WASHINGTON — Apparel importers are tangling with federal and state elected officials about how to pay the estimated $5.4 billion cost of bringing 361 U.S. ports in compliance with new security and antiterrorism standards during the next decade.
The debate comes as port officials also worry about financing improvements to meet the mounting volume of imported goods and avoid the cargo backups of the last two summers on the West Coast. With quotas lifted, imports of Asian goods are surging. In January, U.S. imports of Chinese textiles and apparel were up 29.4 percent.
Importers of clothing and other consumer products recognize that the cost of shipping goods will rise as ports install more stringent security, lighting, sensors for nuclear materials and computer systems to track employees and cargo. All the improvements are intended to reduce the risk that a cargo container would be used by terrorists to smuggle weapons or operatives into the country.
The federal government set the new port standards last year, but the laws covering security didn’t specify how the improvements were to be financed. That decision reflects what John Kyser, chief economist with the Los Angeles Economic Development Corp., described as a clear lack of a “rational national transportation policy.”
At issue is whether the expenses will be paid by a per-container fee levied by the federal or state governments or whether the ports should bear the costs themselves and raise their prices to reflect them. The cost of shipping a 20-foot container from Asia to the U.S. ranges from $1,500 to $2,000, studies show. That cost has been rising in recent years as a result of increasing demand, and any additional surcharges likely would be borne ultimately by U.S. consumers.
The debate comes as Congress works to define the size and scope of President Bush’s $2.57 trillion proposed budget. The Congressional Budget Office projects the federal deficit will hit $394 billion at the end of fiscal 2005.
Retailers such as Federated Department Stores, Target Corp. and J.C. Penney Co. have argued that allowing the private sector, such as port operators and importers, to handle the financing of port improvements will reduce waste, versus government levying taxes to pay for it.
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“In the great scheme of things, if [importers] pay for security privately, we’ll pay for less,” said Robin Lanier, a consultant with the National Retail Federation.
The Coast Guard has estimated that updating the nation’s ports may cost $5.4 billion over 10 years.
Some federal lawmakers are calling for more funding than so far has been allotted to pay for the port updates. Sen. Dianne Feinstein (D., Calif.) said last month that “ports are the soft underbelly of our homeland security,” in a speech to the Long Beach Chamber of Commerce. Feinstein has been joined by Sen. John Cornyn (R., Tex.) in asking for money in this year’s federal budget.
The issue has been the subject of intense scrutiny in California, home to the ports of Los Angeles and Long Beach, which are the number one and two U.S. ports, respectively, in terms of the value of goods imported. There are two bills in the California legislature that would levy port security fees. State Sen. Alan Lowenthal (D., Long Beach) last month introduced legislation that would impose a $30 surcharge per 20-foot cargo container, with one-third of the funds going to ports and the rest split between state transportation and air quality projects. State Assemblywoman Betty Karnette (D., Los Angeles County) has proposed a $10 per-container fee that would fill a new Port Security & Safety Fund.
Most U.S. ports are fighting their importer customers in pressing Congress for some form of government funding. Port officials deride the Bush administration for suggesting in its $2.57 trillion budget proposal that in 2006 ports compete for $600 million in “targeted infrastructure protection” grants that also covers bridges, railroads and mass transit. This year, ports are receiving $150 million directly from the government, an amount seen as inadequate by port officials.
Ports already are facing huge costs to update aging facilities, a plight affecting all aspects of the U.S. commercial transportation systems.
“Ports are using current dollars to pay for security, rather than capital investments needed to handle the future growth in international trade,” Jean Godwin, general counsel for the American Association of Port Authorities, told the Senate Committee on Commerce, Science & Transportation on Feb. 15, according to copies of her prepared remarks.
Kyser of the Los Angeles Economic Development Corp. said, “Most observers of transportation agree, whether the U.S. government recognizes it or not, the country’s transportation infrastructure is on the verge of a meltdown.”
He cited several instances where port-to-rail or port-to-truck connections and routes around the country are lagging. For example, he noted that the Union Pacific railroad manages a key route between Los Angeles and El Paso that handles the flow of goods to Mexico and from West Coast ports. The railroad has doubled its tracks — from two to four — along 30 percent of that route, but the rest of the way, there are only two tracks, one in each direction.
Although railroads are generally profitable, “financial markets look at them with a very steely eye” because of the steep cost of capital improvements slowing returns on investment, Kyser said.
California Gov. Arnold Schwarzenegger is hamstrung in providing higher port funding because of a $6.7 billion state deficit. The governor has appointed a transportation working group to propose port congestion solutions. In general, Schwarzenegger has advocated private funding for public projects, such as building toll roads to relieve the state’s congestion.
It is difficult to forecast whether California’s ports this summer will again face peak-season backups, possibly worse than last year with the surge in imports from places such as China. About 5,000 more on-call longshoremen have been added to the Los Angeles and Long Beach docks to handle an anticipated 12 to 14 percent increase this year in cargo volume.
Los Angeles and Long Beach are among the nation’s most important ports for apparel imports, and in 2003, the latest figures available, they handled $12.5 billion worth of apparel at wholesale value.
“From the standpoint of workers, we are confident we can provide the labor to get us through this year,” said a spokesman for the Pacific Maritime Association, which manages West Coast ports.
While the California ports have responded to the backups of recent years by adding hands, many ocean carriers also have worked to reduce their dependency on those choke points, routing more cargo from Asia through the Panama Canal to less congested ports in Savannah, Ga., and New Orleans.
Importers also are trying to spread their shipments of imports across the year, instead of concentrating them during the summer and fall.
“There’s no peak season that’s visible anymore, it’s just a steady roar,” Kyser said. This summer, “We are going to be holding our breath, making sure there is not congestion.”
