Legislation would benefit trade, SoCal businesses

International trade is a critical to Southern California’s economy providing 5.3 percent of the jobs in Los Angeles County.  In the San Gabriel Valley, the impact of international trade is even greater- 6.7 percent of the jobs depend on international trade.

International trade depends on the ability to sell American goods to other countries - 95 percent of the world’s customers live outside the U.S.  According to the U.S. Chamber of Commerce, 97 percent of the 300,000 businesses that export are small and medium sized companies. It is small and medium size business that provide most of the job growth in the U.S.

While trade is generally open, some current tariffs are in the double digits. Regulations can inhibit trade.  Trade agreements can breakdown these and other barriers and allow goods and services to flow more smoothly, thereby growing the U.S. economy.

Currently there are two pieces of federal legislation under consideration which could have huge positive impacts on international trade and Southern California’s economy:

1. The Trans-Pacific Partnership (TPP) Trade Agreement and

2. The Export-Import Bank (Ex-Im) Reform and Reauthorization Act.

The TPP is a giant trade agreement that would include Australia, Brunei, Chili, Malaysia, Mexico, New Zealand, Canada, Peru, Singapore, Vietnam and Japan.  Other countries including Korea might also join.

Trade in the 21st century brings more complications than trade in the past.  Most existing agreements are concerned with eliminating tariffs and setting standards for the sale of goods.  Today’s trade agreements need to also consider the import and export of products like financial services, telecommunications, and intellectual properties, not just cars and corn.  That requires a very different kind of agreement. 

Opponents say the TPP would reduce environmental protections, eliminate American jobs and hurt small businesses.  No one wants to see that happen. But fair rules based on strong negotiated trade agreements level the playing field and help prevent those impacts.

The second piece of legislation is a bill to reform and reauthorize the Export-Import Bank of the U.S.  The Ex-Im Bank is the “official credit agency” of the U.S.  It fills the financing gap for companies that cannot access private financing.  It’s been around for eight decades and since 1990 transactions enabled by the bank have repaid the U.S. Treasury $7 billion more that the bank received in appropriations.  It has a low default rate and holds reserves of $4 billion to cover losses. What do you know- a government sponsored business that makes money and helps create American jobs!

Opponents say the Ex-Im Bank serves big business, but usually don’t mention it also directly serves almost 9,000 small businesses.  And the big businesses Ex-Im does serve buy from small business. International trade benefits both.  Other nations understand the connection. Last year export credit agencies in our top trading competitors provided 18 times more export credit than the Ex-Im Bank.

Getting things done in Washington D.C. is difficult today and that is affecting these trade bills.  Tough global competition requires that politics take a back seat to the ability for free trade and global markets to support our national and local economies.

Drought a Concern Throughout the Nation

I just returned from eight days in Washington D.C. - one day it was 73 degrees, two days later it snowed.  I wasn’t there to experience the weather.  I was part of a Southern California delegation there to talk to members of Congress about important state issues and how the federal government could help.

At the top of the list was California’s drought.  You might wonder if elected officials in other states care about our drought.  They do. The lack of water in California impacts the entire nation.  It impacts their food supplies, their water and their economy.

The most immediate impact is on the nation’s food supply. California grows over 200 different crops including almost all of America’s almonds, apricots, dates, figs, kiwis, nectarines, olives, pistachios, prunes and walnuts.  It also leads in the production of avocados, grapes, lemons, melons, peaches, plums and strawberries.  Lack of water is having a major impact on the availability and cost of fruits and vegetables nationwide. 

The water supply for the entire western U.S. is affected by California’s drought.  Twenty-five million Californians depend on the Delta Watershed for water.  Last year Southern California received only five percent of its normal Delta water allotment.  In the Central Valley some farmers didn’t receive any Delta water.  That means other water sources were needed to help fill the void.

One significant water source for California is the Colorado River.   California isn’t the only state that diverts water from the Colorado River.  Nevada, Arizona, New Mexico, Utah, Colorado, Wyoming, California – and Mexico all need Colorado River Basin water. 

Demand for water from the Colorado River exceeds the supply.  To make sure users only take what they are entitled to, the Colorado River is managed under a complex collection of compacts, federal laws, court cases and contracts known as the “Law of the River.”  

Even with this level of strict management, the Bureau of Reclamation says that “based on preliminary assessments, large supply demand imbalances greater than 3.5 million acer feet are plausible over the next 50 years...”   Every user state is interested in making sure California’s drought doesn’t disrupt water supplies in their state.

Longer-term the economic impacts could be significant.  The California economy is the largest in the nation.  A strong national economy needs a strong California economy.

How can the feds help?  They can provide added funding for projects that increase local water supplies such as groundwater clean-up, capture and treatment of storm water, and increased use of reclaimed and wastewater.  The California bond funds will help but there is much more to do.

Congress also can expedite a bipartisan legislative package supporting enhanced conservation and drought mitigation efforts.  Rep. Rob Bishop (R-Utah), chairman of the House Natural Resources Committee, was clear that this is a priority for his committee.

Finally, they can support programs that will improve reliable long-term water supplies through an improved Delta ecosystem. Helping to bring a peaceful end to our Delta battles would be welcomed indeed.

Bills Address Drought, Gas Emissions and More

The California State Legislature is back in session - the beginning of a two year session.  Any bill that didn’t make it through both the Senate and the Assembly last year is dead.   So everything starts over and potential new laws must be reintroduced again with a new bill and a new bill number.

In order to make the process work, there are deadlines for introducing, hearing and passing bills.  One of the most important deadlines is the one for introducing bills.  This year that deadline was February 27.

For the 2015 -16 legislative sessions, 2,297 pieces of legislation were introduced - 1,504 in the State Assembly and 793 in the State Senate.   In the Assembly there were more bills introduced than the prior year but for the Senate the number was lower.  That is probably in part due to three senate positions being vacant with their incumbents elected to Congress.

Surprisingly, more than half of the legislation introduced currently describes only an intended purpose with details to be added later.  Those are called “spot” bills.  More specificity will need to be added soon so these bills can be assigned to a policy committee for hearing.  All bills with fiscal impacts must be heard and reported on by a policy committee by May 1 - the next important deadline. 

If a piece of legislation doesn’t have a fiscal impact, it gets an extra two weeks to be heard in a policy committee.  By May 15 we’ll know how many of the 2,297 bills may still become laws.

There are a multitude of issues that the Legislature is looking at - education, child safety, veterans’ benefits, body cameras for police, and vaccinations for school age children.  But two issues that appear to be dominating the agenda this session are water and power.

California’s drought has forced the state to reexamine how we manage, distribute and protect water.  There are eighteen bills that look at the Delta and at least 20 bills related to the Groundwater Management Act passed in the last session.

There is a bill that recommends a process for public water systems to use in meeting the new chromium-6 drinking water standards; a bill that would allow the Los Angeles County Sanitation Districts to assist cities on storm-water and runoff management projects; and more than a dozen bills that call for conservation incentives, more water efficiency, plumbing retrofits, and requiring individual unit water meters for multi-unit residential buildings.

The Democratic leadership of the Senate and the Assembly released a comprehensive clean energy plan as called for in the Governor’s state of the state address.  It calls for decreasing greenhouse gas emissions in 2050 by 80 percent from the 1990 levels.

There is also legislation that would require California’s public retirement systems to divest in businesses related to coal combustion and several bills revisiting the California Global Warming Solutions Act of 2006.

No matter how you measure it, that is a lot of legislative activity. The Legislature has its work cut out for it, and you, your business, and your community are going to be affected.  Everyone should pay attention.

U.S. Falls Short in Equal Pay for Women, Minorities

March 8 was International Women’s Day (IWD) - a day meant to raise awareness about violence against women and the struggle for equal opportunities in economic, political and social arenas.  First celebrated in 1911, the founders of IWD fought for better pay, shorter hours and voting rights.  Over one million men and women attended rallies that year in Austria, Denmark, Germany and Switzerland to show support for women’s rights.

 In 1995, the United Nations recognized IWD by adopting its Declaration and Platform for Action, a blueprint for advancing women’s rights in all dimensions of life - 17,000 participants joined by 30,000 activists worked for two weeks to craft the Platform which was ultimately signed by 189 governments.

This year the World Conference for Women reflected on what the Platform has accomplished over the last 20 years.  UN Secretary-General, Ban Ki-moon, told the audience that “more girls have attained more access to more education than ever before, the number of women dying in childbirth has been almost halved, more women are leading business, government and global organizations but we must acknowledge that the gains have been slow and uneven, and that we must do far more to accelerate progress everywhere.”

No country has yet closed all aspects of the gender gap.  One area where the United States continues to fall short is equal pay. The American Association of University Women (AAUW) looked at how the gender pay gap affects U.S. women in different locales, with different educational attainments, at different ages, and with different jobs. 

They found that while gender pay gaps exist in every state, there are huge differences by location.  Jobs in Washington D.C. come closest to pay equity.  There, women are paid 91 percent of male wages.  The largest gap is in Louisiana where women are paid just 66 percent of male wages. California is tied for fourth with Florida and Arizona at 84 percent.

There are gaps in almost every occupation.  Women of color have higher pay gaps - the largest experienced by Hispanic women who make just 54 percent of white male earnings.  Women typically make about 90 percent of what men make until they are 35.  After that the gap increases as raises and promotions come more slowly to women than to men.

Education - once thought to be the equalizer - isn’t the full answer.  While women with higher educational attainments do make more money, they still make less than male employees at all levels of education.

The rate of closing the gap has slowed over the last decade.  At the current pace, the pay equity gap won’t be closed until 2139.  We can and must do better than that.

Port Crisis is over, but Challenges Remain

The labor crisis at the western U.S. Ports is over - pending ratification of the agreement by both parties.  As the dust settles after six+ months of bitter negotiations, there are new issues on the horizon.

There is never a good time for a major component of international trade to come to a screeching halt, but disruption could not have come at a worse time - just as the container shipping industry is going through a profound transformation worldwide.

Mr. James MacLellan, Director of Trade Development for the Port of Los Angeles recently attended the San Gabriel Valley Board of Directors meeting to update us on trends in the industry and how they affect our local ports.  These issues are especially significant to the San Gabriel Valley economy because of the high concentration of jobs in international trade - 6.7 percent compared to 5.3 percent in Los Angeles County.

Stiff competition and projected growth of only three to five percent per year means shipping companies are taking dramatic steps to reduce costs.  The first change is in the size of ships.

Ship capacity is measured in twenty-foot equivalent shipping units or TEUs.  A TEU describes the number of 20 foot long containers - the standard length of a cargo container - a ship can carry.  Between 1988 and 2013 the size of container ships has quadrupled from 4,500 TEU to 18,000 TEU.  Even bigger ships are coming - 53 ships with capacity of 13,300 TEU to 19,000 TEU will be added to fleets this year. 

Each container occupies a “slot” onboard the vessel and the cost per slot can be as much as 60 percent less on a ship with a minimum of 14,000 TEU.  Clearly scale is the way to reduce the bottom line.

Mega alliances between shipping companies are also forming similar to those we’ve experienced with airlines.  A reservation to export cargo on OOCL might just end up in a NYK Line ship.  Deploying fewer but larger ships to fewer ports also reduces costs. 

These mega alliances can exert more control in their relationships with gateway ports.  In order to keep costs down shippers want ample warehouse, distribution and transloading options including both rail and roadways.  To keep their attracting business, ports need to meet these demands.

U.S. ports are spending billions of dollars to prepare for the new market realities.  There is much more to planning for accommodating these larger ships.   Sorting the increased cargo from each vessel and moving it off the ships quickly will require revamping customs procedures and extending operating hours.

Improving drayage, the first transport of containers off the dock, will require improved communications technology and real-time data about routes and road conditions. 

Resolving chassis shortages (the locking devices that secure a container during shipping) means more land for storage and increased maintenance crews.

The good news is that the LA and Long Beach Ports are well positioned to compete.  Southern California offers few weather delays.  The Alameda Corridor and the Alameda Corridor East Project through the SGV provide efficient rail options for distribution with Union Pacific and BNSF offering access to 14 major freight hubs including Chicago, Atlanta, Dallas and Memphis. 

Reliability is the real key and improved labor/management relations will remain a critical variable. That must be a focus as we move forward.