- Written by Jack Humphreville
- 10 Sep 2013
LA
WATCHDOG -
The Port of Los Angeles is a major economic component of the
Southern California economy, responsible, along with Port of Long
Beach, for economic activity that supports over 900,000 jobs. However,
the Port has run into strong headwinds as the volume of imported
containers has slipped 6% over the last twelve months.
These lower volumes, both of which are about 10% below their peak
volumes, should serve as a wakeup call to the management of the Port,
its Board of politically appointed commissioners, Mayor Eric Garcetti,
and the City Council, especially as the competitive environment for
international waterborne trade is increasing, eating into the Port’s
market share and revenues and the incomes of Southern Californians.
In 2014, the widening of the Panama Canal is scheduled to be
completed. This will allow for the more efficient shipment of
containers from Asia to populous markets served by well-run ports on the
Gulf and East Coasts.
At the same time, ports in Canada (Prince Rupert and Vancouver),
Mexico (Manzanillo and Lazaro Cardenas), and the western USA (Seattle,
Tacoma, and Oakland) are aggressively expanding their operations and
marketing efforts, targeting retailers, manufacturers, and shippers who
are fed up with the high cost Port of Los Angeles and our business
unfriendly City.
Now is the opportune time for Eric Garcetti, our newly elected mayor,
to introduce significant change to the Port of Los Angeles.
Importantly, Eric and his advisors need to realize that the salad
days of the Port are history. It is not realistic to expect that the
rapid growth of the last twenty years will continue, when Port’s traffic
increased four times, from 2.1 million containers in 1990 to a peak of
8.5 million containers in 2006. Rather, the Port is in a very
competitive business, where efficiency, reliability, and cost are the
basis for logistical decisions by beneficial cargo owners and the
shipping industry.
Eric and City Hall must also come to the harsh realization that the
Port is not the center of the universe, but just a cog in the
multifaceted global supply chain.
As a first step, Eric should appoint five new commissioners who have
industry or logistics experience or the managerial, technical or
financial expertise or experience that will allow them to provide
valuable guidance to the Port’s management and serve as representatives
of the Port to its customers, suppliers, and partners.
Eric and the new commissioners must also assess the quality and
capabilities of the General Manager and her team, especially given that
over the last ten to fifteen years, the City has politicized the
management ranks of the Port. More than likely, we need a new General
Manager who has the authority to “clean house” and develop a realistic
strategic plan that reflects the increasingly competitive environment.
The Port and the City of Los Angeles also need to improve their
relationships with the international shipping community, the trucking
industry, and large national retailers as its business unfriendly,
my-way-or-the-highway attitude has alienated important segments of the
supply chain.
Over the last five years, the Port and the trucking industry have
been engaged in an acrimonious legal battle over the “company employee”
provision of the Clean Truck Program that would have facilitated the
unionization of independent owner operators of trucks. However, the
courts found that the “company employee” provision violated federal law,
but this was after the Port spent a rumored $15 million in legal fees
and expenses.
The City’s political establishment has also alienated numerous
retailers, including Wal-Mart, by far the nation’s largest importer, by
refusing to allow the company to open big box stores within the City.
As a result of this hostile reception (including opposition to a 30,000
square foot grocery operation in underserved Chinatown) and selected
work stoppages, Wal-Mart has developed its Four Corner strategy. This
has resulted in cargo being diverted to other ports on the West and East
Coasts, costing the Southern California economy millions in economic
activity.
The Port will also need revamp its financial policies in this
increasingly competitive world so that it has the flexibility to fund
billions in capital expenditures that are necessary to maintain the
Port’s efficiency and overcome its high cost structure.
The Port also needs to address the ever increasing, multibillion debt of the Alameda Corridor.
Overall, the Port’s finances appear to be in excellent shape.
However, when the Port’s proportionate share of the Alameda Corridor’s
debt ($1.1 billion) and interest expense ($60 million) are included in
its balance sheet and income statement, its financial ratios, while
still investment grade, deteriorate considerably.
As a result, the Port needs to limit its investments in and
contributions to non-revenue producing ventures, including its $1
billion Waterfront Initiative, the $500 million marine research center,
dollar a year leases, and other worthwhile community projects.
Furthermore, the Port will need to rationalize its work force,
eliminate many of the surplus City employees that were dumped into its
lap during the City’s fiscal crisis, and rely on proven professionals
that have an excellent understanding of the Port’s operations and how
the Port can service its customers’ needs.
The Port must adapt to the slow growth, highly competitive
environment by revamping its management, by developing a realistic view
of its place in the supply chain, by building strong relationships with
its customers, and by maintaining a strong cash flow and balance sheet.
Otherwise, the Port will continue to lose market share and impede the
growth of the Southern California economy.
Eric, will you allow the past to torpedo the Port’s future or will
you launch a new beginning for the Port of Los Angeles and show that our
City and its economy can adapt to the new world?
(Jack Humphreville writes LA Watchdog for CityWatch.
I can't believe that the new HOT/HOV lanes will require 3 or more people AND a transponder. So, all the carpoolers with 2 people are now in the general lanes ADDING to the congestion and FORCING LA taxpayers to pay for this fiasco. I would LOVE to know what politicians are behind this project and MAKE SURE THEY ARE NEVER RE-ELECTED.
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