New Fee at the Ports of Los Angeles & Long Beach to Fund Zero Emissions Trucks

It seems like every time you turn around there’s a new fee announced at the Ports of Los Angeles and Long Beach. Sometimes those fees are merely threats in a less-than-successful attempt to speed the movement of long-dwelling containers. But sometimes, it just feels to shippers like the Ports of Los Angeles and Long Beach are nickel and diming them to death. In this case, it’s diming.

The new fee is ten dollars per TEU (twenty-foot equivalent unit) loaded on trucks entering or leaving the ports. The ports started collecting on Friday, April 1st. And, no, this isn’t an April Fool’s joke. Otherwise, I would have posted this on Friday. And I don’t post blogs on Friday. Unless my boss really wants me to.

Even though it sounds like this fee might be charged to truckers/trucking companies, it’s actually being assessed against shippers. Bill Mongelluzza reports in the Journal of Commerce (JOC):

[Matt Schrap, CEO of the Harbor Trucking Association] noted that truckers are not responsible for paying the fee. “The ports made it clear the fee is being assessed to the BCO [beneficial cargo owner],” he said.

Generally, when we use the term BCO, we’re talking exclusively about big shippers like your Home Depots, Walmarts, and Targets of the world that deal directly with ocean freight carriers. However, in this case, you could expect this fee to likewise apply to smaller shippers who need freight forwarders to set up their shipments. Freight forwarders would likely calculate the fee into their prices when quoting shippers on their imports and exports through the Ports of Los Angeles and Long Beach.

Usually, I’m not a big fan of fees ports lay on shippers. However, in the case of this one, I don’t find it offensive. The ultimate goal of the fee is good and a similar fee in the past was quite effective.

The fee will be used to set up a fund for zero emissions trucks that call upon the ports. The Ports of Los Angeles and Long Beach have “a goal of being serviced by a 100% zero-emission drayage truck fleet by 2035.” While ten dollars sounds like a fairly small fee, the ports expect to collect $90 million in this first year of implementation, according to a press release the Port of Los Angeles put out on Friday.

Here’s how the press release says the money of this Clean Truck Fund (CTF) program, as the Ports have dubbed it, will be used:

The Los Angeles Harbor Commission last week approved priority targets and pathways that will be used to disseminate the newly collected funds, including:

● Truck Voucher Incentive Program: To incentivize the purchase of ZE trucks that service the San Pedro Bay port complex, the Port of Los Angeles will provide first-come, first-served, point-of-sale ZE truck purchase vouchers for at least $150,000 to licensed motor carriers in the Port Drayage Truck Registry. Each truck funded will be obligated to provide drayage service to the San Pedro Bay Port complex for a period of three years.
 

● Infrastructure Funding Program: Modeled after existing federal, state and local grant programs and to be managed by a third-party administrator, this program provides funds to help drayage licensed motor carriers to install or obtain ZE charging and/or fueling infrastructure. Funding could also be used to support public charging and fueling infrastructure for zero emission drayage trucks.

The previous and similar fee I mentioned above was more than triple the size of this new one. At $35 per TEU, it had a significant impact on reducing pollution from trucks at the San Pedro Bay port complex. The press release gives details:

Phasing out older, more polluting trucks has been key to clean air gains the San Pedro Bay ports have made since the original Clean Truck programs were launched in 2008 as part of the Clean Air Action Plan.  Diesel emissions from trucks have been cut by as much as 97% compared to 2005 levels. Trucks remain the ports’ largest source of greenhouse gas emissions and the second highest source of nitrogen oxides, a contributor to regional smog formation. 

Sometimes companies spin the results of their programs to make them sound effective when they aren’t. However, in the case of the Clean Truck programs at the Ports of Los Angeles and Long Beach, there was a noticeable improvement of air quality around the ports. That’s why I’m okay with the ports implementing this new CTF program.

There are exemptions to the fees. Containers hauled by trucks that are already zero-emission-vehicles will not be subject to the fee. Additionally, the Port of Los Angeles’s press release says low-nitrogen oxide-emitting (low-NOx) trucks will be exempt for a limited time.

Of course, the biggest risk with ports adding new fees is shippers choosing to divert their cargo to alternative ports. According to Mongelluzzo’s JOC article, this fee is not expected to cause cargo diversion because of how high freight rates have soared over the last couple years. Before freight rates more than quadrupled, there was a study that showed a fee only half as big as this one would cause a significant diversion. Mongelluzzo writes:

A 2020 study by transportation consultant Philip Davies, completed before the current runup in trans-Pacific freight rates, found that a fee of $5 per TEU could result in a diversion of 17,000 TEU of discretionary cargo from Southern California….

Davies told JOC.com Thursday that the $10-per-TEU fee will have little diversionary impact in the current environment in the trans-Pacific, although in the longer term, if rates settle back into historical patterns, such fees would present opportunities for those ports that have addressed their terminal and inland supply chain congestion problems.

I suspect Davies is probably correct that there won’t be a great deal of diversion due to this fee. The much greater risk of diversion from the Ports of Los Angeles and Long Beach, as well as the rest of the West Coast ports, is the upcoming contract negotiations with the International Longshore & Warehouse Union (ILWU). In fact, many shippers have already begun diverting cargo, as there is expectation for things to get contentious over the issue of automation. If negotiations do get contentious, expect major slowdowns at ports that have already been struggling with severe congestion for the last two years.

But that’s a topic for future blogs…