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Transcript: The White House’s Envoy on What They’re Doing To Fix the Ports

The Cap Capricorn container ship is unloaded at Pier 400 in the Port of Los Angeles in Los Angeles, California, U.S., on Sunday, Nov. 21, 2021. Shipments to the Port of Los Angeles fell 8% year over year in October.
Photographer: Tim Rue/Bloomberg

Most of the big retailers have assured their customers that shelves will be stocked for the holidays this year. Nonetheless, there has been a lot of anxiety about shortages and supply chain disruptions all year. On this episode of Odd Lots, we speak with John Porcari, Port Envoy to the White House Supply Chain Disruptions Task Force. He's been coordinating efforts to get containers moving again. He explains what's been accomplished so far, and what more needs to be done. Transcripts have been lightly edited for clarity.

Joe Weisenthal:
Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.

Tracy Alloway:
And I'm Tracy Alloway.,

Joe:
Tracy, by this point, I think any Odd Lots listener — really anyone in the world — is totally familiar with the supply chain disruptions and the bottlenecks, particularly at the ports and particularly at the Port of Los Angeles.

Tracy:
Wait, there's supply chain disruptions?

Joe:
Have you not heard of that?

Tracy:
I haven't. I haven't spent hours of my life this year talking about supply chain disruptions. No, you're absolutely correct. There are all sorts of superlatives that you could throw around, but we know that there are dozens and dozens of ships, for instance, waiting off the coast of the Port of LA, trying to dock. We know that this has become a big, big issue for the Biden administration as well.

Joe:
Yeah, exactly. I mean, obviously bottlenecks perhaps contribute to inflation. It creates anxiety around the holidays because people worry about gifts getting shipped. And of course, you know, it's not great for the economy overall. So we have a very special guest today and I want to jump right into our episode to discuss it. We're going to be speaking to John Porcari. He's a former Deputy Secretary of Transportation during the Obama administration. And he is currently serving as Port Envoy to the White House Supply Chain Disruptions Task Force. So he has been tasked by the Biden administration to fix the port situation or to help fix it. John, thank you so much for coming on Odd Lots.

John Porcari:
It's my pleasure.

Joe:
So I want to start with actually a sort of theoretical question, which is: what is it that an overseer representing the government can do in theory, to help coordinate a solution to these bottlenecks that some of the private and public actors currently involved couldn't do previously without some kind of oversight?

John:
Well, first and foremost, the role is an honest broker role. It’s to get the parties together. And if you think of the whole supply chain, these are parts of the supply chain that typically in the past have not talked to each other much, certainly have not exchanged data. So that honest broker role is a crucial one in unlocking underlying operational issues and pushing hard for the kind of collaboration that you're actually seeing at the ports of Los Angeles and Long Beach right now where good movement is much more fluid than it was six or eight weeks ago.

Tracy:
So presumably as part of this role, you have been spending a lot of time at the ports talking to various parties. I'm curious what you're learning there. Is there anything that’s surprised you and what have you sort of pinpointed as the major issues here?

John:
It's very interesting. I thought I knew the industry well, having run the Port of Baltimore in the past, but the scale and scope of the two ports, which are really one large port complex — Los Angeles and Long Beach — is just amazing. So 40% of the container imports coming into the country are coming through those ports and the pandemic really changed everything in terms of trade as well. So during the pandemic, we switched our buying patterns from restaurants and theaters to buying things, right? The pandemic laid bare an underlying reality, which was the goods movement chain was creaking along, showing its seams, before the pandemic. But what we ended up with during the pandemic with those changes in buying patterns was really gridlock at those two ports — congestion on the container movements at other ports, but gridlock at those two.

Joe:
Can you give an example, you've mentioned what your role is, an honest broker, get people communicating directly or communicating in a way they weren't before. Can you give a clear example of a situation that was arising because the communication wasn't happening and how opening up that line has helped improve or can improve container throughput?

John:
Yeah, there are actually multiple examples of that. So if you just take it sequentially from the ocean carriers to the terminal operators, to the cargo owners, the beneficial cargo owners at the other end of the goods movement stream, there were clear examples where the ocean carriers and the terminal operators weren't communicating with each other on things as basic as throughput and the cargo owners who owned what the contents of those boxes in many cases had had no intention or no need to take those boxes off the docks immediately. They were essentially using them for free storage. And one of the early conversations was clearing that up and actually making sure that everyone understood each other's pressures, motivations, and what they were doing. The way we've operationalized this is we have calls three mornings a week (Pacific time).

And we have everybody on those calls, the ocean carriers, the terminal operators, the railroads, trucking companies, the Federal Maritime Commission, the Surface Transportation Board, the leadership of both ports, everyone who plays a role in that part of the goods movement chain. And we literally are fostering real-time conversations as part of that. So we've moved from the first couple of weeks that I was on the job, I was in a listening mode  and everybody was pointing fingers at everyone else. I get that. Okay, you've said your piece. Now it is time to actually be productive and to work with each other. And that kind of forcing mechanism on the light side, it's an honest broker role. On a little bit heavier side, it's pushing hard to get the parties to actually talk to each other. They're information now on an ad hoc basis. And in the longer term, we want to make sure it's more systematically providing transparent data throughout the system to the benefit of all the private sector parties that run the good supply chain.

Tracy:
I wanted to ask you about this, but in terms of incentivizing behavior, how do you actually do that given the various stakeholders here and the fact that they might have differing interests. So you mentioned one company basically, you know, using the port as free storage for some of its containers. It's not in its interest to necessarily resolve that. And I know that Gene Seroka, another former Odd Lots guest, and the CEO of the Port of LA, he was talking about how it's been a sort of uphill battle to get companies signed on to the Accelerate Cargo LA program. So how do you actually incentivize that behavior? Are there sticks or carrots that you can use in this process?

John:
There are both carrots and sticks, and wherever possible we've been incentivizing using carrots. So starting with pushing the ports themselves to go 24/7, to make sure that they're capable of going 24/7 and make sure that labor — who signed on very quickly, signed on readily to 24/7 operations — that they were together sending a strong signal, a green light that we're open for business. We have lots of off-peak capacity. If you want to move your cargoes in and out of the ports, exports as well, off-peak night times is the time to do it. You all are familiar with our peers around the world, most of whom are 24/7 in their operations. The United States, its ports and its goods supply chain are in many ways an anomaly because we're not 24/7. So it was first the incentive, the carrots of the capacity that's available off-peak and then matching that, marrying that, if you will, with major cargo owners that can drive those kinds of volumes, that can actually change the use of the ports, including the middle miles of trucking and rail and putting those things together.

And so if you look back on the last eight weeks or so, there actually is a logical sequence to this, starting with getting the ports to give a green light, labor saying absolutely we're on board, going to a number of the very large cargo owners that can drive the market and saying, okay, it's your turn to make sure your warehouses, your distribution centers, your fulfillment centers, are able to receive these cargoes and let's work off-peak. You can't flip a light switch and have it happen overnight, but you can change the way that we operate collectively as a system over time. What you're seeing now is more and more of that. That is actually happening. And those two ports are operating much more fluidly than they did a few weeks ago. But they're also moving much more towards 24/7 operations in doing that, which is where the long-term capacity is.

Joe:
Just on the 24/7 question. Two quick things come to mind. A) I mean, I think one of the big stories in the economy these days is tight labor markets. So I'm curious if that's a challenge, just like finding the additional hours and 2) you know, we had an episode recently with Ryan Petersen, the CEO at Flexport, and he talked about some other things that make this more difficult, like say local town ordinances where the inland warehouses exist [and they] may have rules that say no delivery after 8:00 PM because the neighbors don't like noise pollution and so forth. How much is A) you know, how do you solve the labor part? And then just some of the dealing with, you know, local entities that probably, you know, the White House isn't typically used to dealing with, or maybe the towns, local regs, how do you sort of clear those out so that at least on a temporary basis, that doesn't become a big problem?

John:
Yeah. Good question. So first on the labor side, labor has been a true partner from the very beginning. First of all, working through the pandemic, you know, we have a new definition of frontline workers and the ILWU, the Longshoremen's union, lost about 20 members to Covid and kept working throughout the process. And very early on signed onto to 24/7. Over the longer term, because we know today's volumes are likely the floor for the future, not the ceiling, we're clearly on the recruitment, retention and especially training side, for our longshoreman. We're going to have to make sure that we're providing the training and other opportunities that they need. And then when you get to the local part of it as a former local government person myself, land use is a local prerogative. And it is, in the U.S., it is done at a local level.

We've worked this at a retail level, and it's been things like talking directly to mayors and city managers about specific sites and trying to bring together that local government with, for example, some of the stevedoring and other companies that want to use those sites and being, again, the honest broker in that relationship, in at least one case working through what the potential benefits for the city can be. You know, if you're going to use the site on a temporary basis, what's in it for that municipality? And can they, for example, get some tree planting, other environmental benefits, out of it in addition to revenue? So where necessary, we've done it on a case by case and retail basis. I'm pleased to say that we have a great partner in the state of California in this where the state is doing that as well.

And the state, given their daily working relationship with municipalities and counties throughout the state, is trying to open up sites as well. The inland empire area has about 2 billion square feet of distribution facilities and a vacancy rate of 2%. And we can all do the math and understand how tight a market that is. The solutions that you've seen that are short-term solutions have been, for example, for port properties that are in transition, they may have been former brownfield properties that will be converted over time to port uses, but as an interim use are used for empty container storage. There are a number of private sites nearby the ports that have been used for the same. That capacity is close to being maximized, but there's also work further inland, for example, to identify properties that can be used. We started early on by looking at U.S. government properties — both military and civilian — that might be useful for those purposes.

And we've been through several rounds, as you know, of a base realignment and closure process where the military surplus most of their property that they weren't truly using, and weren't essential for national defense. So it's kind of slim pickings on both the civilian and military side for properties. The state's looking at state properties as well. And as I mentioned, there's a number of private properties. These are short-term operational strategies, and the whole thrust of the work we've been doing has been bifurcated into this short-term operational changes and longer-term, more fundamental changes that will make for a more efficient private sector goods movement chain. In the short-term, most of these operational changes that we can talk about, both on dock at the ports and inland, work at the margins. But the fact is those margins add up. And if you keep working this process, you're getting more and more in the way of operational improvements. That's what you've been seeing in the last couple of weeks at the two ports where throughput is much better than it has been. The process of picking up empty containers through what are called sweeper vessels, bringing essentially empty vessels in and just loading them up with empty containers and sending them back to their points of origin, is done now on a systematic basis. That's actually really making a difference.

Tracy:
Well, maybe we could talk about some of those longer-term solutions as well. And I'm aware that the White House put up a blog recently calling on the maritime watchdog, the Federal Maritime Commission, to actually do something about the big three shipping alliances who basically control a lot of the routes and rates for the containers that we've been talking about. What are some of the measures that you think the FMC should actually consider in taking on this very, very large industry?

John:
Well, the FMC of course is an independent agency. And before I get to the FMC, I think we should briefly outline some of the intermediate term steps that are already underway at the federal and state level. So for example, an unprecedented partnership between the state of California and the federal government was announced two weeks ago by the White House, where a $5 billion credit facility, basically a $5 billion credit line for the TIFIA and RRIF loan programs, which are the two federal infrastructure loan programs, was extended to the state of California. And if you think about how federalism works in the U.S., where some of the funding is at the federal level, but the project selection is at the state and local level, that actually gives the state of California a hunting license for the first time ever to actually build a program of projects — not just at the ports, but inland from the port.

So it might be rail capacity. It might be rail grade elimination projects. It might be freeway capacity. It might be purchasing sites and modifying them for use as intermodal container transfer facilities. One of the early steps was this unprecedented deal with the state of California to put the state in the business of actually caring about the goods movement chain throughout the state. And this is not just Southern California, by the way. So for the port of Oakland, for example, it's every bit as important. And the state has been very aggressive in building this program of projects and working through a process with all the stakeholders to prioritize that. And what you'll see is a whole generation of projects where the local funding at the state and local level is actually a long-term loan program that the federal government has extended to it. So that's one important part of it. The other part, which is an order of magnitude larger and is truly historic, is the president signing on Monday the bipartisan infrastructure deal, which brings $17 billion to the ports, more or less evenly divided between waterside and landside. That's, as a former port operator, I can tell you that is an order of magnitude and then some, more than the federal government's done before.

Joe:
Let's get into what can be done with the ports. And one thing I'm particularly curious about is you mentioned at the beginning, all the ports around the country are stressed to some extent, but not to the level of the Port of Los Angeles and the Port of Long Beach. Are there things that you're working on right now that you can do in the short term to make it so that ships can go to a different port and find, you know, a port where they're not having the same issues to relieve some of the congestion or building out inland infrastructure so that those ports, whether it's on the east coast or in Georgia or Texas or somewhere else, can have the capacity to take on more throughput? And is that also part of other short-term things and other long-term things that can ease our reliance on those two ports in California.

John:
Yes. Excellent question. Let’s remember what we're trying to do here. We're trying to build in resiliency, fluidity, and velocity in the port system. And so on the resiliency side, you're already seeing some of a movement by the ocean carriers to diversify their ports a little bit to change the trade routes and the vessel strings, to some extent, to give them a little bit more resiliency. And today it's because of congestion in those two ports. But tomorrow it might be natural disaster. It might be some other economic upset. So you're seeing some of that. One example of what we're doing in the short term as well, is with the Port of Savannah, the number four port in the country for containers. We've worked with them. And they've been very innovative in identifying a number of interior pop-up sites that are on rail lines.

You can have a rail to truck connections that are inland in the state of Georgia and in North Carolina, for example, and we've found a way to actually help fund those projects. You'll see the first of them up and running in the next 30 to 45 days. So these are very short-term, where basically you're taking incoming loaded containers that are imported to the country through Savannah. They're going on rail out to these sites where they can transfer by truck. So you're that much closer to the target markets, but one of the really important additional benefits is on the export side for agricultural exports. The agricultural exports that go through containers — and Georgia, Savannah is the number one port in the country for containerize agricultural exports — those same pop-up sites are hundreds of miles closer to the agricultural sources. So it's a lot easier to have a short dray — a relatively short truck run — to these pop-up sites where you're putting it on trains and then out through the Port of Savannah.

That's one example of short-term operational changes that really in this case on both the import and export side, help. We're encouraging other ports to do the same. You'll see, I think a generation of projects in the short term, around the country, that will help maximize the existing on dock capacity through interior pop-up sites. The fundamental issue is the docks themselves, the ports themselves, are such valuable pieces of real estate that you don't want containers dwelling there a second longer than you have to. You want to get them interior, or you want to get them out back on ships and to their target markets overseas.

Tracy:
This might be slightly outside of your direct remit, but there are people out there who argue that, you know, one of the fundamental problems here is that America is just getting too much of its supply of goods from abroad. And I mean, you mentioned when we first started out this conversation, that the pandemic really changed everything in terms of trade. We were just importing much, much more than we had previously. Does anything in the past experience of a year and a half suggest that maybe the White House should be reconsidering its general trade policies towards China? And I can kind of see you arguing this either way. You could either lower tariffs in order to increase the flow of goods into the states and hope that the ports can handle more of it. Or you could maybe swing the other way and say that we need to be fostering more of our manufacturing capacity within the United States itself.

John:
It's a great question, Tracy. And you have to go back to the very beginning of the Biden administration when the president signed executive order on competitiveness and set up very quickly after that a supply chain disruption task force. This is a cabinet level task force. The president has tasked his cabinet — essentially the secretaries of transportation, commerce, agriculture, and others — to look at some of the fundamental issues. And while we're making short-term corrections and working with industry partners in the short term to really think about the long term as well. So on a topic like semiconductors where, as you well know, the impact that the semiconductor shortage has had on the auto industry, for example, what should be the right balance for the long term — in the country's best interests between domestic manufacture and overseas manufacture?

So this supply chains disruption cabinet level task force has really gotten a head start and a running start on looking at some of those issues and rethinking what's in the best interest of the United States. And I think we all take to heart the lessons that have been learned  by the disruptions in the pandemic. A Covid incident in Vietnam can impact impact clothing in the U.S. Those kinds of disruptions to a ‘just in time’ inventory system are something that I think people are thinking long and hard about in making sure that we're not as vulnerable in the future.

Joe:
John, I know we're very mindful of your time and you just have a few minutes left. I just want to get very clearly where things stand in terms of progress. You mentioned speed and throughput of containers is improving, but I see other measures — specifically measures of how many ships are waiting in the water or how many days they're waiting in the water — that still seemed to be going up. Talk to us about what stats are improving and what stats — it looks like the ship one has not started to improve — how soon will it be until the number of actually ships just waiting to unload start to come down?

John:
Well, everyone looks to the number of ships in San Pedro Bay because it's a great visual. And it is at an all-time high. What that doesn't measure is the actual TEUs — the containers that are importing and exporting through that. And part of what's going on in the vessel count is that there are new entrant carriers, ocean carriers, that are running relatively small chartered vessels. So these might be 3,000 or 4,000 TEU instead of the 24,000 TEU behemoths that you see in the ports many other times. So the vessel count is very misleading. You should be looking at the number of containers moving, and on that score, it's actually very good news. So it was perhaps a little bit controversial when it was proposed a couple of weeks ago and first publicly discussed, but the potential to impose a per container fee on the ocean carriers for long-dwelling containers, basically a $100 fee that goes up by a hundred dollars per day per box for any truck containers that have been there more than nine days, any rail containers more than six days, we've had some remarkable progress on that front.

So the number of long-dwelling, nine day plus containers at both ports, LA and Long Beach on a combined basis, is down 32% since basically this fee was first proposed to go into effect on November 1st. We have held off — the ports have held off — on actually imposing the fee, so far, given the progress that's been made. But that has been one of the single most important elements in restoring fluidity to the ports, which were gridlocked by lack of real estate. There are so many containers incoming and outgoing on the docks that they couldn't, the equipment couldn't even operate in many cases. So that's one part of it. The other part that I think everyone should take note of is the ocean carriers stepping up and with the sweeper vessels that I described, bringing in empty vessels, filling with both U.S. exports and empty containers and sending them back to their point of origin. And then extra loaders where they basically leave more of the capacity on a regular cargo vessel to take out more empties than what they brought in as full containers.

Those two combined efforts are making a real dent in the empties that are out there. So there's real progress to point to. A lot of credit to the whole team, starting with the two executive directors of the ports and their senior management teams, but also the ocean carriers, the terminal operators, the truckers, the railroads, and labor. And all of them on these operational changes, you can both feel it getting better day by day, but you can measure the progress. And, one of the things the White House has done is really put together a way — and you're seeing it in the White House blog — to actually measure the progress. And so while it's a great visual to measure the number of ships out there at anchor, what we should be actually measuring is the throughput both ways.

Tracy:
You have, signposts for, for your own success. You know, when do you sort of declare ‘problem solved’ and what are you looking at and making a statement like that?

John:
In the three goals, resiliency, fluidity, and velocity, knowing that the fluidity within the ports is the single most important element. And it drives the velocity, if you will, of goods. Getting back to a condition where the long-dwelling containers are at least at their historic lows, if not lower. So in other words, no import is dwelling on the port longer than it has in the past. That's one obvious measure. Another one is the dwell time at the other end of the goods movement chain. So how long is a truck chassis with a container, a full container, on it tied up at a distribution center?

It shouldn't be more than 48 hours. At the worst point in the system congestion, we were seeing some dwell times of 11 days at distribution centers. That's clearly a sign that the distribution part of it can't handle the volume. A lot of that has cleared up. So there are specific measures. But it's really important to build for the future at the same time. So the $5 billion credit facility with California, the $17 billion in the bipartisan infrastructure deal and the work throughout the goods movement chain on better data sharing are three metrics as well, that I think are important in the mid and long term to follow as well.

Joe:
Well, John, we really appreciate you coming on Odd Lots. This is a real treat given how much we focused on this topic. And now maybe we'll have you back in a few months when you're ready to, when it's no longer a crisis, or when you're ready to declare some sort of victory and talk about long-term vision of logistics, but thank you so much for coming on.

John:
My pleasure. And let's remember what's at stake here. This is about building a more competitive supply chain for the future economy of the country. So thank you.

Joe:
Absolutely. Thank you so much, John. That was great

Tracy:
Thanks, John. Appreciate it.

Joe:
Well, that was really cool Tracy. It's pretty fun some of the players that we've gotten to speak to this whole story.

Tracy:
Yeah. I mean, definitely the big ones. But it was really interesting to hear from someone who's actually holding the conversations between various stakeholders and trying to … here's one thing I was thinking. Like a lot of this is sort of just changing behavior that seems to have become embedded in the industry, sort of changing habits. The idea that, you know, you just like bring your containers and then you dump them at the ports and leave them there for a while and it's not really a problem. Or the idea that you have to send your containers to this one port alone, rather than thinking about maybe sending them elsewhere. It feels like a lot of it is just sort of breaking habitual behavior.

Joe:
Yeah, that's exactly right. If it's cheaper to use the port as he described it as free storage, because let's say, okay, the warehouse capacity inland is at 98%, you have to get someone to truck it to one of those inland warehouses, a dray truck. Why not just leave it there as long as you possibly can? It's clearly, you know, in a stressed environment, it's clearly not optimal, but from a sort of individual actor perspective, why change anything? And so I thought that was like a pretty clear example of this is a bottleneck. This is an inefficiency, this is a thing that was done for awhile because you could just sort of get away with it. But when the supply chain system is stressed, that sort of individual micro incentives start breaking down the whole thing.

Tracy:
Totally. And I think it's good to get some sort of clear metrics that they're looking at in reducing some of the gridlock in the system. And I think that's probably where a lot of the criticism has come from. People say it's getting better, but we don't necessarily see it in certain numbers, or we don't know what numbers we're supposed to be looking at. So it's good if we can sort of benchmark the progress.

Joe:
Yeah. And I hadn't thought about his point before that. It's like, okay, everyone likes to look at the number of vessels that are floating out there, but ultimately, maybe we should just, you know, still throughput of actual containers might be the best metric and we'll have to see if they continue to come down. You can have a few weeks of success, you know, it's easy to imagine going from bad practices to mediocre practices and then you see some improvement and then the question is, can it just be sustained? But I hear his point about not all ships floating out there are equal size. And that was really interesting too, about the sweeper vessels and improving the flow of containers back, which we sort of knew was a problem. But I hadn't actually realized that that was being addressed in a specific manner as he described.

Tracy:
Yeah, definitely interesting to hear his viewpoint. I was thinking we need to get Gene Seroka back on as well to talk about from his perspective.

Joe:
I think that, yeah, well, I think, stay tuned Odd Lots listeners because that might be in the soon. Stay tuned

Tracy:
Truly comprehensive coverage of the efforts to improve gridlock at America's ports.

Joe:
Absolutely.

Tracy:
Shall we leave it there?

Joe:
Let's leave it there.