FHWA Operations Support – Port Peak Pricing Program Evaluation

5.0 Policy and Program Considerations

This section presents a discussion of key issues to be considered in the development of public policies targeted towards the implementation of port peak pricing and extended gate operations programs. The initial sections provide background information on existing Federal policies/programs related to congestion pricing to understand where port peak pricing programs can potentially fit within the existing Federal framework, and a discussion of other existing Federal policies/regulations that may have applicability for implementation of peak pricing programs at ports. Subsequent sections provide a discussion on legal issues, if any, associated with the implementation of port user fees, the possible role of the Federal government in the implementation of port peak pricing programs, as well as provide considerations for key elements constituting port peak pricing program and evaluation guidelines. These considerations include major factors such as the identification and selection of ports for peak pricing and extended gate operations, developing appropriate port pricing program governance structures, and issues related to the maximization of private and public sector benefits from port peak pricing programs.

The specific topics covered in this discussion include the following:

Existing Federal Congestion Pricing Programs;
Existing Federal Port Related Policies;
Legal Issues Pertaining to Port User Fees; and
Considerations for Port Peak Pricing Program and Evaluation Guidelines.

5.1 Existing Federal Congestion Pricing Programs

The Federal government has been playing an increasingly active role in the realm of congestion pricing. This section discusses some of the pertinent congestion pricing programs and initiatives undertaken by the Federal government, which include the Value Pricing Pilot Program, the U.S. Department of Transportation (U.S. DOT) Congestion Relief Initiative, and an Airport Congestion Pricing initiative. Though these programs have not been applied to ports (FHWA’s Value Pricing program focuses on highway congestion), a discussion of these programs is useful in understanding the Federal role in congestion pricing, and where within the existing Federal framework there may be opportunity for a port peak pricing program.

Value Pricing Pilot Program

Value pricing strategies to address highway congestion were first addressed in the Intermodal Surface Transportation Efficiency Act (ISTEA) in 1991 through the authorization of the Congestion Pricing Pilot Program. This program was renewed as the Value Pricing Pilot Program with the passage of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). The Value Pricing Pilot Program (VPP), a provision within the Federal-aid Highway Program to support congestion pricing, was authorized to create a Federal mechanism to encourage the implementation and evaluation of congestion pricing pilot projects to manage congestion on highways through tolling and other innovative pricing approaches that do not involve tolls, such as mileage-based charges for insurance, taxes, leasing fees, and car sharing. This is the only Federal discretionary grant program that provides funding to support planning/feasibility studies, and implementation of highway congestion pricing pilot projects, and is administered by the FHWA Office of Operations under Tolling and Pricing Programs. The VPP program has been in operation for more than 10 years, under which many innovative highway pricing projects have been successfully implemented.

A total of $59 million for Fiscal Years (FY) 2005 to 2009 were provided by SAFETEA-LU for the VPP program, of which $11 million was authorized for FY 2005 and $12 million for each of the FYs 2006 to 2009. Value pricing projects not involving highway tolls receive $3 million out of the authorized funds described above for each of the FYs 2006 through 2009. Funds allocated to the VPP program can be utilized for pre-implementation studies and/or to pay for the implementation costs associated with value pricing projects. Costs eligible for reimbursement include costs of planning for, setting up, managing, operating, monitoring, evaluating, and reporting on local value pricing pilot projects.

U.S. DOT’s Urban Partnership Agreements

The U.S. DOT’s National Strategy to Reduce Congestion on America’s Transportation Network, otherwise known as the Congestion Initiative, provides a streamlined process for the Department to focus the efforts of its many programs, including the VPP, towards the overall goal of relieving congestion. The initiative calls for the Department to enter into Urban Partnership Agreements (UPA) with selected cities, pursuant to their commitment to implement broad congestion pricing or variable toll demonstrations. Cities selected to participate in the UPA are required to aggressively adopt four complementary and synergistic strategies to relieve congestion, which include Tolling, Transit, Telecommuting, and Technology (also referred to as the 4Ts). In August 2007, the following cities were selected for the UPA – Miami, Minneapolis/St. Paul, New York City, San Francisco, and Seattle, and a total of $853 million in Federal discretionary grants were announced by the Secretary of Transportation, Mary Peters, for these partners for congestion relief initiatives. Through the Congestion Initiative UPA program, the Department continues to work with States and cities across the nation to use tolling and other pricing approaches to reduce congestion.

Airport Congestion Pricing Policy Proposal

In January 2008, U.S. DOT submitted a proposal to the Airports Council International-North America (ACI‑NA) to address congestion and delays at airports caused by increased commercial and passenger flight traffic. The new policy, outlined in a Notice of Proposed Rulemaking (NPRM), calls for the amendment of Federal Aviation Administration’s (FAA) existing airport rate policies through the implementation of rates based on a congestion pricing approach. The rationale for the proposed policy is that the imposition of airport rates at overcrowded airports based on congestion pricing would encourage airlines to spread their flights more evenly throughout the day, thereby increasing system capacity and reducing air traffic delays. Once finalized, the proposed policy will allow congested airports to shift from the decades-old practice of levying aircraft landing fees based on aircraft weight to a more flexible rate structure based on congestion pricing, such as varying the rates by time of day and volume of traffic. U.S. DOT’s proposal was welcome by the ACI‑NA particularly because it did not involve the imposition of a “congestion fee” but rather gave flexibility to the airports to set rates or adopt other congestion programs that would best fit their specific circumstances.

As seen from the above discussion, the Federal government has played an important role in encouraging and initiating the implementation of congestion pricing programs in the highway and air travel modes. There are no existing Federal policies and programs that specifically target port congestion pricing strategies. However, with Federal involvement in congestion pricing programs for other modes, a Federal peak pricing policy framework for ports can be incorporated into the existing FHWA framework, such as the Value Pilot Pricing Program.

5.2 Existing Federal Port Related Policies

This section presents a discussion of existing Federal port related policies that would be important to discuss from the perspective of understanding existing Federal role and involvement in the port sector. Specifically, Federal policies addressing port authority and marine terminal agreements are discussed, which can serve as potentially important frameworks to ensure the feasibility of port peak pricing programs.

The Federal Maritime Commission (FMC) regulates ocean carriers, ports and maritime terminal operators (MTO) under the Shipping Act of 1984, most recently amended by the Ocean Shipping Reform Act of 1998 (OSRA). One of the key elements of this act are the permitting of ocean carriers and ports/MTOs to engage in discussions and agreements involving rates, services, capacity, and practices in U.S. trades, which might otherwise run afoul of U.S. antitrust laws. If such activities by ocean carriers and ports/MTOs are undertaken under the auspices of agreements filed with and approved by the FMC, they are immune from antitrust laws. However, these activities will be subject to the restrictions stipulated under OSRA.

The framework stipulated under OSRA for port authority and MTO agreements ensures that ports and MTOs enjoy antitrust immunity while engaging in discussions and agreements related to, but not limited to, labor practices, infrastructure development, fees and tariffs, and environmental policy. Such agreements can also be created at the regional level involving several ports such as the Gulf Seaports Marine Terminal Conference which congregates 20 public ports in the Gulf of Mexico.

Among the programs or strategies that ports have implemented supported by their antitrust immunity through the creation of agreements include:

PierPASS OffPeak Program. FMC granted authority to MTOs at the Ports of Log Angeles and Long Beach to engage in discussions as part of the West Coast Marine Terminal Operators Discussion Agreement (WCMTO) to create the OffPeak program, as part of which MTOs jointly assess a TMF on Beneficial Cargo Owners (BCO) moving cargo through the ports at peak hours of operation.
Port Infrastructure and Environmental Programs. The San Pedro Bay ports released in June 2006 a coordinated plan called The San Pedro Bay Clean Air Act Action Plan outlining the measures they will undertake to diminish pollution emissions from port related activities. In January, 2008, the harbor commissioners at the San Pedro Bay ports approved an Infrastructure Cargo Fee (ICF) of $15 to be assessed, beginning January 1, 2009, on every 20-foot equivalent (TEU) cargo container entering or leaving the marine terminals at either port by truck or train, which would generate around $1.4 billion in revenue to be used for a host of transportation projects to improve traffic flow and air quality in the harbor area. However, at the time of this writing, the Port of Long Beach Board of Harbor Commissioners has decided to delay the implementation of the ICF by at least 6 months, at which time it is proposed to assess an initial fee of $6 per TEU instead of the originally proposed fee of $15 per TEU. The Port of Los Angeles Board of Harbor Commissioners, in the coming weeks, is expected to approve a similar 6 month delay in the implementation of the ICF.
West Coast Labor Issues. The Northwest Marine Terminal Association and the California Association of Port Authorities have an interconference agreement to confer, discuss, and make recommendations on rates and charges, and consistency of labor practices.
Security Practices and Fees. The West Coast Discussion Agreement has allowed marine terminal operators to work together in implementing port wide security programs such as the use of radio frequency identification (RFID) tags on motor carriers.
Uniformity of rules and regulations. The Gulf Seaports Marine Terminal Conference gathers 20 public ports in the Gulf of Mexico and enables its members to consult with each other and establish terminal minimum rates and charges, as well as uniform rules and regulations. Any member may decide to take independent action by simply notifying the Conference members.

5.3 Legal Issues Pertaining to Port User Fees

This section examines the laws and regulations that might obstruct the implementation of user fees at the U.S. ports. The Lowenthal Bill (SB 974), which proposed to levy a $30 container fee on each shipping container (TEU) processed through the San Pedro Bay ports and the Port of Oakland was highly controversial among port authorities and shippers based on the argument that the fee violated the Interstate Commerce Clause. The Interstate Commerce Clause Article I, Section 8, Clause 3 of the United States Constitution empowers the United States Congress “to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” According to this clause, only the Federal government has the power “to lay and collect taxes, duties, imposts, and excises” in order to “regulate commerce with foreign nations, and among the several states, and with the Indian tribes.”

Since the imposition of a container fee could create barriers to commerce, it was argued that the states of Alaska and Hawaii had a valid judicial grievance with the State of California, given the economic dependence of these states on the San Pedro Bay ports and the Port of Oakland. However, according to the Legislative Counsel, while the commerce clause grants to the Federal government the power to regulate commerce, the states retain the power to legislate in absence of Federal legislation “in matters of local concern, even though the legislation may indirectly affect interstate commerce.” This means that state governments have the ability to impose fees at ports in their jurisdiction, if necessary, without violating the Commerce Clause. On July 15, 2008, SB 974, after months of negotiations, passed the California State Assembly.

The next question would be whether ports under different operating schemes (Landlord versus Owner-Operator ports) and under different government levels have the ability to impose fees, as the states do, without violating the Interstate Commerce Clause. As discussed earlier, the Shipping Act of 1984, amended in 1998 as OSRA, allows ports and MTOs to establish agreements, including, but not limited to, labor practices, tariffs, railroad practices, among others; consequently, ports profit from the antitrust immunity and do not necessarily need to comply with the Commerce Clause.

The West Coast Agreement signed in 2003 among the ports of California, Oregon, and Washington states that:

“Article II‑ The parties are authorized to exchange information, discuss, agree upon, establish, revise, maintain, cancel and enforce terminal rates (excluding the inland division or inland portion of through rates), charges, rules, regulations, procedures, practices, terms and conditions relating to cargo moving in the foreign commerce of the United States.”

The West Coast Agreement is a type of marine terminal agreement that is a commonly used tool to reach ports specific purposes. In addition to the establishment of marine terminal agreements, ports are allowed to charge user fees. The Water Resources Development Act (WRDA) of 1986 enables port authorities to charge user fees for the services they provide. This type of fee is strongly supported by port authorities on a project basis to fund its security, dredging, or landside access needs. (Footnote: Testimony of Jean Godwin on Before the House Transportation and Infrastructure Subcommittee on Water Resources and the Environment on November 20, 2003. Available at http://www.aapa-ports.org/Issues/content.cfm?ItemNumber=1043.) A recent example of port user fee is the implementation of the Infrastructure Cargo Fee (ICF) which will be levied at the San Pedro Bay ports beginning January 1, 2009. The purpose of the ICF is to generate $1.4 billion to finance multiple transportation projects. The new fee will be assessed on every loaded 20-foot equivalent (TEU) cargo container entering or leaving any terminal at either port by truck or train. Through the establishment of marine terminal agreements ports have the autonomy of setting fees as they consider pertinent.

Also, research on international trade agreements (ITA) and any restrictions posed by these agreements on port pricing issues conducted as part of this project indicates that ITAs do not restrict application of user fees at ports, since these fees are levied for services rendered by the ports. Any restrictions from ITAs on pricing at ports would focus on taxes on cargo movements through ports, which is not a pertinent issue for the current discussion on port peak pricing programs.

5.4 Considerations for Port Peak Pricing Program and Evaluation Guidelines

Port peak pricing program and evaluation guidelines should consider the following key issues:

Federal role in port peak pricing programs;
Factors impacting the selection of ports for peak pricing programs;
Peak pricing program governance structures;
Maximizing public benefits from private sector implemented programs

Federal Role in Port Peak Pricing Programs

Understanding the Federal role in future port peak pricing programs would be critical to the development of Federal port peak pricing program and evaluation guidelines. Owing to the critical role played by the nation’s seaports in contributing to the state and national economies, ports already rely on a host of Federal (and state) government funds to meet their capital improvement (including maintenance dredging), environmental mitigation, and security needs. However, when it comes to pricing issues, past experience has shown that ports are generally wary about any direct Federal (and state) government involvement. This was observed in the case of the PierPASS program, wherein the proposed state government legislation (AB 2041) requiring the San Pedro Bay ports to impose fees on peak-period cargo movements was opposed by the ports and the MTOs. The Federal government imposed Harbor Maintenance Tax (HMT), which is an ad valorem tax levied on imports through seaports, continues to face opposition from the ports on the grounds of being a tax (as opposed to a user fee for services performed by the ports) that is unconstitutional, and creates undue competitive advantages for international ports (such as in Canada) in international trade. Some of the key factors that have contributed to port opposition to government involvement in pricing issues include interport competitiveness (ports are wary about the impacts of government imposed fees and tariffs on market diversion to competing ports), and opposition from port private sector entities such as MTOs to public sector imposition of fees at ports.

Ports would tend to support Federal programs related to port pricing if these programs, in lieu of imposing fees, provide ports with the flexibility to devise pricing strategies, if applicable, that meet their specific needs based on their operational and institutional frameworks, while at the same time provide policy guidance on program implementation issues such as governance structure and how to design programs that maximize public sector benefits.

Considerations for Federal involvement in port peak pricing programs include, but may not be limited to, the following:

Grants to state governments as part of an expanded VPP program to pursue port peak pricing programs: As part of an expanded VPP program encompassing port peak pricing programs, the Federal government would provide grants to state (and local) governments to pursue pilot port peak pricing programs.
Port peak pricing policy guidance to state governments: A Federal port pricing policy framework could be used by state governments to obtain guidance on the evaluation of the potential for pricing programs at ports in their jurisdiction. This could be particularly relevant for owner-operator ports that are chartered by state government.

Factors Impacting the Selection of Ports for Peak Pricing Programs

Port peak pricing program and evaluation guidelines should provide consideration of the factors impacting the selection of ports for future implementation of peak pricing and extended gate operations. These factors were determined from an in-depth analysis of the PierPASS OffPeak program conducted as part of this project. As discussed in the Task 2 report, these factors can be broadly categorized into relevance and success factors. Relevance factors are associated with conditions in and around ports that make peak pricing and extended gate operations programs relevant for implementation, while success factors represent conditions in and around ports that would impact the ability of a peak pricing program in meeting its intended objectives. Based on the research conducted in Tasks 1 and 2, the following relevance and success factors should be considered while evaluating the applicability and feasibility of peak pricing programs at specific ports:

Relevance Factors – Terminal and Highway Congestion; Air Quality/Environmental Issues; and Community Issues; and
Success Factors – Regulatory Environment; Market Characteristics; and Interport Competitiveness.

Relevance Factors

The following sections present a discussion of the specific kinds of issues to pay attention to under each relevance factor.

Terminal and Highway Congestion

The degree of congestion observed in and around the ports, both in terms of the contribution of port trucking activity to congestion on major highways around the ports, and congestion at terminal gates and within the terminals, are important factors determining the applicability of peak pricing and extended gate operations programs. If determined applicable, a peak pricing program could potentially offer significant benefits in terms of maximizing system capacity utilization and relieving peak-period congestion, without adding infrastructure capacity which might not only be faced with community opposition but also be cost-prohibitive to implement. The kinds of policy questions that would need to be answered in the analysis of this factor include the following:

Is port trucking activity contributing disproportionately to peak-period congestion on major highways surrounding the port? Answering this question would involve looking at the port truck shares of total vehicular traffic during the peak periods, as well as peak-period level-of-service parameters such as volume-capacity (V-C) ratios and/or speeds.
Are there specific hours of the day when there is significant truck idling and congestion at the gates of marine terminals?
Are there specific hours of the day when there is significant truck idling and congestion inside the marine terminals that is impacting the efficiency of terminal container pick-up and delivery operations?

Air Quality/Environmental Issues

The air quality issues in the region where the port is located, and the relative contribution of the port (compared to other sources of air pollution) to air quality problems in the region, particularly due to truck idling at terminal gates and inside the terminals, and/or truck idling on major corridors surrounding the port would be important factors to consider in evaluating the applicability of peak pricing programs. The kinds of policy questions that would need to be answered in the analysis of this factor include the following:

Is the region in nonattainment of the U.S. Environmental Protection Agency’s National Ambient Air Quality Standards (NAAQS) for criteria pollutants, especially Diesel Particulate Matter (DPM), which is a major pollutant from trucks?
What is the relative contribution of port trucking activity to air pollution for each pollutant type, compared to other port and nonport related sources?
How much does truck idling at terminal gates, inside the terminals and on surrounding highways contribute to incremental pollutant emissions in the region?

Community Issues

Community perceptions in the region regarding international trade activity through the port and its impacts related to congestion, environmental issues, and the economy play a key role in determining the favorability towards capacity expansion at the ports, as well as the types of infrastructure and operational improvements at port terminals to increase capacity. As was observed in Southern California, the San Pedro Bay ports have not been able to initiate a major infrastructure development project for the past 6 years due to community opposition. Peak pricing and extended gate operations programs would be effective operational strategies in lieu of infrastructure improvements to increase system capacity and mitigate congestion in cases where community opposition poses a major constraint to the implementation of port infrastructure capacity improvements. Key policy questions that would need to be answered in the analysis of this factor include the following:

What are the perceptions of the community in the region on trade activity through the port, and its impacts on congestion, and air quality?
Is community opposition a major constraint in the region for the implementation of port infrastructure capacity improvement projects?

Success Factors

Regulatory Issues

Regulatory issues could potentially impact the success of a peak pricing program at a port. Noise regulations are an important issue to consider in this regard. For example, local ordinances/regulations related to night-time trucking restrictions due to noise considerations in the region where the port is located could have a prohibitive impact on the implementation of a peak pricing and extended gate operations program. Other regulatory issues that would potentially need to be considered include land use regulations related to night time warehousing operations. Addressing these regulatory constraints would be needed if a peak pricing program is determined to be applicable at a port facing these constraints. Some of the key policy questions that would need to be answered in the analysis of this factor include the following:

Are there local ordinances/regulations in the region where the port is located on night time trucking restrictions; and
Are there local land use regulations in the region on night time facility operating restrictions?

Market Characteristics

Market characteristics at a port will have a direct impact on the success of a peak pricing program, by determining the favorability of diversion of shipments from peak to off-peak time periods. Based on the research conducted in Tasks 1 and 2, the following types of markets would be particularly favorable to using night gates as part of a peak pricing program:

High-volume importers (big-box retailers such as Wal-Mart and Target) that own warehouses/DCs in the region that operate 24-hours a day;
Shippers of low-margin commodities such as wastepaper products; and
Off-dock rail shipments, due to the ability to shift truck moves to off-dock terminals from day-to-night time periods.

Some of the key policy questions that would need to be answered in the analysis of this factor include the following:

What share of the total cargo market at the port is accounted for by high-volume importers?
What share of the total cargo market is accounted for by low-margin shipments?
What share of the total container market is intermodal, and what share of the intermodal market moves via off-dock rail?

Interport Competitiveness Factors

Interport competitiveness, not just from the perspective of competition from neighboring ports, but also from ports competing for the market over the entire port market coverage area, would be an important factor to consider in analyzing the success of a peak pricing program. For example, all the West Coast ports, including the ports of Vancouver (British Columbia, Canada), Seattle, Tacoma, Portland, Oakland, and the newly developed Canadian port of Prince Rupert compete with the San Pedro Bay ports for a share of the discretionary Asia-Pacific container market. Future port developments on the west coast, such as the Port of Punta Colonet on the west coast of Mexico, are also expected to vie for a share of the Asia Pacific container market with other west coast ports in the future. Thus, the competition for the discretionary cargo market, as observed on the west coast, may not be limited to close geographic proximities between ports, but over a wider geographic area.

Interport competitiveness was a particularly important issue for the San Pedro Bay ports because of the close proximity of the ports. Since the ports are strong competitors in international container trade, the implementation of the program called for a collective collaboration among the MTOs at both the ports (through antitrust immunity under the Shipping Act of 1984). The implementation of the program by just one of the ports would have potentially resulted in some loss of container market to the other port (particularly for those shippers not having night-time warehousing/DC operations, and who are not bound by long-term contractual obligations with certain ocean carriers).

In the analysis of the success of the program at a port, it would also be important to pay attention to the competition faced by the port from other ports not in the immediate vicinity of port, with regard to discretionary cargo. Though this was not particularly an issue in Southern California due to the market dominance of the ports in the Asia Pacific container trade (owing to the presence of extensive transloading, and warehousing/distribution facilities and strong intermodal connections to the eastern U.S.), this might be an important issue for consideration at other ports.

Some of the key policy questions to address in the analysis of interport competitiveness issues include the following:

Are there any neighboring ports from which the port faces a strong competition for local as well as discretionary cargo? If so, what is the relative market share of the port compared to these competing ports?
What is the port’s market share for discretionary cargo?
Are there any other ports (in the U.S. and internationally such as Canada) from which the port faces a strong competition for discretionary cargo?

Institutional Issues

Institutional issues, such as longshore labor contracts between the Pacific Maritime Association (PMA) and the International Longshore and Warehouse Union (ILWU), had a direct impact on the PierPASS OffPeak program. Most notably, the labor work shifts stipulated under the longshore labor contracts impacted the gate operating times for extended gate operations, as well as the truck operational characteristics observed during extended gate operational times (truck queuing problem in the extended gate operating period observed in the PierPASS program was a result of the one hour lag between the end of the peak period gate operations and the start of the night gate operations). Thus, the success of a port peak pricing program in meeting its intended objectives might be impacted by labor operating frameworks at ports. Some of the key policy questions to address in the analysis of institutional issues include the following:

What are the existing longshore labor work shifts at the port?
Are any proposed renewals of longshore labor contracts going to impact future changes to existing longshore labor work shifts?

Peak Pricing Program Governance Structures

This section discusses port peak pricing program governance structures. As discussed earlier, port peak pricing program and evaluation guidelines should consider governance structures for a peak pricing program based on the different types of institutional frameworks at ports. For example, the governance structure of the PierPASS OffPeak program might not necessarily work at other ports with different institutional frameworks such as the type of ownership and marine terminal operations. The following sections first provide a brief introduction to the main types of institutional frameworks for port ownership and terminal operations, and provide recommendations for a port pricing governance structure applicable to these different institutional scenarios.

In the U.S., unlike many countries, Federal jurisdiction over harbors stops at the water’s edge. Neither the Congress nor any Federal agency has the power to appoint or dismiss port commissioners or to alter or repeal port authority charter. Nevertheless, certain port activities are subject to Federal law and jurisdiction, specifically, those related to foreign and interstate commerce. U.S. port ownership is diffused among all three levels of government, including state, regional, and local and the private sector. In terms of terminal operations, both the public and private sectors are involved. Therefore, port institutional structures for port ownership and terminal operations can involve several possible combinations.

Privately owned and operated ports (private ports) are few compared with those that are publicly owned and publicly or privately operated, and these ports are typically smaller in size, such as the industrial ports located on the Great Lakes, where port facilities are privately owned and operated and their purpose is to serve exclusive industrial activities. The focus of this discussion is thus limited to the publicly owned larger ports in the U.S. which would be potential candidates for future consideration for peak pricing programs. Public ownership and operational structure exists at many ports where the state, counties, or municipalities own and operate port facilities. These ports are also referred to as Owner-Operator (OO) ports. Major state owned and operated ports in the U.S. include the Port of Virginia, Georgia Ports Authority, and South Carolina State Ports Authority (SCSPA). County and locally owned and operated ports include ports in Alabama, Alaska, North Carolina, and Oklahoma, among others. Publicly owned by the state, county, or municipality and privately operated ports, also referred to as Landlord ports, are found in Alabama, California, Delaware, Michigan, and New Jersey and New York, among others. Landlord ports are among the largest ports in the U.S.; however, rapid increase in international trade activity is spurring the growth of OO ports such as the Port of Virginia and SCSPA.

Based on the different port institutional structures for ownership and operations described above, two different mechanisms to collect the revenue from congestion pricing are suggested: one addressed to Landlord ports and the other to OO ports.

Peak Pricing Program Governance Structure for Landlord Ports

Regardless of whether the port is owned by the state, county, or municipality; in the case of public ownership and private terminal operations, a way to collect the revenue from the congestion fee could be through the creation of a non profit organization, as in the case of the San Pedro Bay ports with the PierPASS OffPeak program. The rationale of creating a nonprofit organization is to guarantee that the revenue collected through the program from the Traffic Mitigation Fee (TMF) is solely used to pay the expenses incurred from extending the gate hours of operation to night time. In the case of the PierPASS OffPeak program, the nonprofit organization (PierPASS Inc.) allocates the net proceeds from the TMF to the MTOs to cover the extra costs associated with operating extended gates. Net proceeds in this case consist of TMF collections less the administrative and overhead costs incurred by PierPASS Inc. in implementing and managing the program.

The PierPASS nonprofit organization (PierPASS Inc.) was born through the establishment of the West Coast Marine Terminal Agreement (MTA) in June 23, 2005 (http://www2.fmc.gov/agreement_lib/201143-005-MC.pdf). The agreement states that the marine terminal operators agree upon and undertake the formation, management, supervision, contracting with and or dissolution of one or more nonprofit corporations and or limited liability companies, two of which are to be known initially as PierPass, Inc. and PierPass L.L.C., respectively, to implement and administer some or all agreements reached under Articles II(a)(i) though (vi) in the marine terminal agreement.

Article II(a) (ii) of the agreement focuses specifically on the congestion pricing program stating that the parties signing the agreement are authorized to exchange, revise, maintain, cancel and enforce terminal rates (excluding the inland division or inland portion of through rates), charges, rules, regulations, procedures, practices, terms and conditions relating to cargo moving in the foreign commerce of the United States concerning off-peak operations at marine terminal facilities in California, including: measures to encourage use of off-peak hours; recovery of costs of establishing and maintaining off-peak operations; hours and days of service; services and facilities to be made available; and measures to facilitate efficient payment; collection and distribution of any funds collected with regard to off-peak operation.

The following specific elements should be considered with regard to peak pricing program governance structure for Landlord ports:

What should be the dollar amount of the fees? The dollar amount of the fees will depend on the intended minimum diversion of cargo from the peak to the off-peak periods to achieve notable terminal and highway congestion reduction benefits from a peak pricing program. The dollar amount of the fee to achieve required diversion could be estimated using available information on shipper price elasticities, or from shipper interviews. Alternatively, a dollar amount could be charged when the program is implemented and modified subsequently based on observed cargo diversions from peak to off-peak periods. It would also be important to ensure that the revenue obtained from fees levied during the peak period is able to significantly, if not completely, cover the costs of extended gate operations. This pricing does not necessarily have to be a one-for-one relationship to extended operating costs as other sources of funds can supplement these additional costs.
Who should manage the program and collect the fees? A nonprofit organization created jointly by the MTOs to manage the program, collect fees, and distribute fee revenues to the MTOs.
How to create a nonprofit organization to manage the program and collect and distribute the fees? As in the case of the PierPASS OffPeak program, the marine terminal agreement frameworks available through OSRA can be used by the MTOs to engage in discussions and reach agreements on creating a nonprofit entity.
How should the fee revenues be used? The fee revenues would be disbursed by the nonprofit entity to the MTOs (after accounting for program administrative and operational costs) to cover the costs of extended gate operations.
How to ensure transparency in the fee collection and distribution process? As in the case of PierPASS Inc., the not-for-profit entity collecting and distributing the fees to the MTOs will be subject to an external audit, the results of which would be published for the trade community.

Peak Pricing Program Governance Structure for Owner-Operator Ports

At Owner-Operator (OO) ports a congestion fee, as part of a peak pricing program, could be collected the same way other user fees are currently being collected. User fees are supposed to reflect the cost of the service provided and thus, are not considered a “revenue source.” There is no need to create a new agency or department to collect the fee, if the fee amount really reflects the cost of providing the service. If there is concern about the transparency of the use of funds, a trust fund could be created by a public entity (the state, the county, or the municipality), as is currently the case of the harbor maintenance tax at the Federal level. The trust fund would specify the uses of the resources collected, in this case the payment of all administrative and operating expenses incurred by the public entity from extending terminal gate operations.

The following specific elements should be considered with regard peak pricing program governance structure for Landlord ports:

What should be the dollar amount of the fees? This would be determined using the same approach described above for Landlord ports.
Who should manage the program and collect the fees? The port authority would be directly responsible for managing and collecting the fees. If the port has existing user fees, then the congestion fees as part of the peak pricing program could be integrated with the management and administrative processes associated with existing user fee programs. Otherwise, separate entity within the port could be established to manage and administer the program.
How should the fee revenues be used? The fee revenues collected from the program would be deposited into a trust fund to be used to cover the costs associated with managing and administering the program.

Maximizing Benefits from Port Peak Pricing Programs

One of the key issues that needs consideration in implementation of a port peak pricing program is how to ensure that the program maximizes both public and private sector benefits. Ensuring private sector benefits would be critical for the program to garner support and participation from the private freight stakeholders, including shippers, MTOs, motor carriers, and longshore labor. Consideration of the following types of public and private sector benefits will need to specifically be taken into account when implementing port pricing programs.

Public Sector Benefits

Some of the key public sector benefits that a port pricing program would be intended to achieve include:

Mitigating congestion on major highway corridors surrounding the port;
Mitigating congestion at marine terminal gates and within the terminals, to ensure terminal operating efficiency and increased port system capacity;
Mitigating air quality impacts from truck idling due to congestion within the terminals, at the terminal gates, and along surrounding highway corridors;
Addressing community issues with regard to port system capacity enhancements, and their negative impacts on the community; and
Mitigating detrimental impacts of peak pricing programs on interport competitiveness.

Private Sector Benefits

Some of the key private sector benefits that a port pricing program would be intended to achieve include:

Longshore Labor – Ensuring optimal longshore labor utilization in the off-peak periods (this was observed to be a major problem in the PierPASS OffPeak program, wherein the ILWU complained about labor utilization especially in the 11:00 p.m. to 3:00 a.m. extended gate operational time period);
Motor Carriers – The drayage trucking industry at U.S. ports is dominated by independent owner-operators who get paid per drayage truck trip (thus, the daily income of drayage truckers is a direct function of the total number of daily port drayage truck trips). Since congestion at the terminals and on surrounding highways can impact the number of drayage trips made per day, a peak pricing program can benefit the drayage carriers by minimizing peak period congestion (this was observed in the PierPASS OffPeak program, where interviews of drayage carriers indicated some of the truckers experiencing increased truck turns per day, resulting in higher daily income);
MTOs – A peak pricing program can benefit the MTOs by reducing truck congestion within the terminals and at terminal gates, thereby resulting in increased terminal productivity and efficiency. In the PierPASS OffPeak program, interviews of MTOs have reported off-peak truck queuing at terminal gates, which is impacting terminal productivity during the extended gate operational times;
Shippers – Congestion mitigation at port terminals and on surrounding highways resulting from a peak pricing program would have direct benefits to shippers, due to reduced truck travel times and travel time reliabilities. Also, drayage truckers accounting for congestion costs in their port drayage charges would be able to provide better rates to shippers if they can experience reduced congestion as well as increased daily truck turns.

The following elements should be considered to ensure that a peak pricing program achieves the above mentioned benefits:

Appointment Systems – Future implementation efforts for port peak pricing programs should consider appointment systems for trucks diverted to off-peak gates. Some of the expected benefits from implementing appointment systems include improved longshore labor utilization in the off-peak periods and balanced truck traffic distribution in the off-peak period, thereby mitigating truck queuing. Benefits of reduced truck queuing include increased truck turn times for drayage truckers, terminal productivity enhancements for MTOs, and travel time and reliability benefits for shippers;
Variable Pricing – In order to improve the performance of a peak pricing program in terms of diverting additional truck traffic from the peak commute time periods (morning and evening) and achieving associated congestion reduction benefits, a variable pricing scheme could be a potential solution. This solution would involve assessing an increased fee for pick up and delivery of containers for certain specific time periods during the day time shift (8:00 a.m. to 5:00 p.m.) based on information regarding which pick-up/delivery time windows at the terminals typically correspond to peak commute time periods along the major highways surrounding the port;
Longshore Labor Work Shifts – Consideration should be given to what longshore labor work shift structures would be most favorable to port peak pricing programs. These considerations could serve as a framework that labor unions and marine businesses can use in future renewals of longshore labor contracts that would potentially address any constraints that existing longshore labor work shifts pose on the optimal terminal operations under peak pricing programs.

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