California’s overregulated supply chain

PORTS

Pollution rises from a ship cruising by the Port of Long Beach where tankers and container ships enter and exit March 10 in San Pedro. Etienne Laurent — The Associated Press

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There is genuine public concern and anxiety around affordability and the adoption of policies that will disrupt supply chains and drive up the cost of basic necessities, like automobiles, appliances, food supplies and building materials for Southern Californians. This disruption could also limit foreign market access to agricultural exporters who ship billions of dollars of product from our Central Valley.

Some of this concern rightly derives from the recent uncertain tariff environment. But the broader and more persistent public anxiety is about economic uncertainty and affordability in general, and how the costs and barriers of getting goods and products to market are ultimately passed on to and paid by the consumer.

Nowhere are the threats of these costs more visible than at the nation’s largest and most environmentally advanced seaports: the Ports of Los Angeles and Long Beach.

The Southern California ports have been a two-decade success story when it comes to making investments and improvements in air quality. And these successes have occurred because they are balanced with, and paid for by, the nation’s largest cargo base.

To put our current cargo flows in perspective, the Port of Los Angeles estimates that every four containers that move through the port supports one job. And, according to a March report by the Los Angeles County Economic Development Corporation, the combination of tariffs, land-use restrictions and added environmental regulations could severely damage California’s $300 billion trade and logistics sector.

So, while tariffs may be the latest external threat of higher costs, many of the largest threats to supply chain affordability start closer to home. Most ominous of all is the regulatory effort by the South Coast Air Quality Management District (SCAQMD/Air District) to impose a burdensome and costly Indirect Source Rule (ISR) on our seaports. The ISR, no matter how it’s implemented, is at its core simply a regulatory scheme to grant the Air District authority to impose limits on the growth and operations of the Ports of Los Angeles and Long Beach.

These limits on growth function as direct taxes on the ports and indirect taxes on consumers, manufacturers and farmers.

The main lessons we learned from the pandemic were that we needed to build a more resilient freight delivery system and one that could be agile and respond to a crisis on a moment’s notice.

The Port ISR would do the opposite. It would allow the Air District to control when and where the ports’ infrastructure would be allowed to grow, which would ultimately include curtailing the ports’ operations, and how much trade they can conduct.

For example, the Air District’s latest proposed ISR would impose a sweeping new mandate: allowing the district to approve or disapprove our ports’ infrastructure planning and development. This would give the district the final decision on our ports’ ability to grow and accommodate trade.

Every consumer and business knows that our international supply chains are susceptible to severe disruptions that can in turn increase costs and delays in our daily lives as well as our communities’ economic well-being.

The Air District’s ISR approach would amplify those disruptions, because limiting investment will mean higher costs for consumers, reduced access to international markets, diminished competitiveness and widespread risks to jobs throughout the logistics and freight sectors, all during a period of economic uncertainty and mounting inflation.

The further irony is that the ISR would undermine our ability to continue to fund our world-leading environmental progress. Late last year the Ports of Long Beach and Los Angeles released their annual Emission Inventory reports for 2023, and the combined data revealed reductions that exceeded every goal: 91% for DPM, 98% for SOx, and 72% for NOx.

What pays for the investments in clean fuels, clean engines and new technology that results in these successes? That’s right — a growing and robust supply chain.

The Air District can no longer be tone deaf on cost-of-living issues and compounding business costs that would result from the adoption of this indirect tax. The Port ISR proposal should be shelved, and the Air District should work collaboratively to regain the successful balance in our policies that serve, not burden our economy and consumers.

Mike Jacob is president of the Pacific Merchant Shipping Association.