Office of Operations Freight Management and Operations

FHWA Operations Support – Port Peak Pricing Program Evaluation

4.0 Institutional Analysis

This section presents the results of the work conducted as part of Task 3: Institutional Analysis of the study. Some of the key institutional issues related to the development of port congestion pricing and extended gate hours programs discussed in this section include the following:

  • Acceptance of the Program by Shippers – This section presents a discussion of the experience of shippers with the PierPASS OffPeak program, the role of shipper organizations such as the Waterfront Coalition in contributing to the development of the PierPASS OffPeak program, as well as specific recommendations from the Waterfront Coalition on key issues to consider in the development of port peak pricing policies;
  • Role of Independent Drayage Truckers – This section discusses the experience of independent drayage truckers with the PierPASS OffPeak program, and summarizes some of the key concerns of independent drayage truckers with regard to port peak pricing and extended gate operations;
  • Role of Labor – This section discusses the role played by the ILWU in the implementation of the PierPASS OffPeak program, and some of the key longshore labor issues to be considered in the development of port peak pricing and extended gate operations programs; and
  • Night-Time Trucking and Noise Regulations – This section provides a summary of existing night-time trucking and noise regulations in some of the cities with major port facilities in the U.S., which would serve as useful information for future analyses on the impacts of these regulations on the feasibility of peak pricing and extended gate operations at these ports.

4.1 Acceptance of the Program by Shippers

(“Shippers”, in the context of this discussion, include both importers and exporters.)

Shipper Experience with the PierPASS OffPeak Program

A recent study performed by BST Associates for PierPASS Inc. conducted surveys of major importers and exporters to understand their perceptions about the PierPASS OffPeak program, and the impacts of the program on their business practices (PierPASS Review: Final Report, BST Associates, July 9, 2008). The key results from these surveys, which provide useful insights into shipper perceptions and concerns with port peak pricing and extended gate operations, are presented below:

Importers

Some of the key responses from importers related to the OffPeak program included the following:

  • Most of the importers interviewed in the study reported that the OffPeak program has worked for them in shifting containers to off-peak hours;
  • Some of the importers reported to have changed the operating hours of their facilities in response to the OffPeak program;
  • Importers expressed their concern about delays during the night time because of the concentration of truck trips before the start of the one-hour lunch break at 10:00 p.m. They would like the program to ensure better utilization of night gate times, in order to alleviate some of the delays associated with concentration of truck trips before 10:00 p.m.;
  • A significant share of the importers interviewed felt that they were not being provided with as much information on use of revenues from the program as they had expected. Unlike a more traditional peak pricing approach, shippers were told that the fees associated with the OffPeak program were necessary to offset increased costs to the MTOs of night gate operations (union rules call for overtime wages in the night shift and MTOs contend that prior to the PierPASS OffPeak program, experience with night gates suggested that there would be low utilization and thus higher unit costs). Shippers want to ensure that the fees are set only to cover costs and not as a source of increased profit for the MTOs. Thus, transparency of information on program finances was reported to be a major concern;
  • Importers also expressed concern with accounting issues associated with the program, particularly regarding accounting problems arising at night times, which resulted in significant delays for container pick-ups.

Exporters

Some of the key responses from exporters related to the OffPeak program included the following:

  • One of the primary concerns of exporters with the OffPeak program was the impact of the TMF on the competitiveness of their products in the international market, particularly for low-value commodities such as agricultural products;
  • Though the program offers the capability to by-pass the TMF by use of the night gates, many small exporters, unlike larger exporters, expressed their inability to use night gates within their existing operational practices, and the higher costs for them to change their operational practices in response to the program;
  • Exporters felt that the TMF discriminates against exporters as it accounts for a much larger share of the value of the cargo compared to imports;
  • Like importers, exporters also expressed their concern regarding transparency of information on program finances. The interview respondents indicated that not enough information was being shared on the use of fees from the program, and that more was being collected than needed to cover the costs of extended gate operations.

The recent surveys conducted by BST Associates obtained responses on existing facility hours of operation, as well as impacts of the OffPeak program on shipper facility hours of operation. Responses to the survey question “Do Facilities have Off-Peak Hours?indicated that approximately 25 percent of the facilities already had off-peak hours of operation even before the start of the program. These facilities included warehouses, distribution centers, cross-dock facilities, and local storage yards excluding rail yards. It was also observed that existing off-peak hours of operation varied by the size of the facility in terms of number of TEUs handled, as indicated below:

  • Fifteen percent of the facilities handling between 1 to 75 daily TEUs had off-peak gates;
  • Nineteen percent of the facilities handling between 76 to 587 daily TEUs had off-peak gates; and
  • Forty-one percent of the facilities handling more than 587 daily TEUs had off-peak gates.

Based on the surveys, it was inferred that large retailers, accounting for around 45 percent of the container volumes moving through the ports, were able to shift truck trips to the night gates of the OffPeak program more easily compared to smaller shippers, as many of them already had off-peak facility operations.

The impacts of the OffPeak program on existing facility hours of operation were analyzed based on responses to the survey question “Did Facilities Change their Off-Peak Hours in Response to the OffPeak Program?.Approximately 17 percent of the respondents to this question indicated that they established off-peak operations at their facilities (warehouses, distribution centers, cross-dock facilities, and local storage yards excluding rail yards) as a result of the program. As with the case of existing off-peak operations, a higher share of the larger facilities were able to establish off-peak hours as compared to smaller facilities, in response to the OffPeak program:

  • Eleven percent of the facilities handling 1 to 75 daily TEUs established off-peak operations after the startup of the OffPeak program;
  • Twelve percent of the facilities handling 76 to 587daily TEUs established off-peak operations after the startup of the OffPeak program; and
  • Thirty percent of the facilities handling more than 587 daily TEUs established off-peak operations after the startup of the OffPeak program.

Based on the responses to the above two questions, it was observed that more than 70 percent of the large facilities (handling more than 587 daily TEUs) were able to allow for cargo shifts to night times due to existing or induced off-peak operations.

The results from the surveys are consistent with the findings from the METRANS study, which reported that pre-existing off-peak facility operations allowed many of the consignees to shift truck moves to night gates at the start of the OffPeak program, and continued gradual increases in off-peak volume shares indicated continued adjustments and expansion of facility hours of operation to off-peak time periods (Extended Gate Operations at the Ports of Los Angeles and Long Beach, A Preliminary Assessment, April 2007). According to the study, warehouses and distribution centers have modified their operations by adding second shift staff, including security, and allocating more space to off-peak storage as a result of the OffPeak program, while not enjoying the benefit like the MTOs of the TMF as a means of covering off-peak operating costs.

Role of Shipper Organizations

The Waterfront Coalition, an organization representing the interests of cargo owners (such as retailers, manufacturers, and agricultural producers) on issues impacting the movement of goods through deep water ports, has been actively involved in working with port industry stakeholders to address issues such as port congestion. A report by the Coalition on extended marine terminal gate hours clearly indicates its supportive stance with respect to expanding hours of operation at marine terminal gates (Written Comments of the Waterfront Coalition, Assembly Select Committee on California Ports Hearing, Extended Marine Terminal Gate Hours, Waterfront Coalition, January 23, 2004). According to the report:

  • “Waterfront Coalition understands that day time truck traffic congestion remains a problem for the communities surrounding the ports”;
  • “Members of the Waterfront Coalition believe that moving cargo at night will improve the productivity of the transportation system and the economic viability of owner-operator truckers”;
  • “Extended hour gates complement the ongoing technological advancements that terminal operators are now installing”; and
  • “Extended gates are an important element of terminal and port efforts to improve the infrastructure required to meet the growing international trade.”

However, the Waterfront Coalition’s support for extended gate operations is interlinked with ensuring that its members can take advantage of operational changes at marine terminals within their current and future business models. The Coalition’s active participation in exploring the potential for extended gate hours at marine terminals as a congestion mitigation strategy began in 2001 through its efforts to initiate a “pilot demonstration project” for extended gate hours in cooperation with the MTOs at the San Pedro Bay ports. This effort, lasting a period of more than two years, was instrumental in bringing together key port industry stakeholders and streamlining their focus towards actively considering extended gate hours at the marine terminals at the San Pedro Bay ports. Particularly notable were the Coalition’s efforts in educating shippers and drayage truckers – through an educational session in August 2003, cosponsored by the ports and the Pacific Merchant Shipping Association – on the business benefits of using extended gates at marine terminals. Subsequently, the Coalition played an important role in facilitating negotiations between shippers and MTOs during the development of the PierPASS OffPeak program.

The Waterfront Coalition’s stance with respect to encouraging the development of policies for port peak pricing and extended gate operations include the following:

  • Opposition to any kind of government imposed fees at ports: The Coalition is against any kind of government imposed fees at ports. Some of the key factors contributing to this stance include the following:
    • Uncertainty on the use of revenues generated from government imposed fees;
    • Belief that government imposed fee mechanisms would not provide the means for inducing MTOs to keep terminals open during off-peak periods on a coordinated and consistent basis;
    • The likelihood of government imposed fees to remain in place in perpetuity and become a continuous revenue generating source; and
    • The likelihood of government imposed fees to impose recordkeeping burdens potentially difficult for shippers to handle.
  • Outreach to stakeholders other than cargo owners: The Coalition believes that ensuring the success of a port peak pricing and extended gate operations program would entail outreach not just to cargo owners alone, but also to other parties in the port supply chain. These parties include, but may not be limited to, logistics divisions of steamship lines, freight forwarders, and consolidators. Owing to the increasing use of Store Door Delivery processes in international port container supply chains, in which cargo owners pay third party logistics service providers (3PLs such as steamship line logistics divisions and freight forwarders) to manage their inbound transportation, quite a large proportion of containers dispatched through ports are increasingly being controlled by 3PLs. While some cargo owners work closely with their 3PLs, others may completely transfer responsibilities to their 3PLs to manage the entire international container move from the foreign factory location to the U.S. warehouse or retail facility. Clearly, in these instances, conducting outreach to 3PLs would be critical to i) gaining the support of these parties in the implementation of port pricing and extended gate operations programs, ii) engaging these parties in making necessary operational changes, if needed (such as establishment of off-peak facility operations), and iii) ensuring container diversions to off-peak time periods.

4.2 Role of Independent Drayage Truckers

Port terminal and highway congestion is a key issue for the port drayage trucking industry. Drayage truckers have long complained about the negative impacts of terminal and highway congestion on their ability to maximize daily income from port drayage operations due to constraints on number of daily drayage truck trips (drayage truckers are typically paid per individual drayage trip, which means that higher daily number of drayage truck trips would result in higher daily income).

The METRANS study reported the experience of drayage truckers with the PierPASS OffPeak program, based on the results of three surveys (two of them conducted by the California Trucking Association – CTA, and one by PierPASS Inc.). The study reported that the OffPeak program was not favorable to actors in the port supply chain without market power, particularly the independent drayage truckers. The program was implemented without consulting the drayage trucking industry, despite its obvious impacts on this industry segment. According to the study, some of the key factors that contributed to making the program unfavorable with the drayage trucking industry included the following:

  • The 5:00 to 6:00 p.m. gap (between the end of the day shift and the start of the night shift), and 10:00 to 11:00 p.m. gap (due to longshore labor lunch break during the night shift) in operations, in conjunction with the smaller size of the evening labor force led to additional delays for truckers;
  • Drayage truckers were unable to strike a deal with the MTOs to claim any share of the revenues from the OffPeak program.

The Waterfront Coalition report to the Assembly Select Committee on California Ports on perceptions regarding extended marine terminal gate hours specifically states that “Any effort to move forward with extended terminal gate hours must also gain the support of the harbor drayage industry.” (Written Comments of the Waterfront Coalition, Assembly Select Committee on California Ports Hearing, Extended Marine Terminal Gate Hours, Waterfront Coalition, January 2004.) According to this report, extending marine terminal gate operating hours cannot bear fruit unless port drayage truckers can take advantage of night gates. The Waterfront Coalition, through involvement in an extended marine terminal gate hours pilot project, determined that certain members of the drayage trucking industry are supportive of extended gate hours, based on the understanding that night gates offer the potential to perform more drayage moves in a given day, thereby resulting in higher revenues per shift. However, the report states that other members of the drayage trucking industry remain much more apprehensive about extended gate hours at marine terminals, owing to the following concerns:

  • If extended gate operational programs do not offer the same hours of operation at all the marine terminal gates, the program would not be in the best interest of drayage truckers; and
  • Some drayage truckers have expressed reluctance to participate in extended gate operations programs due to the belief that terminals would not be able to offer full-service staffing during extended gate operations, thereby contributing to increased delays for truckers.

As part of the Task 3 effort, CS conducted an interview with the Owner Operator Independent Drivers Association (OOIDA). OOIDA is an association representing the interests of independent owner-operators and professional drivers on all issues affecting independent truckers. This interview process obtained answers to questions related to the perceptions of OOIDA on port congestion pricing and extended gate operational programs as they relate to the business impacts on drayage truckers, as well as the Federal involvement in developing port congestion pricing policies. The OOIDA has expressed strong support for port congestion pricing and extended gate operations, owing to their positive impacts related to congestion mitigation, and increased earning potential for independent truckers.

Some of the specific concerns expressed by OOIDA that they would like to be addressed in port congestion pricing programs include the following:

  • The OOIDA has expressed an interest in supporting a Federal policy framework for port peak pricing and extended gate operations, particularly in the case where the policy framework also requires ports to grant exceptions to drayage truckers on certain port-related fees due to their willingness to participate in night-time gate moves. The OOIDA specifically cited the example of some ports having their own port security credentialing programs in addition to the Transportation Worker Identification Credential (TWIC) program administered by the Transportation Security Administration (TSA) that are resulting in additional costs to drayage truckers, which the OOIDA would like to be waived for truckers as part of their willingness to participate in port peak pricing programs.
  • In order for port peak pricing and extended gate operations programs to be favorable to drayage truckers, the OOIDA would like a Federal policy framework to specifically consider requiring all marine terminals at a port to participate in the program (as opposed to only a few terminals participating in the program), since drayage truckers typically have significant interterminal container pick-up and delivery activity, which is essential to sustaining their current business practices.
  • The Federal policy framework should not impose fees at ports, but act more as a policy guidance that ports and other stakeholders can use to analyze the feasibility and determine the potential for implementation of port peak pricing programs. In other words, the OOIDA is against the Federal government directly imposing peak-period fees at ports.

4.3 Role of Labor

Longshore labor unions are an important component of port institutional frameworks, and their operational practices and business interests are key factors to consider in the development of port peak pricing and extended gate operational programs. The International Longshore and Warehouse Union (ILWU) on the west coast played an important role in the development of the PierPASS OffPeak program. Realizing the benefits of extended gate operations at the San Pedro Bay ports in terms of generating additional longshore labor jobs, the ILWU provided its full support for the OffPeak program. The ILWU, however, was able to protect its business interests through provisions in the existing longshore labor contract with the Pacific Maritime Association (PMA) for appropriate labor shift times and wage rates for night gate operations. The west coast labor wage rates are higher for night-time work shifts (evening shift – 6:00 p.m. to 3:00 a.m., and hoot owl shift – 3:00 a.m. to 8:00 a.m.) compared to the day time shift (8 am to 5:00 p.m.). Under the current labor contract, which is under renewal at the time of this writing, workers are entitled to 1.33 times the day time hourly rate for working night shifts. As indicated in the Task 1 report, existing longshore labor shift times were the determinants of the shift times of extended gate operations in the OffPeak program. The program did not include gate operations for the hoot owl labor work shifts (3:00 a.m. to 8:00 a.m.).

As seen from the wage rate information above, extended gate operations result in significant incremental costs for MTOs. According to the METRANS study, night-time longshore labor costs are the single main reason why MTOs do not typically accommodate container pick-up and delivery outside of day time gate hours. This was also observed in the case of the PierPASS OffPeak program, wherein MTOs came together to create a private sector solution so that they could have control over the fee revenues to defray the additional costs associated with extended gate operations.

The longshore labor conditions on the east coast, in terms of the labor work shift times and wage rates, are different compared to the west coast, and are derived from a different labor contract. The International Longshoreman’s Association (ILA) is the labor union for the Atlantic, South Atlantic, and Gulf coasts of the U.S, which stipulates labor work rules for ports on these coasts, based on a labor contract with the United States Maritime Alliance and the Carriers Container Council. Consequently, any efforts towards implementing port peak pricing and extended gate operations at ports on the Atlantic or Gulf coasts would entail looking at the existing ILA labor contract to determine work shifts and labor wage rates, which are key inputs to estimating extended gate operations costs and shift times.

Both the ILWU and the ILA are expected to support future efforts to develop Federal port pricing policies and implement individual pricing programs at specific ports, as long as they are able to protect their business interests through existing labor contracts. No specific concerns have been raised by the ILWU thus far related to the PierPASS OffPeak program. Both the ILWU and the ILA could potentially contribute to creating more favorable work shift conditions at ports favorable to port peak pricing and extended gate operations programs, and avoiding some of the constraints experienced with the PierPASS OffPeak program arising due to existing labor work shift timeframes (such as queuing of trucks before the start of the evening shift at 6:00 p.m., and underutilization of longshore labor in the 11:00 p.m. to 3:00 a.m. time period). Identifying the process involved in engaging the labor unions in making labor work shift changes at ports that are more compatible with the requirements of port pricing and extended gate operations programs is, however, outside the scope of the current study.

4.4 Night-Time Trucking and Noise Regulations

This section documents night-time noise and truck operating restrictions in some of the cities with major ports in the U.S. This information will be useful in assessing the feasibility of port peak pricing/extended gate operations programs from the perspective of night-time trucking activity restrictions stipulated by local city ordinances. Ordinances for the following cities are reviewed in this section:

  • Seattle, Washington;
  • Houston, Texas;
  • New York, New York;
  • Norfolk, Virginia;
  • Charleston, South Carolina; and
  • Oakland, California.

Truck Restrictions

Currently none of the cities listed above have imposed any specific restrictions for night-time trucking operations. Restrictions were only found during daytime for some roadway segments of the designated truck routes in Manhattan and Brooklyn, mainly from a peak-period congestion standpoint.

Noise Restrictions

All the cities listed above have ordinances on night-time noise restrictions. However the threshold for maximum sound levels, measured in decibels (dBA), vary among each of them. A detailed discussion on quantitative night-time sound level thresholds for each of these cities is presented in Appendix B.

Though currently no restrictions exist in the cities analyzed above for truck traveling during nighttime on the roadway system, it is likely that residential areas located in proximity to the ports or in truck corridors accessing the ports can request the application of the City noise ordinances to reduce or limit the nuisance of the noise produced by trucks traveling at night, which could potentially have implications for night-time trucking operations resulting from peak pricing and extended gate hours programs.

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