Shafter Report-V17

The Shafter Advantage

The California Integrated Logistics Center

A Partnership Project of

The City of Shafter

Northwest Container Services, Inc.

The Port of Oakland

Prepared by

Lon Hatamiya, Director Tapan Munroe, Director LECG, LLC Emeryville, California

Acknowledgements The authors would like to acknowledge and thank Brent Green, Director of Busi- ness Development for the City of Shafter, Art Scheunemann of Northwest Container Services, Inc., Mark Westwind of Munroe Consulting Inc., and Doug Svensson and Peter Cheng of Applied Development Economics, Inc., for their support and contri- butions to this report.

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Table of Contents

Executive Summary...... 1 Key Points ...... 1 I. The Importance of International Trade ...... 1 II. Trade Flow Challenges...... 2 III. The California ILC Partnership...... 3 Benefits...... 7 Introduction ...... 9 I. The Importance of International Trade ...... 10 Key Points ...... 10 A. United States...... 10 B. California...... 11 C. San Pedro Bay Ports ...... 12 D. Economic Benefits...... 13 II. L.A. Region Goods Movement Challenges...... 14 Key Points ...... 14 A. Port Congestion...... 14 B. L.A. Region Trucking ...... 18 C. L.A. Region Railways...... 20 D. Empty Container Movement...... 23 E. Security Challenges...... 25 F. Environmental Challenges ...... 26 III. The California Integrated Logistics Center...... 28 Key Points ...... 28 A. Project Overview...... 28 B. Market Analysis ...... 30 C. Key Players and Beneficiaries...... 33 D. Success Factors...... 33 E. Challenges ...... 33 F. Benefits ...... 34 G. The Shafter Advantage...... 38

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Executive Summary

Key Points

· International commodity trade is vital to the nation’s economic well-being. One in seven jobs in California are dependent on international trade and one in five nationally. California provides the nation with key trade links to Asian trade partners via its three global gateway ports: Los Angeles, Long Beach and Oakland. · The Ports of Los Angeles and Long Beach as well as the supporting goods movement infrastructure are seriously congested while container traffic flow through these ports is expected to triple over the next twenty years. The economic impact of any extended disruption to these ports (e.g. by earthquake, terrorist attack or labor dispute) would be staggering. Routing more international trade through the Port of Oakland would distribute and alleviate some of this risk. · In order to position the Port of Oakland as a viable alternative to the Ports of San Pedro Bay, fast and affordable movement of containerized freight from Oakland to Southern California must be provided. This is made possible through the addition of off-port rail intermodal capacity in the Southern Central Valley. · The California Integrated Logistics Center (CILC) will be a comprehensive intermodal services facility strategically located in Shafter along major north/south rail and highway routes through the Central Valley. · The CILC project will open a “back door” into the L.A. Basin through the Port of Oakland and the Central Valley while also making an Oakland/Shafter rail shuttle economically viable. · The proposed California ILC will be developed as a unique public/private initiative between the City of Shafter, Northwest Container Services, Inc., and the Port of Oakland. · By shifting more goods movement from trucks to rail, the proposed Oakland/Shafter rail shuttle will lead to a decrease in highway congestion, fewer truck-related accidents, and an overall decrease in total vehicle emissions. · In addition, the Shafter region, the Bay Area, and the state will benefit from the additional jobs created and an overall increase in economic vitality as a result of this project.

I. The Importance of International Trade

International commodity trade is vital to the nation’s economic well- Figure A

being. Imports and exports Rail Trade Flow through San Pedro Bay Ports through U.S. ports support millions (Line weight indicates intermodal volume) of trade-related jobs. Our imports range from vital raw materials (including oil) to a myriad of luxury goods. Our exports include waste paper, scrap metal, precision manufactured goods, fruits, vege- tables, nuts (almonds and pistachios), frozen beef and chicken, cotton and fiber, and fine wines. California ports play a major role in the nation’s goods movement business. (Figure A)

Source: U.S. Dept. of Transportation

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California provides the nation with key trade links to our Asian trade partners including Ja- Figure B

pan, China, South Korea and Taiwan via its Trade Flow Imbalance three global gateway ports: Los Angeles, Long through West Coast Ports Beach and Oakland. (Figure B) The Port of Long Beach alone is responsible for 1.4 million trade-related jobs throughout the nation. Inter- national trade directly and indirectly supports one in seven jobs in California.

II. Trade Flow Challenges

The state and the national economies are highly dependent on goods movement through San Pedro Bay via the Ports of Los Angeles and Long Beach. This places both the state and the nation at risk should anything constrain the free flow of containers through these ports (e.g. a dock strike, earthquake or terrorist attack). The potential cost of extended “downtime” at the San Pedro Bay Ports would be staggering both for the state and for the nation.

While even brief periods of trade flow stop- The ports of Los Angeles and Long Beach page through Los Angeles and Long Beach are clearly dominant along the West Coast. would be costly, there are chronic problems in Such an imbalance risks serious economic impact should traffic through these ports California’s goods movement infrastructure be disrupted for any reason. that are equally as threatening to the economy over the long-run. The primary problem is the severe congestion at the San Pedro Bay Ports and the supporting goods movement infrastructure that frequently results in highly expensive delays in loading and unloading cargo ships – delays that can cost carriers well over $1,000 per hour. In response to all-too-common delays, carriers regularly divert cargo ships to Seattle, Port- land, Anchorage, Ensenada (Mexico), Panama and other ports to unload goods destined for Cali- fornia and elsewhere in the nation.

L.A. Basin Goods Movement Congestion Threatens the State’s Economy

· Turn-around time for vessels at San Pedro Bay Ports is doubling creating high costs for shippers and carriers. · Truckers must wait up to six hours at port terminals, adding to shipping costs. · L.A. Basin highways are seriously congested: 800,000 truck trips per day, 26M miles/day projected to increase to 50M miles/day by 2020. · I-710 serves 40,000 trucks per day projected to increase to 97,000 trucks per day by 2020. I-10 and I-15 serve 87,000 trucks per day. · L.A. rail corridors handle 112 freight trains per day, projected to rise to 165 in 2010 and 283 by 2030. · Delays and congestion frequently cause ships to be diverted away from the San Pedro Bay Ports to other ports and other countries. · The region, the state and the nation suffer from the loss of container traffic to other ports, states and countries.

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The problem is critical now and will only get worse as international trade through San Figure C Pedro Bay Ports increases three-fold over the next decade. (Figures C & D) The im- Container Traffic through pact of port delays, goods movement con- California’s Global Gateway Ports (2000) gestion and the increasing loss of trade traffic will have serious economic consequences for the state of California and for the nation.

A variety of improvements are needed in order to upgrade California’s goods movement infrastructure including better balancing of goods movement through the state’s ports, dedicated rail services from the Bay Area into the southern end of the Valley, the construction of additional intermodal facilities, and more efficient management of empty containers. While no one project will solve all of the state’s goods movement challenges, there are clearly benefits that a state-of-the-art intermodal facility in the Southern San Joaquin Valley would contribute to addressing these key issues.

III. The California ILC Partnership

First and foremost, the proposed California ILC will involve a unique public/private partnership between the Kern County city of Shafter (240 miles south of Oakland and at the northern edge of greater Los Angeles), Northwest Container Services, Inc., and the Figure D Port of Oakland. There are three key components of the project: Growth of Container Traffic through San Pedro Bay Ports

· The primary component is the Port of Oakland. Unlike the San Pedro Bay Ports, the Port of Oakland has un- tapped capacity for handling both imports and exports, though additional off-port intermodal facilities and expanded rail services are needed to support additional container traffic.

· The second component is a state- of-the-art intermodal transportation hub in Shafter. This facility will add significant intermodal capacity to the state’s goods movement system while providing a link between Source: Ports of Oakland, Los Angeles and Long Beach the Port of Oakland and Southern California markets as well as a vital link to key east-west rail lines.

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· The third component is a new freight rail shuttle that will connect the Califor- nia ILC with the Port of Oakland. The Figure E Northwest Container Services (NWCS - Portland, Oregon) will manage the pro- California ILC: posed rail shuttle. Such a short-haul rail Strategically Located in Shafter

service has been the missing link for many years in the state’s overall goods movement system.

Shafter is the most logical location for a new intermodal facility in California because it is located at the extreme southern end of the San Joaquin Valley which has effectively become the northern edge of the very large Southern California market. In addition, Shafter is strategically centered at the intersections of Interstate 5, Highway 99, and both of the state’s Class 1 rail lines (operated by Union Pacific and Bur- lington Northern). (Figure E) Drayage costs will be lower to and from a Shafter facility than other I-5 corridor locations. The California ILC will be located in two existing industrial parks. These industrial parks have ample land to ac- commodate state-of-the-art intermodal operations. These parks are in a foreign trade zone as well as in a California Enterprise Zone with ac- companying benefits. Most important for the success of this project, the City of Shafter has the infrastructure and the political will, plus a high degree of entrepreneurial spirit and a proven track record to get the project done quickly.

The Oakland/Shafter Freight Rail Shuttle

The Oakland/Shafter rail shuttle adds capacity to the regional and national logistics chain and

provides an alternative route for imports and ex- Figure F ports. By providing a cost-effective in-state alternative to routing containers through the San NWCS Rail Shuttles Pedro Bay Ports, the proposed rail shuttle be- in the Pacific Northwest

tween the Port of Oakland and the California ILC will help alleviate the port congestion problems in San Pedro Bay while assuring that container traffic continues to flow through California Seattle/Tacoma ports. The combined rail shuttle and California ILC projects will facilitate more cargo traffic through Oakland thereby enhancing the port’s business, creating new jobs in the San Fran- cisco Bay Area and the Shafter Region, and preserving trade-related jobs in the L.A. Basin. Pasco Northwest Container Services has success- Portland fully operated similar rail shuttles and support-

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ing terminals in the Pacific Northwest since 1985. (Figure F)

With the addition of the Oakland/Shafter rail shuttle, imports routed through the Port of Oakland (instead of via the San Pedro Bay Ports) could be moved by rail to the California ILC then drayed via truck over the Grapevine to the greater Los Angeles area. In addition, the California ILC would serve as a primary intermodal facility for the region’s increasing number of distribution centers (e.g. Sears, Target, and IKEA). In effect, the California ILC will provide cost-competitive “back door” access into the vast Southern California market. (Figure G) Exporters in 1) the Southern San Joaquin Valley region, 2) the Eastern LA Basin, and 3) Southwestern States would also have an alternative route to ship containerized goods through the Port of Oakland. (Figure H)

Figure G

A “Back Door into the L.A. Basin”

Figure H

An Alternative Route for Exports

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Partners and Beneficiaries

The California ILC will be developed as a

public/private partnership that brings together the necessary know-how, experience The California ILC and commitment to make this project work. · Addresses domestic and international City of Shafter – The City of Shafter is needs and goods movement issues committed to providing the land and infra- · Serves as an empty return depot structure for the California ILC. Just as im- and facilitates the triangulation of portant, the City is providing the leadership empty cargo containers and entrepreneurial initiative to carry this project forward. · Provides container storage · Offers chassis and container Northwest Container Services, Inc. – maintenance services NWCS will operate the CILC, coordinating transportation services-rail and truck opera- · Offers container freight station services

tions, switching of rail cars, and the storage and handling, repair and maintenance of all equipment, marine containers, chassis, and trailers. NWCS will also oversee a joint In- Key Players termodal Service Development Program · City of Shafter with the City of Shafter, and coordinate a · Northwest Container Services sales and marketing staff. · Port of Oakland

Port of Oakland – The Port of Oakland, as a modern global trade gateway, has sufficient available infrastructure to support a significant increase in container flow. The Beneficiaries Port continues to make progress toward its · City of Shafter goal of providing deep-water berths for next · Northwest Container Services generation mega-ships. Given the Port’s need for additional intermodal capability to · Port of Oakland handle increased container traffic and the limited near-port land available for addi- · Ports of Los Angeles tional intermodal facilities, the Port is com- and Long Beach mitted to supporting the CILC project and · Importers the proposed Oakland/Shafter rail shuttle. · Exporters Beneficiaries · Truckers The California ILC will have many business · Railroads and economic benefits throughout the state. · Ocean Carriers This project will result in more business and lower operating costs for trade-related com- · Container Freight Operators panies leading directly to an increase in · Financial Institutions trade-related jobs in all regions of the state. In addition, the project will benefit the public by · Freight Forwarders removing thousands of trucks from the state’s highways thereby reducing traffic congestion, · Customs Brokers truck-related accidents and net vehicle emis- · Developers sions. More efficient use of the state’s existing goods movement infrastructure will result · Support Industries in more reliable trade flow and increased trade flow security.

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Benefits

Improves Goods Movement, Decreases Vulnerability

By adding critically needed intermodal capacity to the state’s goods movement infrastructure in a key geographical location, the California ILC (and the proposed Oakland/Shafter rail shuttle) will help balance trade flow through California’s ports, decrease highway traffic congestion by shifting more container movements to rail, improve goods movement efficiency, decrease the vulnerability of trade flow through California ports, and create new jobs. The CILC will help reduce container clutter at the Port of Oakland and make Oakland a more competitive destination in the shipping world.

Decreases Congestion and Environmental Impact

By shifting more goods movement from trucks to rail, the proposed Oakland/Shafter rail shuttle will lead to a decrease in highway congestion, fewer truck-related accidents, and an overall decrease in total vehicle emissions. Truck traffic between the Bay Area and Southern San Joaquin Valley will be reduced as an increased volume of container traffic will be shifted from I-580, I-880 and I-5 to the proposed rail shuttle. Implementation of a rail shuttle between Oakland and Shafter is expected to reduce truck traffic by approximately 132,522 truck trips on the state’s highways each year. Freight trains are considerably more fuel efficient as trucks – emission levels are as much as nine times lower. By shifting more freight movement to rail, air pollution will be decreased proportionately.

For example, a single Oakland/Shafter rail shuttle train hauling 150 containers will eliminate 75 truck trips along the same route assuming each truckload carries two 15-ton containers. This represents a reduction of 19,050 vehicle miles traveled (VMT) given a distance of 254 miles between Oakland and Shafter. As a result, over 1,800 lbs. of truck emissions will be eliminated (using Federal diesel emission guidelines of 0.98 lbs./mile) while only 207 lbs of emissions would be generated by the freight rail train (based on a 9:1 truck-vs-rail emissions ratio).

The LA Basin stands to benefit from reduced air pollution through the more efficient management of empty containers. Projections for reductions of vehicle miles traveled and consequent emissions reductions over the next twenty years from a 5% reuse of empty containers are substantial:

Potential Emissions Reduction in LA Basin from 5% Empty Container Reuse

2010 2020 .

VMT Reduction 2,187,441 4,827,530

Emission Reduction (lbs.) 213,691 471,601

Better Empty Container Management

The California ILC project will also provide a geographically convenient empty return depot for triangu- lating empty shipping containers with return loads. In 2003, nearly 524,000 empty containers passed through the Port of Oakland. Both the CILC and the proposed Oakland/Shafter rail shuttle will greatly facilitate empty container reuse. This will in turn reduce truck traffic on the state’s highways (particularly Interstates 80, 580 and 880) thereby decreasing vehicle accidents, reducing air pollution, and wear and tear of our roadbeds. Better empty container management will add to the profitability of shippers and carriers and increase the economic vitality of the Port of Oakland and the Shafter region.

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Job Creation in the Shafter Region

The Shafter region, the Bay Area, and the state will benefit from the additional jobs created and an overall increase in economic vitality as a result of this project. During the construction phase of the project (one year), it is estimated that nearly 500 well-paid workers will be employed on the project. This suggests 1,500 total jobs in the Shafter region for the construction period as a result of the multiplier effect.

Preliminary estimates suggest that the CILC facility will create nearly 150 on-site jobs in its first year of operation. New warehousing and manufacturing jobs made possible by the project are anticipated to total 500 per year resulting in a net increase of 5,000 trade-related jobs in the Shafter region over the next ten years.

The Shafter Advantage

Location · Shafter is within 300 miles of major markets in Sacramento, San Diego, San Francisco, Los Angeles and Las Vegas · Strategic proximity to the intersections of Interstate 5, Highway 99, and both of the state’s Class 1 rail lines · Large local export market - San Joaquin Valley exports include: Almonds, Citrus, Cotton, Hay and Pistachios · Foreign Trade Zone and California Enterprise Zone status provides tax incentives and workforce training support · City of Shafter has committed land for the project · Zoning and environmental clearances in hand

Operation · State-of-the-art intermodal facility (proposed) · Available, skilled workforce · 24/7 security to be provided by the Shafter Police Department

Business Environment · A proactive and entrepreneurial local government · Shafter is an attractive location with a good business climate · Lower land and labor costs relative to the Bay Area and the Los Angeles region

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Introduction

In recent months, California’s two biggest ocean trade gateways, the Ports of Long Beach and Los Angeles, have increasingly been backed up with freighters waiting for dock services. This is caused by a variety of factors including marked increases in container cargo traffic, the advent of mega container ships, shortages of trained dock workers, and massive congestion on the region’s rail lines and highway systems. The problem becomes even more serious when we consider that between 2002 and 2020 container traffic through these ports is predicted to rise dramatically.1

Growing congestion and other impediments to the efficient and timely flow of goods through these two major ocean gateways have adverse economic implications for the U.S. as well as California and jeopardize our global competitiveness. Potential impacts include loss of jobs, loss of tax revenues, higher costs of goods, lower profit margins for shippers, worsening air quality, and finally, diversion of freight traffic from California to ports in Mexico and elsewhere. This is not a desirable future for California or the nation.

The development of additional intermodal facilities in California is key since little expansion capacity exists in the ports or the access highways to the ports. A new intermodal facility in the Southern San Joaquin Valley combined with a freight rail shuttle could substantially alleviate the bottleneck at the San Pedro Ports, effectively move goods to inland destinations, and reduce the projected increases in truck traffic on the state’s highways.

This is the need to which the proposed intermodal facility – the California Integrated Logistics Center in the Kern County city of Shafter – intends to address. The proposed facility, a state of the art 21st century intermodal logistics center, will be created via a unique public/private partnership between the City of Shafter, the Port of Oakland, and Northwest Container Services, Inc. This report is about the advantages and benefits of this Center and the background information and analysis necessary to understand its role and importance for the Southern Central Valley region of California as well as California’s economic competitiveness.

This report is divided into three chapters:

I. The Importance of International Trade

II. Los Angeles Region Goods Movement Challenge

III. The California Integrated Logistics Center

It is important to point out the magnitude of California’s good’s movement challenges cannot be entirely solved by one intermodal center like the CILC in Shafter although it will make a significant positive contribution toward a solution. It is our hope that strategically located centers like the California ILC will go a long way toward solving the state’s goods movement problem.

1 Haveman, J.D, and Hummels, D., Public Policy Institute of California, 2004

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I. The Importance of International Trade

Key Points

· International trade is vital to U.S. prosperity and efficient movement of containerized goods through U.S. ports is critical for maintaining U.S. competitiveness in the global economy. One in five manufacturing job in the U.S. is tied to exports. · One in seven California job is tied to international trade. California ports and its complex goods movement infrastructure and trade-related businesses generate many benefits for the port regions as well as the state, including jobs, profits, and state and local tax revenues. · Three of the four largest container ports in the U.S. are in California: Los Angeles, Long Beach, and Oakland. The San Pedro Bay Ports process nearly 40% of U.S. container trade and together they form the third largest port in the world. The Port of Oakland is the seventh largest port in the world by value of goods, and fourth largest in terms of containerized trade. · California is a huge distribution center (“entrepot”) for the rest of the nation – much of the goods passing through California ports either originates in or is destined for use elsewhere in the U.S. In 2000, California facilitated nearly $297 billion of international goods flow out of which only $121 billion worth of goods involved California locations. · The rest of the nation does not financially compensate the state for the maintenance, repair, and construction of the enormous ocean gateway infrastructure even though California be- stows enormous benefits to the rest of the nation because of its entrepot role.

A. United States

The United States is the world’s largest im- Table 1.1

porter and exporter of goods. Our nation ac- World’s Top 10 Container Ports counts for more than 20% of the world’s an- Ranked by Traffic - 2001 nual ocean-borne trade. Our prosperity and economic competitiveness depends on the ef- 1 Hong Kong China ficiency with which we move goods through 2 Singapore Singapore our ports and out to all parts of the country.2 Of the $2 trillion dollars worth of international 3 San Pedro Bay U.S. goods that pass through U.S. ports, nearly 4 Kaohsiung Taiwan 50% is containerized. 5 Shanghai China 6 Rotterdam Netherlands In overall terms, one in five U.S. manufacturing jobs is tied to exports. Furthermore, an es- 7 Los Angeles U.S. timated 7.7 million jobs (7% of U.S. private 8 Shenzhen China sector employment) are supported by manu- 9 Hamburg Germany factured exports. The state of California is the 10 Long Beach U.S. nationwide leader in the number of jobs linked to manufactured exports - 1.15 million jobs or Source: “Enhancing Southern California’s Global 15% of total U.S. export-linked jobs.3 Gateways”, Pacific Council in International Policy

2 “Trade & Transportation-A Study of North American Port and Intermodal Systems”, National Chamber Foundation of the U.S. Chamber of Commerce, March 2003 3 U.S. Department of Commerce

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B. California

The state of California is the single largest trading region in the U.S. Waterborne commerce passing through California ports accounts for nearly 40% of the U.S. total. Three of the four largest container ports in the U.S. are Los Angeles, Long Beach, and Oakland. Approximately 35% of all U.S. waterborne containers pass through the San Pedro Bay Ports (Los Angeles and Long Beach) with cargo valued over $200 billion.

California’s major ocean ports support industrial, retail, and agricultural industries throughout the U.S. Much of the goods passing through California ports either originates in or is destined for use elsewhere in the U.S. In other words, the state of California is a huge distribution center (“entrepot”) for the rest of the country.

Table 1.2

California in Perspective

· Population: 35 million people (1 in 8 Americans) now; over 45 million by 2020 · 6th largest economy in the world -GSP over $1.3 trillion annually · Top food/agricultural producer in the U.S. for over 50 years, over $25+ billion/year · $114 billion in exports-15% of the nation’s total · 1 in 7 jobs in the State are tied to the movement of international trade · 2016 freight volume forecast: 1.81 billion tons, 79% by trucks

Source: Office of Goods Movement, California Dept. of Transportation, 2002

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C. San Pedro Bay Ports

The Ports of Los Angeles and Long Beach have an enormous and important impact Table 1.3

upon the flow of international trade. Con- Top 10 U.S. Ports - 2001 tainer traffic through the Ports of San Pedro Bay is currently estimated to be 35% to 40% 1 Los Angeles 19.4% of all U.S. waterborne container trade. The value of that traffic is even greater as the U.S 2 Long Beach 18.2% Treasury collects 45% of all U.S. (Figure 1.1) 3 New York/New Jersey 13.2% Customs revenue on products that go through the ports and corridors of Southern 4 Charleston 5.5% California each year. 5 Oakland 5.5% The Ports of Los Angeles and Long Beach 6 Hampton Roads 5.3% taken together constitute the third largest port 7 Seattle 4.7% in the world. In 2002, they handled 10.5 million containers. These are primarily importing 8 Savannah 4.6% ports—imports exceed exports by a ratio of 7- 9 Houston 4.3% to-1. The Port of Oakland is the seventh largest in the world by value and is the fifth largest 10 Miami 4.0%

container port in the U.S. (Table 1.3) Relative to the San Pedro Bay Ports, Oakland’s trade Source: U.S. Customs Service pattern is fairly balanced with only 30% more containers exported than imported.

Figure 1.1

Rail Trade Flow through San Pedro Bay Ports (Line weight indicates intermodal (ship and rail) trade volume)

Source: U.S. Dept. of Transportation

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The Ports of San Pedro Bay contrib- Table 1.4 ute substantial national economic and trade benefits. The two ports are the National Trade Benefits: leading gateways to the Pacific Rim Trade Between U.S. Regions and Overseas and are prime points of entry for im- Trade Partners via San Pedro Bay Ports, 2000 ports from Asia. Nearly 60% of the imported cargo consumed in the Chi- Region Billions of US$ cago area flows through the San Pedro Bay Ports. In 2000, these two Northwest 2.2 ports handled $200 billion in mer- (WA, OR, MT, ID, WY) chandise trade between the U.S. and its Pacific Rim trading partners. Nearly Southwest 98.0 50% of this trade flow served the (CA, NV, AZ, UT, CO, NM) southwestern states, one third served the Atlantic seaboard and the Great Great Plains 8.6 (ND, SD, NE, KS, MN, IA, MO) Lakes markets.4 South Central 12.1 (TX, OK) D. Economic Benefits Southeast 16.0 In 2000, the state facilitated nearly (AR, AL, GA, FL, LA, NC, SC, TN, MS) $297 billion of international goods flow for other states. Out of this, only $121 Great Lakes 25.0 billion involved California locations. Al- (IL, WI, MI, IN, KY, OH, WV) though the state provides an enormous Atlantic Seaboard 34.4 service as an entrepot for the rest of (CT, DE, ME, MD, MA, NH, NJ the country, its ports, goods movement NY, PA, RI, VT, VA) infrastructure, and trade-related businesses generates many benefits for Total 196.3 the ocean port regions and the state as a whole including jobs, business prof- Source: “Two-Way Trade Between California and Regions its, and state and local tax revenues. of the United States”, OnTrac, 2002

The importance of maritime commerce for the state of California was dramatically illustrated by the 10-day labor dispute at the West Coast ports in the fall of 2002. It has been estimated that the lock-out and 23-day backlog of goods disrupted trade flow valued at over $6 billion at the Ports of Los Angeles and Long Beach alone.

Economic Benefits of International Trade

· The Port of Los Angeles provides direct and indirect employment for over 259,000 people in Southern California. · The Port of Long Beach provides an estimated 260,000 direct and indirect jobs through port-related activities with wage and tax revenue values comparable to those of the Port of Los Angeles. · State and local jurisdictions took in over $1.4 billion in tax revenues from the $8.4 billion in wages paid to trade-related workers. Sources: “OnTrac Trade Impact Study”, L.A. Economic Development Corp., Sept. 2003; “Real Estate Insight”, Principal Global Investors, Sept. 2004; “Goods Movement Program White Paper”, Southern Cal. Assoc. of Governments, Jan. 2002

4 Source: “Enhancing Southern California’s Global Gateways”, Pacific Council in International Policy, 2003

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II. L.A. Region Goods Movement Challenges

Key Points

· The Ports of Los Angeles and Long Beach are faced with increasing congestion caused by substantial growth in container traffic, the advent of mega-container ships, contentious labor issues at the ports, and an inability to expand port-side facilities to meet the increased demand. This congestion can result in delays which could adversely affect the flow of international trade and thereby hinder the global and national economies. · The financial cost of port congestion can be staggering and can cause the shift of business to other competing locations outside of California. · Trucking continues to be the major mode of goods movement in the Los Angeles Basin. By 2010, over 50,000 truck trips per day will be made to the LA/LB Ports and by 2020, this number will grow to 91,000, causing even more severe traffic congestion along Los Angeles freeways. · Despite recent efforts to improve rail traffic flow with the creation of the Alameda Corridor and Alameda Corridor East, rail congestion will also increase along Los Angeles Basin rail lines. It is estimated that total train traffic will grow from 170 trains per day to 390 trains by 2025--an increase of 230%. · One of the consequences of the significant trade imbalance through the LA/LB Ports is the growing problem of empty cargo containers, as nearly 40-50% of the containers shipped to the West Coast from Asia are returned empty. Transporting empty containers adds to the congestion on local, regional, and national rail lines and highways. · A major earthquake or a terrorist attack that caused serious damage to one of more of the Los Angeles Basin’s primary arteries for goods movement would have an adverse impact upon the global and national economy. · Goods movement in and out of the LA/LB Ports is a major source of pollution to the region’s air and living environment. Increasing pollution will put even more pressure upon the need to reduce traffic congestion upon the region’s highways and rail lines, which could seriously jeopardize the ability to move the nation’s trade.

A. Port Congestion

a. Causes of Congestion

With the nation, the state and the LA region so dependent on efficient goods movement through the Ports of Los Angeles and Long Beach, port congestion issues have far-ranging impact and could either help or hinder the global and national economies. Several important factors contribute to current and future congestion problems at the San Pedro Bay Ports: 1) substantial increases in current and projected cargo container traffic, 2) the advent of mega-capacity container ships, 3) on-going shortages of trained dock workers, 4) constraints on port operations and 5) congestion on the region’s rail lines and highway systems.

1) Increasing Container Traffic

The most serious challenge facing the San Pedro Bay Ports is managing the substantial increase in container traffic projected for the next twenty years5 It is anticipated that con-

5 The 2002 “Los Angeles-Inland Empire Railroad Main Line Advanced Planning Study” conservatively estimates a 220% increase in containerized cargo traffic to 30.3 million TEUs through the ports of Los Angeles and Long Beach by 2025. In 2003, the Orange North-American Trade Rail Access Corridor Authority (OnTrac) estimated container traffic will more than triple by 2020 to 36.1 million TEUs. Year-over growth in container volume in August 2004 was well above forecasted levels with traffic through the Port of Long Beach up 23% and through the Port of Los Angeles up 10%. Ac-

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tainerized traffic cargo will nearly triple in the next two decades to well over 30 million TEUs per year. (Figure 2.1)

Despite massive improvements to port facilities and the region’s goods movement infrastructure over the past few years, serious delays in loading and unloading ships continue to occur on a regular basis caused by the enormous growth of shipments arriving and departing from these ports. Demand for San Pedro Bay Port services regularly exceeds operating capacity. Figure 2.2 illustrates a typical two-month period in the summer of 2004 during which numerous ships were anchored out waiting to be serviced.

Figure 2.1

Projected Container Traffic Growth at San Pedro Bay Ports (in millions of TEUs)

Source: “Southern California Freight Management Study”, LACMTA, 2002

A key factor in controlling the cost of goods movement is keeping container dwell time to a minimum. Average dwell times at the Port of Los Angeles are approximately four days for loaded containers. By comparison, dwell times at the Port of Houston are approximately seven days. The ability of San Pedro Bay Ports to keep container dwell times down and thereby maintain a competitive cost advantage is directly linked to their ability to quickly move containers off-site via rail.6

Increasing congestion along LA Basin rail lines will most likely lengthen container dwell times and negatively impact container movement costs. The unprecedented surge in container volume in 2004 has already impacted regional trucking and rail services. As a result, shippers were being advised to add seven days to their supply chain schedules.7

cording to the Pacific Maritime Association, imports from Asia were projected to increase by 5 to 8 percent in 2004, but by third quarter, volume had already grown almost 14%. 6 “U.S. Container Terminal Throughput Density”, IWD Group, February 2003 7 “Port Congestion Continues”, DHL Danzas Air & Ocean, Issue 450, Sept. 2004

November 2004 15 LeCG The Shafter Advantage

Figure 2.2

Example of Congestion at San Pedro Bay Ports: Ships per Day in Port and at Anchor July-August 2004

Source: Los Angeles Port Authority

2) The Advent of Mega-Container Ships

Contributing to the surge of container traffic through the ports is the advent of mega-capacity Figure 2.3 cargo ships. Historically, the average cargo ship carried be- Container Fleet Development tween 1,000 and 2,000 TEUs. by TEU-Size Classes, 2000-2004

Today, Panamax ships can carry up to approximately 4,600 to 4,800 TEUs. Post-Panamax ships are now on the water with carrying capacities of up to and above 7,000 TEU. Even larger ships with over 9,000 TEU are now being planned.

According to BRSAlphaliner, 776 container ships will be de- livered between 2004 and 2007 representing 46% of the world’s container ship fleet. Over three- Source: Pacific Maritime Association quarters of these new ships will have a capacity exceeding 4,000 TEUs. (Figure 2.3)

3) Labor Shortages

Increasing container traffic and the arrival of new mega-container ships is putting a further strain on terminal operators to provide trained workers to off-load the cargo. There continues to be a significant shortage of properly trained longshoremen, crane operators and other skilled workers to fill open positions at the ports. It takes five to six cranes in order to service an 8,000 TEU mega-ship in three days. Each crane requires a full work-

November 2004 16 LeCG The Shafter Advantage

ing crew. Due to the ongoing shortage of trained dock workers in Southern California, the Pacific Maritime Association has been limiting terminals to four work crews per shift. LA/LB Ports have been short by as many as 80 crews during the morning and evening shifts. It is not uncommon for ships arriving at LA/LB Ports to wait three full shifts to be serviced. Recently, the ILWU expanded its membership to 11,158 in July 2004 from 10,319 in July 2002, but given current trade flow projections and the anticipated arrival of more mega-ships, many more trained workers will be needed.

4) Operating Constraints

Over the years, goods movement efficiency has been compromised by restrictive operating rules that prevented the ports from operating at full capacity. Historically, ships could unload through the night, but trucks could haul only from 8am to 5pm. In an effort to en- courage shippers to schedule more container movement activities during off-hours, the LA/LB Marine Terminal Operators established “PierPass” in August 2004. PierPass is a private sector initiative that calls for a $20 per TEU Traffic Mitigation Fee on all loaded international cargo containers moving through the ports. Under PierPass, this fee will be re- funded for each container moved off-hours or moved using the Alameda Corridor.

5) Infrastructure Constraints

In February 1994, the Alameda Corridor Transportation Authority (ACTA) noted that “by the year 2000, congestion of [the region’s truck and train] transportation infrastructure will significantly reduce the efficiency and reliability of trade flows through the San Pedro Bay Ports.

This will force added costs and reduce the competitiveness of goods relying on the Ports to reach international markets.” Eight years later, an October 2002 study by the L.A. County Economic Development Corporation (LACEDC) noted that growing volumes of container traffic will severely stress L.A.’s rail infrastructure. (Figure 2.4)

b. The Cost of Congestion Figure 2.4

The global goods movement industry op- Freight Forecast for San Pedro Bay Ports erates at very low margins in a highly 2003-2020 competitive market. Any and every delay is expensive. Fast turn-around time is a primary factor in maintaining margins and key measure of a port’s performance. A typical container ship (4,000 to 5,000 TEU) costs in excess of $40,000 per day to operate. An average cargo ship spends 60% of its time in port at a cost of $1,000 per hour or more.8

Port loyalty among carriers is virtually non-existent. Given sufficient economic distress, carriers will quite readily reroute shipping traffic to other ports. LA/LB Ports directly compete with the Ports of Source: “Southern California Freight Management Study”, LACMTA, 2002 Ensenada, Oakland, Seattle/Tacoma, Vancouver and Anchorage.

8 “A Multi Agent Based Simulator for Managing a Container Terminal”, Lawrence Henesey, Blekinge Institute of Technology, Karlshamn/Sweden

November 2004 17 LeCG The Shafter Advantage

While steps are being taken to address labor shortages and operating constraints that contribute to today’s port inefficiencies, numerous proposed projects for long-term improvements to the LA Basin’s goods movement infrastructure may not be implemented for lack of funding.

Incidents such as the 2002 port labor dispute can cause carriers to shift their business to other ports. The dispute shut the Ports of Los Angeles and Long Beach down for 10 days. The shutdown and the subsequent 23-day backlog of ship traffic disrupted over $6.28 billion in trade and an estimated cost to the U.S. economy of $1 billion per day.9 Some of this business never returned. In direct response to port congestion at the LA/LB Ports during the summer of 2004, at least ten ships were diverted to other West Coast ports. Even the serious threat of prolonged port delays can and will drive carriers to other ports. The LA/LB Ports recently lost business to a competing port when APL Ltd., MOL and Hyundai Merchant Marine opted to shift their peak season-only shipping to Seattle/Tacoma.

The region’s railroads and ports also face shortages of intermodal capacity. Without additional capacity and an efficient landside goods movement system, California risks losing much of this international trade to other competing ports in Seattle/Tacoma, Washington, Vancouver, British Columbia, or Mexican Pacific ports in the future.

B. L.A. Region Trucking

1. Highway Congestion Figure 2.5

Trucking continues to be the Daily Truck Trips to/from LA/LB Ports: 2000-2020 major mode for goods movement in the LA Basin. An estimated 6.3 million containers were transported along Southern California highways in 2002 and this number is expected to grow to over 21.5 million by 2025. Despite the availability of the Alameda Corridor to transport containers out of the port complex by rail, most containers are still moved by truck. (Figure 2.5)

By 2010, trucks will make over 50,000 trips per day to the Source: “California Global Gateways Development Program”, LA/LB Ports. Even if 30% of Foundation for Intermodal Research & Education, Oct. 2001 the ports’ total cargo is shipped out directly by rail, truck trips will top 91,000 by 2020.10 Half of all trucks serving port terminals use the I-710 freeway. The I-710 freeway alone carried 47,285 trucks per weekday in 2003 and is expected to double to 99,300 by 2020.11 As a result, I-710 has the highest truck accident rate in the state.12

9 “The Alameda Corridor East”, OnTrac Joint Powers Authority 10 “The Alameda Corridor – A White Paper”, Ajay Agarwal, et. al., University of Southern California, June 2004 11 “The Alameda Corridor Falls Short of Potential”, The CalTrade Report, June 2003 12 “California Global Gateways Development Program”, Foundation for Intermodal Research & Education, Oct. 2001

November 2004 18 LeCG The Shafter Advantage

2. Continued Reliance on Trucking

There are a number of reasons for this continued reliance on trucking. First, trucks are more cost-effective for moving low-weight, low-volume, high-value shipments over short distances. More than 75 percent of all truck tonnage has a trip length shorter than 50 miles. As a world- class economy, the Southern California market is the final destination for 25% of all imports. In addition, another 15-35% of all imports (e.g. electronic parts and components) make a first stop in the LA Basin before being shipped elsewhere. Taken together, roughly 60% of all imports are not suitable for rail transportation via the Alameda Corridor. Even with traffic delays, trucks are faster and handling is less expensive than rail.13 14

Just as up to 60% of all imports are routed to local and regional destinations, 80% of the freight tonnage originating in the LA Basin stays in the region. Again, short-haul trucking is the preferred mode of transportation.

While trucking continues to handle a significant share of the container traffic, traffic congestion is increasing the cost of transporting goods by truck. Highways and interstates into, out of, and around the LA Basin are heavily congested with auto and truck traffic. Delivery delays of up to several hours are seriously impacting the bottom line of many trucking and drayage firms and driving smaller trucking companies out of business. Delays increase operating costs and fuel consumption. Increased fuel consumption also means more vehicle emissions. Most recently, the escalating cost of fuel has driven operating costs even higher.

3. Extended Hours

Shifting more goods movement by truck to off-peak hours will alleviate some of the traffic congestion. At the same time, trucks and trains are a major cause of noise in neighborhoods along rail routes and highways. There is considerable public pressure to limit additional truck and train traffic through the region, particularly during evening and nighttime hours.

Regardless of the time or day that trucks are on the road, they have a significantly greater impact on roadways than passenger vehicles. Increased truck traffic is contributing to the rapid deterioration of the region’s highways. The Road Information Program (TRIP, Washing- ton, DC) reports that 66% of LA area roadways are in "poor condition” adding an estimated $705 per year to vehicle maintenance costs.15

13 “Los Angeles-Inland Empire Railroad Main Line Advanced Planning Study”, Los Angeles County Economic Develop- ment Corporation, Oct. 2002 14 “Maurine Cecil, president of the Los Angeles Brokers and Freight Forwarders Association, says cargo is being sent by truck for speed's sake: local distribution goods can be moved in four to seven days by truck compared to seven to 10 days by rail. (Long Beach Press-Telegram, 2003)” – “The Alameda Corridor – A White Paper”, Ajay Agarwal, et. al., University of Southern California, June 2004

15 “Bumpy Roads Ahead - Cities with the Roughest Rides and Strategies to Make our Roads Smoother”, Transportation California, April 2004

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C. L.A. Region Railways

1. Rail Congestion

With ever increasing pressure from a variety of sources to shift more container movement to rail, congestion on the LA Basin rail infrastructure will continue to grow despite recent efforts to improve rail traffic flow. The LACEDC’s “Los Angeles-Inland Empire Railroad Main Line Advanced Planning Study” estimated that total train traffic along main rail lines will grow from 170 trains per day to 390 trains per day by 2025 – an increase of 230%. (Table 2.1) In a July 2003 report, OnTrac stated that “the existing railroad network, the rail yards near downtown Los Angeles, and the main lines east of downtown Los Angeles currently will not have the capacity to handle the projected freight volumes in about 3 years.” Any recurring or increased congestion along LA’s rail lines will most likely cause more containers to be moved by truck resulting in more pollution, more traffic accidents and even more highway congestion.

A variety of issues have historically hindered significant expansions of the LA Basin rail infrastructure - foremost of which is that there are a limited number of rail routes into and out of the LA Ba- sin and existing rail lines have little or no room for expansion. Even if new rights-of-way were available, the high cost of land and heavy competition for alternative land uses makes further expansion of the rail system highly unlikely. At the same time, the Class 1 rail companies are operating on very tight budgets and are reluctant in making further investments for track expansion in this region without significant public sector involvement. With both the state and federal governments struggling with their own fiscal problems and a long list of proposed projects competing for funds, securing funding for new rail expansion projects will be difficult.

In the face of these challenges, two major public-private sector initiatives have been under- taken to speed rail freight traffic out of the LA/LB Ports and out to intermodal facilities in the hinterland: the Alameda Corridor and the Alameda Corridor East.

Table 2.1

LA Inland Basin Train Traffic: 2000-2025 (average daily trains)

Source: “Los Angeles-Inland Empire Railroad Main Line Advanced Planning Study”, LAEDC, 2002

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2. The Alameda Corridor

The $2.5 billion Alameda Corridor project consolidated four separate lanes of port rail traffic and 90 miles of track into a single 22-mile fully grade-separated three-track rail corridor. (Fig- ure 2.6) This consolidated rail route can handle over three times the level of train traffic of the lanes it replaced. The improved rail lines are expected to carry an additional 1.3 million 20- foot cargo containers16 at speeds up to 40 miles per hour - two times faster17. Rail traffic on the Alameda Corridor is limited to international container movements.

The Corridor terminates at two intermodal facilities near downtown Los Angeles. At these facilities, “piggyback” trains are assembled for hauling domestic cargo. Nearly 200 at-grade highway crossings were eliminated, decreasing traffic delays by 90% and reducing vehicle emissions. The ACTA estimated in 1994 that “even if only 5% of the full projected impact of building the Alameda Corridor is realized, by the end of the next decade the United States will gain 70,000 new jobs and $2.5 billion in additional federal revenues. The actual impact could be as much as 20 times greater.”

Freight trains carry about 37% of the LA/LB Port cargo, about the same percentage as before the Corridor opened and, according to James C. Hankla, president of ACTA, well under the 50% originally envisioned. The Alameda Corridor has a maximum capacity of more than 150 train trips per day - current traffic of 37 trains per day is far less than its maximum capacity. OnTrac projects that daily traffic through the Alameda Corridor will increase to 137 trains per day by 2025. (Table 2.2)

Figure 2.6

Alameda Corridor and Alameda Corridor East Rail Routes

Source: “OnTrac Trade Impact Study”, LAEDC, Sept. 2003

16 “The Alameda Corridor Falls Short of Potential”, The CalTrade Report, June 2003 17 “The Alameda Corridor East”, OnTrac Joint Powers Authority

November 2004 21 LeCG The Shafter Advantage

Despite years of planning and billions of dollars spent on infrastructure improvements, it ap- pears that little has changed. A year after the Corridor opened, the July 2003 CalTrade Re- port noted that it was “still operating at less than half its capacity” and quoted a Los Angeles Times report that “[the Corridor] had failed to lure enough business to put a dent in the crush- ing numbers of tractor-trailers clogging the 710-Long Beach Freeway and other routes leading from the Ports of Los Angeles and Long Beach.”18

Table 2.2

Alameda Corridor East Daily Rail Traffic – 2003-2025

Source: “OnTrac Trade Impact Study”, LAEDC, Sept. 2003

3. The Alameda Corridor East

While the Alameda Corridor project is limited both in distance (22 miles) and in scope (international port container traffic only), the Alameda Corridor East (ACE) is much more ambitious and extensive. The ACE system is made up of two primary lines, which both begin at intermodal facilities at the east terminus of the Alameda Corridor and end at the intermodal facility at Colton Crossing near San Bernardino.

· The UP route heads due east through Ontario to Colton Crossing.

· The BNSF route heads south through Orange County and the southern LA Basin, then curves east to Riverside and north to Colton Crossing. From Colton Crossing, trains head north to Barstow, then to Chicago and the East Coast or east to Indio and points east in the southern U.S.

These two high-capacity multi-track routes are being developed in two phases. Phase One is scheduled for completion in 2004, Phase Two is targeted for completion in 2008.

18 The CalTrade Report also quoted Hankla saying "[The Corridor] can't live up to its potential for moving boxes off the freeway." The problem, according to Hankla, is that “the economics of the Southern California shipping industry changed, making it cheaper and easier to move containers by truck than by train.” In September 2004, though, the ACTA reported that the Corridor carried an average of 5,008 containers per day in fiscal 2004, a 14.6% improvement over the same period in 2003 and 3% higher than the original 1998 forecast. Sources: “The Alameda Corridor Falls Short of Potential”, The CalTrade Report, June 2003; “Alameda Corridor Traffic Up Sharply”, The Rail Forum, Sept. 2004

November 2004 22 LeCG The Shafter Advantage

Rail traffic along the ACE system is considerably more than the traffic through the Alameda Corridor by a factor of four.19

· ACE lines carry 19% of all eastbound U.S. international waterborne trade plus four times that volume in domestic freight traffic as well as Amtrak passenger and Metro- link commuter trains.

· More than 50% of the total volume of containers handled by the LA/LB Ports is shipped by rail via Alameda Corridor-East to destinations throughout the United States.

· 90% of the combined domestic and international railroad traffic originating in the LA Basin moves east over the Alameda Corridor East rail routes. Each ACE route han- dles roughly 45% of the region’s eastbound rail traffic.20

D. Empty Container Movement

1. The Problem of Empty Containers

One of the consequences of the significant trade imbalance through the Ports of Los Angeles and Long Beach is the growing problem of dealing with empty cargo containers. Basically, more loaded containers are arriving each day than are departing with a full load. As a result, it is estimated that 40-50% of the containers shipped to the West Coast from Asia are returned empty.21 As the diagram below illustrates, the movement of containers, both loaded and empty, is many faceted, complicating the task of coordinating back-haul opportunities.

Transporting empty containers adds to the congestion on local, regional and national rail lines and highways. Rationalizing empty container movement would appear to be a logical way to free up freight movement capacity while reducing pollution, traffic congestion, accidents, etc. As trade flow increases as projected, the problem of managing empty containers as well as the motivation to solve the problem will grow. (Figure 2.7)

19 Facilitating the flow of rail traffic out of the LA Basin via the Alameda Corridor and the ACE system is a laudable goal and both the Alameda Corridor and the ACE system have improved the flow of freight rail traffic in and out of the LA/LB ports and decreased delays at some rail crossings. Yet rail traffic congestion persists and will most likely get worse. The 2003 Alameda Corridor East White Paper quotes researcher Steven Erie who argued in an August 22, 2003 L.A. Times article that these projects simply push rail congestion further to the north and east. Over 172 trains per day currently use the ACE system. Traffic along these routes is expected to double by 2025. The OnTrac Trade Impact Study predicts: - "By 2010, freight train delays alone will increase from the current 31.9 minutes per day at the five mile, BNSF/Placentia bottleneck to more than three hours. Extended conditions will delay some trains from four to six hours." - "Construction of the OnTrac project will at least maintain delays at 26.1-minute average per daily train.” - “After 2025 we expect to see a train every 8 minutes 24 hours a day and seven days a week on the corridors." As rail traffic through the ACE system continues to grow, congestion at Colton Crossing – the largest rail yard in South- ern California – will increase. The USC reports states that “the Colton Crossing [IMF] is not congested now, with the anticipated growth in [the] future it will be.” Sources: “The Alameda Corridor – A White Paper”, Ajay Agarwal, et. al., University of Southern California, June 2004; “OnTrac Trade Impact Study: National Economic Significance of Rail Capacity and Homeland Security on the Alameda Corridor East”, LAEDC, Sept. 2003 20 The Orange-North American Trade Rail Access Corridor Authority website: www.ontrac-jpa.org 21 “The Logistics of Empty Cargo Containers in the Southern California Region”, METRANS, March 2003

November 2004 23 LeCG The Shafter Advantage

Figure 2.7

San Pedro Bay Container Trade Imbalance 2000-2020

Source: “Empty Ocean Container Logistics Study”, The Tioga Group, May 2002

2. Potential for Reuse

The May 2002 “Empty Ocean Container Logistics Study”22 made the following estimates re- garding empty container movements in the LA Basin during the year 2000:

· About 716,000 empty containers (1.3 million TEUs at 1.85 TEUs/container) moved east from the ports to local or regional inland destinations by rail and truck. · About 1.9 million empty containers (3.5 million TEUs) moved west including empties from inland points, local import loads, and other smaller sources. · An estimated 80,000 containers (148,000 TEUs) moved “cross-town” including local “offhires” of container leasing companies, intermodal depot-direct off-hiring, and empties reused for local exports.

4. Issues and Constraints

Minimizing the transport of empty containers within the southern California region and around the state is a complex challenge. A recent METRANS report stated: “the major barriers to rationalizing empty container movements in the [southern California] region are not technical or economic, but institutional” with most of the burden of responsibility squarely placed on the ocean carriers.”23 The predominant economic force driving the management of empty containers is the need to reposition them in Asia as quickly as possible.

22 “Empty Ocean Container Logistics Study”, The Tioga Group, May 2002 23 The “The Logistics of Empty Cargo Containers in the Southern California Region” (METRANS, March 2003) clearly summarizes the challenge of addressing the empty container movement issue at the local and regional level: - When seeking local solutions to empty container movement, “it is important to keep in mind that international logistics are optimized at a global scale, and that realizing optimization at a sub-system level could very well compromise the performance of the system as a whole.”

November 2004 24 LeCG The Shafter Advantage

E. Security Challenges

1. Threats to the L.A. Region’s Goods Movement Infrastructure

While LA Basin rail and highway congestion and occasional maritime labor disputes are chronic logistical problems for San Pedro Bay Ports, the state, and the nation, natural disas- ters and terrorist attacks are potentially more acutely threatening. A major earthquake or a terrorist attack that caused serious damage to one or more of the region’s primary arteries for goods movement would have major impact upon the global and national economy.

The threat of a major earthquake is a fact of life in the LA Basin - a serious earthquake in the next 30 years is not unlikely. While much has been done to strengthen highway overpasses and prepare contingency plans for public safety, the dock strike of 2002 clearly underscored how costly any disruption of port activities can be. The total economic loss to the nation during the 10-day dock strike has been estimated at over $1 billion per day. Yet the strike did not damage the ports or the region’s rail or trucking infrastructure and, once the strike was ended, operations were able to resume immediately.

2. Homeland Security

With over 40% percent of the nation’s trade passing through San Pedro Bay, it is under- standable why the Los Angeles and Long Beach Port facilities are at the top of the nation’s list of potential terrorist targets. One needs only to look at the U.S. trade flow chart (Figure 1) to see how critical the Ports of Los Angeles and Long Beach are to the nation’s goods movement infrastructure. The Alameda Corridor is particularly vulnerable to serious damage by earthquakes and terrorist attacks.

A terrorist attack of major proportion against any of the San Pedro Bay Port facilities or port- related infrastructure such as the Alameda Corridor would be significantly more disruptive and expensive than the 2002 dock strike. The “OnTrac Trade Impact Study”24 states:

The bottom line is that the total potential disruption cost of a terrorist attack on the Ala- meda Corridor East is $4.1 billion for a 10-day duration, $12.4 billion for a 30-day incident and $24.8 billion for a terrorist attack that disrupts the corridor for 60 days.

These estimates of the economic activity at risk if a terrorist attack were to shut down Alameda Corridor East have a few weaknesses. All of these weaknesses suggest that the $414 million per day of economic activity at risk is a serious understatement of the overall risk to the U.S. economy. The actual losses could be far, far higher if the freight flows were interrupted for long enough.25

At present, security enhancements for our nation’s goods movement system add roughly 2% to the cost of freight hauling, 26 yet additional efforts are needed to minimize the impact of such an attack. In addition to the numerous security measures that are being implemented to

- “Empty containers are moved back and forth because, at present, there is no alternative … carriers are willing to tol- erate the regional inefficient movement of empty containers and bear repositioning costs as necessary conditions for optimizing the performance of their global container inventory and control operations. ” - “The reuse of containers, though a desirable solution from a local and regional point of view, does not represent a fa- vorable solution to international marine carriers.” - “Pending a change in the underlying dynamics of trade, all of the solutions proposed for rationalizing the movement of empty containers in the SCAG region will be limited in their application.” 24 “OnTrac Trade Impact Study: National Economic Significance of Rail Capacity and Homeland Security on the Alameda Corridor East”, LAEDC, Sept. 2003 25 “OnTrac Trade Impact Study: National Economic Significance of Rail Capacity and Homeland Security on the Alameda Corridor East”, LAEDC, Sept. 2003 26 “Enhancing Southern California’s Global Gateways”, Steven P. Erie, Pacific Council on International Policy, June 2003

November 2004 25 LeCG The Shafter Advantage

prevent terrorist attacks against all of our nation’s ports, it would also be prudent for both the state and the nation to have some level of redundant goods movement capability should an attack or an earthquake occur. Currently, the state lacks the infrastructure to support a significant shift in container ship traffic from San Pedro Bay to Oakland.

3. Distributed Capacity

Just as all mission-critical information technology systems include some level of fault toler- ance, increasing the Port of Oakland’s ability to serve as a backup for the ports of Los Ange- les and Long Beach would be less expensive than the downtime that our economy would experience if either or both San Pedro Bay Ports were “taken off-line.” If one or both of the San Pedro Bay Ports were out of service for an extended period for whatever reason, cargo vessels would necessarily be rerouted to appropriate alternative ports.

A key factor in selecting an alternative port is the efficiency and cost-effectiveness of a port’s ability to get goods to the target destination. Even in an emergency, money matters. Having adequate local and regional alternative goods movement capacity would be highly advantageous for the state and for the nation. The alternative is to risk a temporary loss of trade flow to other West Coast ports such as SeaTac and Ensenada, Mexico, during an emergency with the greater risk of a permanent loss of trade to these ports.

4. Port Balancing

“Port balancing” is typically looked at as a long-term strategy for more evenly distributing imports and exports through all ports in a major geographical region such as the West Coast. From a homeland security perspective, port balancing would decrease any single port’s value as a terrorist target. Because of the complexity involved, port balancing would need to be implemented as a fundamental part of a coordinated statewide security plan for maintaining adequate goods movement capability in an emergency.

Such a plan would include developing 1) a fully operational rail shuttle between the Port of Oakland and high capacity routes to southern California east-west rail routes, and 2) a network of strategically located off-site intermodal facilities for handling high volumes of container traffic.

F. Environmental Challenges

Goods movement in and out of the Ports of Los Angeles and Long Beach is a major source of pollution to the region’s air and living environment – exhaust from diesel-powered trucks and train engines makes up significant percent of the region’s air pollution.

1. Reducing Air Pollution

Decreasing container movement within the region is one of the few alternatives left for significantly decreasing air pollution caused by truck and train traffic. A variety of steps have been taken to mitigate air pollution caused by truck traffic. Stricter vehicular pollution control requirements and mandated air pollution prevention measures such as limiting engine idling time have been enacted. One of the goals the Alameda Corridor project has achieved is to decrease air pollution by eliminating car and truck delays at rail crossings. A parallel benefit of isolating rail traffic from vehicle and pedestrian thoroughfares is a decrease in deadly accidents.

November 2004 26 LeCG The Shafter Advantage

2. Shifting Container Traffic to Rail

Another often suggested solution is to shift more shipping containers to rail. Shifting more container movement to rail clearly decreases total vehicle miles traveled (VMT) by truck. Net benefits are primarily less traffic congestion and fewer accidents.

Long-haul rail emissions are generally less than 50% of similar moves by truck. While moving more containers by rail would seem to be a clear solution for reducing net emissions, the SCAG report27 shows that an overall reduction in truck VMTs results in a net decrease in CO and PM10/PM emissions, but higher levels of NOx emissions. This is because almost all point-to-point distances by rail in the greater LA region are longer than by truck. Equivalent tonnage must travel farther by rail to reach the same destination. As a result, some net emission levels may be higher.

3. Community Concerns

Community concerns about traffic congestion, air pollution and noise have reached a level that a 2003 “OnTrac Trade Impact Study”28 states that “the LAEDC would not be surprised if a ballot initiative is developed at some point to completely ban trucks (18-wheelers) during certain times of the day or on certain freeways as a solution to reducing the crippling impact of truck pollution in local communities. Also it is likely that the Clean Air Act will trump interstate commerce rules, railroad law, increased international trade demand, and the goods movement, including Department of Defense and government goods, on highways in major metropolitan areas.”29

27 “Goods Movement Truck and Rail Study”, Southern California Association of Governments, January 2003 28 “OnTrac Trade Impact Study: National Economic Significance of Rail Capacity and Homeland Security on the Alameda Corridor East”, LAEDC, Sept. 2003 29 Ibid.

November 2004 27 LeCG The Shafter Advantage

III. The California Integrated Logistics Center

Key Points

· The Kern County city of Shafter proposes to develop a state-of-the-art integrated logistics center – the California Integrated Logistics Center (CILC) – at an existing industrial park. · The proposed site is well-served by existing rail lines and is located in both a Foreign Trade Zone and a California Enterprise Zone. · This project will be a unique public/private initiative between the City of Shafter, Northwest Container Services, Inc., and the Port of Oakland. · The California ILC will be the all-important catalyst that will make a much-needed freight rail shuttle between the Port of Oakland and intermodal facilities in the Central Valley economically viable. · The CILC offers a significant opportunity to address goods movement challenges that affect goods movement in California and international trade throughout the United States. · The City of Shafter has the political will and the entrepreneurial spirit to accomplish this project in expeditious fashion.

A. Project Overview

1. Role of the California ILC within the Intermodal Service Chain

Shafter plans to develop a state-of-the-art integrated logistics center – the California Inte- grated Logistics Center – to be linked with the state’s goods movement infrastructure. Typi- cally, an intermodal freight terminal functions as a focal point for drayage, transloading and consolidation of cargo, train assembly, and a terminal for linehaul. Because of its specific lo- cational advantages, the proposed CILC can serve a significant role for all of these typical intermodal functions. The following is a brief summary of these functions:

a. Drayage

For cargo coming through the Port of Oakland, an intermodal terminal at Shafter could potentially serve as a staging area for drays directly into the Southern California market. In addition, a facility at Shafter could stage truck trips to distribution facilities around the Tejon Ranch, which is currently the only significant concentration of warehousing and distribution businesses along the I-5 corridor.

b. Transloading

Transloading facilities are an increasingly important part of the overall goods movement system. Transloading basically serves two vital functions – aggregating bulk cargo into container or trailer loads, and breaking down container loads for transport to final destinations. Trans- loading also involves transferring freight between different types of containers. A typical transloading facility ranges in size from 40,000 to 200,000 square feet.30

The increased demand for transloading reflects ongoing changes in how railroads operate.31 Usually, transloading involves transporting a continuous volume of similar products. Trans- loading is growing rapidly among North American railroads. The “rolling inventory” strategy

30 Ibid. 31 "Intermodal Freight Transportation, Transload Option"; Holcomb, M. and B. Jennings, Transportation Quarterly, Vol. 49, No. 2, 1995

November 2004 28 LeCG The Shafter Advantage

lowers costs for materials suppliers and product producers. Specialized containers and optimal-sized vehicles for various purposes have fueled the growth in transloading.

The trend in recent years among Class 1 railroads has been to eliminate track switches in favor of providing faster service along long distance routes. By eliminating these switches, the railroads have taken out of service many track sidings that previously served buildings and rail customers directly. Customers can still receive direct service via track siding, but the railroads have tried to raise the minimum cargo volumes needed to maintain the more direct service. In place of track sidings and direct service to specific facilities, railroads have increasingly focused their bulk cargo towards transloading facilities. Instead of loading up railcars directly at a facility, the customer will arrange to haul the cargo to a transloading facility where the cargo is combined with loads dropped off by other customers and dispatched to their final destination. In addition, rather than providing direct rail service to a site, railroads can contract with drayage companies and make all of transfer arrangements on behalf of their customers.

A transloading function at Shafter would be important because of the anticipated volume of locally grown agricultural products that would be exported through the Port of Oakland via the intermodal terminal. In general, agricultural products are not amenable to using direct rail service because track sidings require a focused concentration of goods movement originating from a specific site. Bulk agricultural products are generally transported from farms using trucks. A transloading facility can aggregate these farm commodities into containers for export. In addition, railroads have begun using new storage bin designs that can go directly from the farm to the market, which makes the transloading process more efficient because the bin design is amenable to transfers between transportation modes.

In addition to bulk cargo aggregating, a transloading facility at Shafter can also be used to break down and reallocate container loads coming into the intermodal terminal from Oak- land. This would include overweight containers that are prohibited from traveling on the state’s highways.

c. Breakdown of ISO Containers

Since ocean rates are typically based on the container load rather than the cargo weight, customers have an incentive to maximize the amount of heavy cargo they can pack into each container. However, highway travel in California has a limit of 80,000 lbs. per truckload. Heavy commodities are overwhelmingly exports and the 70% of transloading business is export commodities. Firms that specialize in “legalizing” import loads do so by splitting the containers into multiple truckloads.32

d. Train Assembly

One of the other primary functions of an intermodal terminal is that the facilities serve as staging areas for assembling railcars together and connecting them to long-haul trains. Conversely, intermodal facilities also serve as points at which rail cars are taken off of a train and placed onto a track siding for storage or unloading. The primary train assembly function at the CILC would likely be with a short-haul rail shuttle.

32 Ibid.

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e. Railroad Linehaul

Typically, an intermodal terminal serves as a transfer junction along a freight railroad main line. The situation in Shafter would differ somewhat because the terminal would be located in between two main lines operated by two different freight railroads – UP and BNSF. The rail spur that would serve the Shafter intermodal facility would connect the two lines. A short-haul shuttle would primarily travel along the rail spur.

f. Other Services

The CILC will perform valuable container logistics and maintenance services for shippers as well as servicing the rail shuttle itself.

2. Performance Considerations

In order for the CILC to successfully serve its customers, it needs to meet a variety of performance considerations. These performance criteria center around the relationship between timeliness, service reliability, and cost. Drayage and rail performance requirements are of primary importance as noted below.

a. Drayage Performance

Parameters include terminal access time and operating hours to account for delays along the route. Quality of terminal access is crucial to the competitiveness of the facility. The CILC’s drayage performance needs to be viewed in comparison with drays originating at the Ports of Los Angeles and Long Beach. Those ports have serious congestion issues on the roads leading into and out of the port. By functioning as a “backdoor” into the Southern California market, CILC would allow importers and exporters to bypass the congested San Pedro Bay Ports.

b. Rail Performance

For an intermodal terminal located in Shafter, the comparison between drayage performance and rail performance is essential. Typically, intermodal has had greater success with long-haul markets because the low costs and reliable service allow it to absorb delays and costs associated with terminals and drayage. Intermodal service for distances less than 500 miles has traditionally been viewed less favorably.

However, these distances are typically viewed relative to how long-distance freight trains operate. In addition, common rail practices do not account for the types of congestion problems that have emerged in recent years at the Ports of Los Angeles and Long Beach.

B. Market Analysis

The California ILC would need to capture a certain level of market support in order to operate feasibly and generate the wide range of indirect benefits discussed later. Intermodal facilities come in a wide range of sizes depending on the markets they serve and there is no optimal size that will fit every situation. Some studies have suggested that smaller facilities, scattered in more numerous locations, would offer greater overall efficiencies than a few larger facilities. However, it is more likely that the CILC opportunity would be better realized as a relatively large operation. Based on conversations with industry representatives, we suggest that the optimal operations level for the CILC would range between 160,000 and 400,000 TEU per year.

The primary market for the facility is anticipated to be as a “back door” entry to the Los Angeles market. (Figure 3.1) The Southern California market is huge and it is the area most beset with

November 2004 30 LeCG The Shafter Advantage

congestion problems and capacity issues both currently and in the future. The ability to divert freight from the San Pedro Bay Ports to Oakland and still reach local markets in the Los Angeles Figure 3.1

area would be a significant benefit to A “Back Door into the L.A. Basin” shippers and would represent the largest market opportunity for the facility. A related market opportunity is the Tejon Ranch Distribution Center and other major retail and wholesale distribution facilities in the Southern San Joaquin Valley. These facilities not only serve San Joaquin Valley markets but also serve as distribution points for Southern California and the entire West Coast. Shipments from overseas to these facilities mostly go through the Ports of Los Angeles and Long Beach currently, and could also be diverted through Oakland via the rail shuttle to Shafter.

There are three primary aspects of the CILC’s operations: 1) diversion of ship traffic from Southern California to Oakland, 2)

the volume of traffic on the proposed rail shuttle line from Oakland to Shafter, and 3) the origin of the backhaul to Oakland to balance out the rail shuttle loads.

Inbound Freight Traffic Diversion to Oakland

The San Pedro Bay Ports handled some 10.5 million TEU in 2002, of which more than 85 percent were inbound (about 9.2 million).33 (Figure 3.2) Based on PPIC estimates, we have assumed at least 40 percent of those were destined for the LA market, which yields a figure of 3.76 million TEU, or the equivalent of more than 900 ships with 4,000 TEU capacity. Newer ships have higher capacities but these had not yet significantly penetrated the market in 2002. In order to meet the minimum level of 160,000 TEU inbound, only 16 ships would need to be diverted from Southern California to the Port of Oakland. This is about four percent of the estimated LA market ship traffic and less than two percent of total Southern California container traffic in 2002.

This would mean an additional loaded ship would call at Oakland every 16 days (based on a 250 day work year) – the added traffic would represent about a 24 percent increase in inbound freight through the Port of Oakland. 34 As discussed later, this project would need to include the development of an additional direct ship-to-rail offloading facility at the port serving the UP rail line. With this facility, we expect the port could handle the additional inbound freight load anticipated for the CILC.

33 “California’s Global Gateways: Trends and Issues”, Public Policy Institute of California (PPIC), 2004 34 “Regional Goods Movement Study for the San Francisco Bay Area”, Cambridge Systematics, Inc. for the Metropolitan Transportation Commission, June 2003

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Rail Shuttle Operations

If we assume a maximum length of 9,000 ft. and 60 ft. per rail car, a double-stacked shuttle train could handle about 300 containers (Table 3.1). About 333 trains per year would be needed to carry 100,000 containers (160,000 TEU). During a 250 day work year, this would average 1.3 trains per day between Oakland and Shafter. More likely, some combination of shorter trains would be used with at least two trains running per workday.

Since the UP line has more capacity than does the BNSF line, the project would need to include not only a ship-to-rail offloading facility directly on to the UP line at the Port of Oakland, but also a short 9-10 mile connector line from the UP line in Kern County to the CILC site.

Table 3.1

Oakland/Shafter Rail Shuttle Traffic

Scenario: 100,000 Containers (160,000 TEUs), Double-Stacked Cars

Rail Shuttle No. Units Containers per shuttle train 300 Containers

No. of trains per year 333 Shuttle Trains

No. of trains per day 1.33 @ 250 days/year (8 trains per 6-day week)

Source: ADE, Inc.

Backhaul Opportunities Figure 3.2

A large volume of empty containers is An Alternative Route for Exports regularly exported through the San Pedro Bay Ports back to Asia. (Figure 3.2) There is substantial opportunity to supplement Oakland/Shafter rail shuttle service with diverted empties from Southern California and Southwestern States as well as from the Southern San Joaquin Valley region. The California ILC will help relieve Southern Califor- nia’s empty container crush by routing empties through Shafter.

November 2004 32 LeCG The Shafter Advantage

C. Key Players and Beneficiaries

The success of the CILC depends on the collaborative efforts of three key players: the The California ILC City of Shafter, Northwest Container Ser- vices, Inc., and the Port of Oakland. The City · Addresses domestic and international of Shafter stands to benefit from increased needs and goods movement issues economic activity and new job creation in the · Serves as an empty return depot region. Increased container traffic through and facilitates the triangulation of the Port of Oakland will enhance port reve- empty cargo containers nues, increase tax revenues and add new jobs to the Bay Area economy. NWCS will · Provides container storage benefit from the addition of another success- · Offers chassis and container ful short-haul rail service to its overall busi- maintenance services ness and profitability. · Offers container freight station services

In addition, numerous goods movement businesses and supporting industries will also benefit from the CILC project. More efficient container flow will decrease costly de- Key Players lays for importers, exporters and freight for- · City of Shafter warders. Less port, highway and rail conges- · Northwest Container Services tion will lower operating costs for truckers and freight rail companies. Overall, the gen- · Port of Oakland

eral public will benefit from a goods movement system that is safer, more reliable, less polluting and more secure. Beneficiaries · City of Shafter D. Success Factors · Northwest Container Services The primary success factor for the facility from · Port of Oakland a business standpoint would be to attain sufficient market capture to operate at a financially · Ports of Los Angeles feasible level without public subsidy. Based and Long Beach on experience with other such facilities, it is · Importers anticipated that some public subsidy would be needed initially, but the market analysis sug- · Exporters gests that sufficient inbound traffic volumes · Truckers could be diverted from the San Pedro Bay Ports to make the project successful. The in- · Railroads direct benefits of the project, as well as the challenges to meeting the primary market · Ocean Carriers penetration goal, are outlined in the sections · Container Freight Operators below. · Financial Institutions E. Challenges · Freight Forwarders · Customs Brokers 1. Demonstrating Cost Advantages · Developers The success of the California ILC de- · Support Industries pends upon significant changes to current trade flows and freight traffic pat- terns that would affect shippers in Asia

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and possibly across the United States. The motivation for these changes is greatly enhanced by the current and projected freight congestion and associated costs in Southern California. Therefore, the CILC needs to present a lower cost shipping opportunity, which may in part depend on delivering greater speed in the shipping process through California. Significant marketing efforts will be needed early on to build the market support for the shipping traffic shifts from LA to Oakland.

It will also require a mode diversion from truck to rail for traffic currently going from the San Joaquin Valley to the Port of Oakland. Since much of this traffic is in agricultural commodities, the ability to provide next day service will be critical. The Oakland/Shafter rail shuttle will allow agricultural exports to be efficiently routed by rail to the Port of Oakland rather than be trucked through the congested Los Angeles Basin.

2. Addressing Technical Issues

a. Balancing Track Capacities

Currently, the UP line has more capacity along the track segments going through Kern County than the BNSF line. The project design would need to include a connector track to the UP line to ensure consistent capacity for the rail shuttle.

At the Port of Oakland, UP currently has a intermodal facility at Richmond and containers are drayed from ships in Oakland to this facility for rail loading. In order to maximize the efficiency of the operation and to reduce trucking impacts in Oakland, a direct ship-to-rail offloading facility should be built for UP at the Port of Oakland. A similar facility was recently completed in Oakland for BNSF.

b. Cost- and Time-Efficient Track-switching with Main Rail Lines

The current trend with railroads is to increase speeds along the main lines, and the only way to accomplish this is to eliminate as many track switches and junctions as possible. A rail link to the Shafter facility would entail adding a switch to the UP and/or BNSF lines.

F. Benefits

1. Improved Trade Flow Efficiency

a. Better Balance of Trade Flows

Oakland currently has a better balance between imports and exports than the San Pedro Ports which are much more oriented towards intake of imported goods. Truck traffic leading out of Long Beach and Los Angeles Ports is currently a bottleneck, as are the rail corridors leading out of the L.A. Basin. Routing more imports through Oakland would help alleviate congestion in the Southern California goods movement infrastructure.

b. Increased Density of Smaller Intermodal Facilities

The National Research Council of the National Academy of Sciences has studied the issue of optimum density of intermodal freight terminals. In general, these studies maintain that a system employing a greater density of smaller intermodal terminals may be more cost-effective than one using larger terminals with greater distance between them. Smaller terminals cost less per unit of capacity to build and operate, provide a higher quality of service, and the costs of smaller terminals are less significant than extra line-

November 2004 34 LeCG The Shafter Advantage

haul costs that would be incurred if they did not exist. In general, economies of scale are not always forthcoming when an intermodal terminal reaches a certain size.35

c. Single vs. Multi-point Transfer Advantages

Intermodal transfers at most U.S. seaports involve multiple steps with intermodal rail yards located some distance from piers. One way to deal with urban and port congestion is use of off-terminal remote truck-to-train intermodal yards. This is expected to help reduce development and operational costs at the more costly marine terminal facilities.36

d. Cost Advantages versus Drayage into Central Valley

The SJCOG studies found substantial cost savings by operating a rail shuttle to Central Valley locations. Drayage costs into the Central Valley are increasing as highway congestion along the major Bay Area corridors have increased.37

e. Opportunities for Short-haul Diversion

The SCAG report outlines a number of issues for short haul rail operations, which the CILC could successfully obviate.38 This report notes three major barriers to expanded short-haul carload service:

· Local switching moves are relatively costly, especially for large, line-haul railroads with high labor costs. Such moves also generate significantly higher emissions than line-haul rail trips.

· Neither the revenue/profit potential for the railroad nor the cost savings potential for the customer, are likely to justify the high cost of new track- age where rail sidings do not already exist.

· The lower revenue and profit potential of short-haul movements also make it difficult for line-haul railroads to devote scarce track capacity or operating “slots” to such traffic if longer-haul moves are available.

Short-haul diversion potential is also constrained by rail circuitry. Rail routes to regional boundaries (cordon points) are significantly longer than highway routes in many in- stances. The largest potential short-haul market is between the SCAG Region and Northern California, along the I-5 corridor. The primary rail route to the north (paralleling Interstate 5) is through Cajon Pass, which is an average of 63 miles longer than the highway route to the regional boundary. The most important part of the SCAG region is Los Angeles County, for which the circuitry adds over 100 miles on trips to the Southern San Joaquin Valley region and beyond. Since the distances to Northern California markets are typically 400 to 600 miles, the rail route is about 20% longer. (Note: These dis- advantages pertain to short-haul trips originating in Southern California, and do not apply to cargo shuttled into Shafter from the Port of Oakland.)

35“Intermodal Freight Transportation”, Intermodal Association of North America (IANA), 1997 36 Ibid. 37 “Inland Port Feasibility Study”, The Tioga Group et. al., 2003 38 “Goods Movement Truck and Rail Study”, Southern California Association of Governments, January 2003

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2. Reduced Environmental Impact

By shifting more goods movement from trucks to rail, the proposed Oakland/Shafter rail shuttle will lead to a decrease in highway congestion, fewer truck-related accidents, and an overall decrease in total vehicle emissions. Truck traffic between the Bay Area and Southern San Joaquin Valley will be reduced as an increased volume of container traffic will be shifted from I-580, I-880 and I-5 to the proposed rail shuttle. Implementation of a rail shuttle between Oakland and Shafter is expected to reduce truck traffic by approximately 132,522 truck trips on the state’s highways each year. Freight trains are considerably more fuel efficient as trucks – emission levels are as much as nine times lower. By shifting more freight movement to rail, air pollution will be decreased proportionately.39

For example, a single Oakland/Shafter rail shuttle train hauling 150 containers will eliminate 75 truck trips along the same route assuming each truckload carries two 15-ton containers. This represents a reduction of 19,050 vehicle miles traveled (VMT) given a distance of 254 miles between Oakland and Shafter. As a result, over 1,800 lbs. of truck emissions will be eliminated (using Federal diesel emission guidelines of 0.98 lbs./mile) while only 207 lbs of emissions would be generated by the freight rail train (based on a 9:1 truck-vs-rail emissions ratio).

There would also be a shift of LA truck traffic from trips to/from the Los Angeles and Long Beach Ports to LA market destinations. Some 80,000 truck trips per year would instead originate at Shafter and enter the LA market from the north on I-5. While this would not reduce the total volume of trucks traffic in the LA area, more of the trips would occur in less congested routes, which would have an air quality benefit.

The Empty Ocean Container Logistics Study estimated that, in 2000, only 2% of the empty import containers were reloaded. Given the large number of containers involved, even a small increase in container reuse would have substantial impact. (Table 3.2) When increased direct-depot off-hiring is included, even greater savings are achieved. Based on the study’s Base Case figures alone, the following savings could be achieved by 2020:

· Almost 348,000 annual truck trips would be saved (an average of 953 trips per day) if container reuse were increased to 5%. · An estimated 927,980 annual truck trips would be saved (about 2,542 truck trips per day) if container reuse were increased to 10%.

A primary benefit of expanded container reuse would be a significant reduction in air pollution. Translating truck trips into vehicle miles traveled (VMT) yields the following estimated reductions in miles which correspond directly with reduced emissions of carbon monoxide, NOx and particulates. Projections for reductions of vehicle miles traveled and consequent emissions reductions over the next twenty years from a 5% reuse of empty containers are substantial: 40 Table 3.2

Potential Emissions Reduction in LA Basin from 5% Empty Container Reuse

2010 2020 .

VMT Reduction 2,187,441 4,827,530

Emission Reduction (lbs.) 213,691 471,601

39 The Tioga Group, et. al. 40 “Empty Ocean Container Logistics Study”, The Tioga Group, May 2002

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3. Greater Security

The primary security benefit of the proposed California ILC in Shafter is that, combined with the proposed rail shuttle between the Port of Oakland and Shafter, it provides a redundant backup for the port traffic that goes through the LA Basin. By adding additional capacity to the national and regional logistics chain, the CILC adds a considerable measure of security by making the logistics chain less vulnerable to service disruptions at a single port. About 78% of the West Coast trade goes through the San Pedro Bay Ports, and this kind of dependence on a single point of entry poses security risks because any interruption to the trade flow into and out of San Pedro Bay can have severe implications on the national economy.

For regular operations, having another port with reliable access to the Southern California market and points along the major freight rail corridors that serve the San Pedro Bay Ports provides another option around the normal rail and highway congestion. It also provides an alternate port in case of labor disruptions. More importantly, the CILC would provide a viable alternative if a natural disaster or terrorist attack disrupts port operations in San Pedro Bay.

The importance of this kind of redundant backup was clearly illustrated during the 10-day port strike of 2002. That labor disruption was significant enough to affect the national economy, even with the relatively short duration of that disruption. A more serious and lengthy disruption would result from an earthquake or a terrorist attack because such ca- tastrophes would likely entail damage to infrastructure and facilities that require significant reconstruction time.

The CILC at Shafter would also contribute towards a long-term goal of more efficient trade flow balance between ports. Port balancing would help maintain adequate goods movement capability in an emergency, and reduce any single port's value as a terrorist target.

4. New Job Creation

The Shafter region, the Bay Area, and the state will benefit from the additional jobs created and an overall increase in economic vitality as a result of this project. During the construction phase of the project (one year), it is estimated that nearly 500 well-paid workers will be employed on the project. This suggests 1,500 total jobs in the Shafter region for the construction period as a result of the multiplier effect.

Preliminary estimates suggest that the CILC facility will create nearly 150 on-site jobs in its first year of operation. New warehousing and manufacturing jobs made possible by the project are anticipated to total 500 per year resulting in a net increase of 5,000 trade- related jobs in the Shafter region over the next ten years.

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G. The Shafter Advantage

1. Shafter is Strategically Located

Shafter is the most logical location for a new intermodal facility in California because it is located at the extreme southern end of the San Joaquin Valley which has effectively become the northern edge of the very large Southern California market. In addition, Shafter is strategically centered at the intersections of Interstate 5, Highway 99, and both of the state’s Class 1 rail lines (operated by Union Pacific and Burlington Northern). Currently, the area does not have any intermodal facilities, yet it produces a significant volume of export goods and has a strategic location close to the LA Basin and within a one-day drive of the entire West Coast. This location provides less congested access into the Southern California market, and serves a local market that currently lacks access to major intermodal and transloading facilities.

2. More Efficient and More Flexible Goods Movement

Factors pertaining to quality of goods movement service are increasingly a liability through the San Pedro Bay Ports. By providing an alternative port option and point of transfer, the California ILC at Shafter would help improve the overall flexibility of the goods movement system in California by allowing shippers to identify more strategically advantageous options to move their goods to market. The CILC would make use of facilities and rail/trucking corridors that have excess capacity, thereby increasing the service reliability.

Long drayage is expensive. However, if drays are in the same direction as the rail trip, then there is a minimal cost penalty.41 Only if the trip requires backtracking are long drays prob- lematic. In the case of Shafter, the drays into the Southern California market are structured to bypass the bottlenecks at the San Pedro Bay Ports.

3. Proximity to Emerging Distribution Hub at Tejon Ranch

Tejon Ranch has emerged as a significant regional distribution center. Sears, Target, and IKEA are among the tenants that have located in the area in recent years. Tenants at Tejon Ranch are centered for one-day trucking access to all major West Coast markets. Shafter would constitute the primary intermodal facility for Tejon Ranch, and the developers have already touted the proposed CILC as a site benefit for prospective tenants.

41 "Analysis of Intermodal Terminal Highway Access to Economic Activity Centers", Frazier, C., A. Aeppli, C. Martland, and B. Norris, Intermodal Freight Terminal of the Future, Transportation Research Circular, Number 459; July 1996

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The Shafter Advantage

Operation · State-of-the-art intermodal facility (proposed) · Available, skilled workforce · 24/7 security to be provided by the Shafter Police Department

Environment · A proactive and entrepreneurial local government · Shafter is an attractive location with a good business climate · Lower land and labor costs relative to the Bay Area and the Los Angeles region

November 2004 39