero-emission trucks to meet its 2035 deadline for full compliance, while also installing more than 150,000 charging units.
In collaboration with the California Trucking Association, TGS Logistics successfully lobbied to insert a useful life provision in the regulation, allowing an operator to run a new diesel truck for 13 years or 800,000 miles.
Trucking companies are also grappling with the implementation of AB 5. Gov. Gavin Newsom signed the independent contractor legislation in 2019, though litigation delayed the effective date until last September. To comply, a trucker who once worked independently as a subhauler must create his own company, complete with a business license, separate taxes, an employer identification number and much more. Most trucking companies adopt a broker model, which essentially creates two separate companies with separate books, explained Schneider, though TGS Logistics chose to hire truckers as regular employees—the “safest” approach to complying. Regardless of the business model, he advised growers to confirm the trucking companies they contract with are already AB 5 compliant to avoid any potential lawsuits.
“This is really important,” he said. “The landscape is changing dramatically in California, as usual.”
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