Terminal operator sees clients set sail: plans for port expansion face growing peril.

TraPac Inc., a Port of Los Angeles terminal operator that has had expansion plans stymied by environmental opposition, is losing its last two big customers from its aging and cramped complex.

The move, which represents a loss of $70 million in annual business, is the latest blow to a terminal that lost three significant customers late last year amid struggles to get its delayed expansion project under way.

It shines a spotlight on the difficulty of expanding the port--despite expected threefold growth in cargo volume in the next two decades.

"That just cost us 50 percent of our business," said Frank Pisano, vice president of the TraPac terminal. "We can't even compete at the existing terminal that we have."

U.S. Lines, based in Santa Ana, and ANL Container Line, based in Melbourne, Australia, informed the terminal operator this month they would be relocating to the SSA terminal in Long Beach by April 1.

The news comes after three Asian shipping lines announced plans last summer to leave the terminal for the Port of Long Beach. In a letter announcing the move, the companies said they "have no choice but to leave TraPac" after waiting years for an expansion that still had not materialized.

It wasn't supposed to be this way for TraPac.

With an expansion and modernization project tentatively scheduled to begin later this year, the port had hoped TraPac could usher in a new era of environmentally friendly building. But before any ground has been broken, challenges from environmentalists and community groups are threatening to delay the project for months--perhaps even years.

Despite TraPac's troubles, overall business at the Port of Los Angeles isn't much affected. The problem is TraPac's setbacks portend that the port will be unable to grow fast enough to handle an expected increase in cargo in the coming years.

"I think we've lost the political will to build new port capacity and the rail and highway infrastructure which must go with it," said Douglas Tilden, chief executive of San Francisco-based terminal operator Marine Terminal Corp., during a speech last month that addressed Southern California port capacity.

Legal action

The Port of Los Angeles last attempted an expansion project in 2001. That effort--a modernization of the China Shipping Container Lines Co. terminal--became a debacle, drawing a lawsuit from environmentalists that took two years to settle.

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It also prompted the port to put a temporary moratorium on development while it worked to address its pollution problems. As the gateway for 40 percent of the nation's imports, the San Pedro Bay port complex contributes billions of dollars annually to the local economy. But it also generates more air pollution than all of the region's six million cars, causing asthma, lung cancer and other respiratory illnesses, according to the South Coast Air Quality Management District 

To lower pollution levels, the Los Angeles and Long Beach ports adopted a landmark environmental program in 2006 known as the Clean Air Action Plan, which is expected to cut port-related diesel emissions by nearly half in five years. (The plan includes the already approved proposal to replace 16,000 short-haul diesel trucks with cleaner-burning rigs.)

But in the years since the China Shipping fiasco more than a dozen other developments have been delayed. With the $1.5 billion TraPac project, the Port of Los Angeles was looking to turn a comer and start expanding, winning over opponents with a so-called "green" terminal.

The project would expand the terminal to 243 acres from 176, add on-dock rail facilities and reconfigure area roadways to better accommodate additional traffic. In the process, it would create 6,000 jobs and triple annual cargo capacity to 2.4 million containers.

The company and the port have made the project a priority, as shipping lines have said the terminal is too small to accommodate many of the largest ships and containers. And to make good on its "green" promise, environmental mitigation measures include the use of alternative fuel in terminal vehicles and requiring ships to use shore-side electrical power.

"The TraPac project is the epitome of green growth. At the same time, we're allowing the customer to more than double its operations," said Geraldine Knatz, the port's director. "(But) I expect resistance on any project. I think it's a given in the environment we are in. For some people, you're never going to be able to satisfy them."

Indeed, before the project was even finalized, the Natural Resources Defense Council and the International Brotherhood of Teamsters co-signed a letter to the port threatening action if the proposal did not include additional measures to address the expected increase in port-related diesel emissions.

"These problems are a key reason why thousands of our children are needlessly suffering the agony of asthma and our citizens are dying prematurely," the groups said in the letter. "Unless we are assured that your plans include reasonable proposals for mitigating the environmental harm of your existing facility, let alone your proposed expansion, we cannot see how we could let the process continue without challenge."

The Los Angeles Harbor Commission approved the environmental impact report anyway on Dec. 6, and just days later a coalition led by the NRDC filed an appeal with the Los Angeles City Council to reverse certification. The groups were rankled by the port's admission that the project would result in an increase in particulate emissions over present-day levels.

David Pettit, a senior attorney at NRDC leading the appeal, said the project is better than previous developments from an environmental standpoint--but it doesn't go far enough.

"These ports are the dirtiest ports in the country and they have the farthest to go," he said. "They are getting better but given the immense size of the project, there's a lot more that they need to do."

Terminal exodus

In the appeal, the environmental, health and labor groups are demanding that the port insert additional mitigation measures in the project, including requiring ships to use low-sulfur fuel. If the appeal is rejected, Pettit said his group is considering a legal challenge, which could delay the project for months or years.

Los Angeles City Councilwoman Janice Hahn, whose district includes the port, said she supports adding environmental concessions to the project. But as head of the committee overseeing the appeal, she is working to negotiate a compromise between the two sides.

Until that happens, she will not schedule a date to hear the appeal.

"I'm trying to prevent a lawsuit," she said. "I'm not going to bring it forward if the two sides won't budge."

In the meantime, TraPac is languishing in its outdated facilities. It is the only terminal without rail that reaches its dock. And its dock is just 1,000 feet long, too short for many large ships.

The company's problems took center stage last summer when Sinotrans Container Lines of Shanghai, Norasia Lines of Hong Kong and Wan Hai Lines of Taipei announced their plans to leave the terminal.

Meanwhile, U.S. Lines was recently acquired by CMA-CGM SA, a Marseilles, France-based shipping giant. In 2003, the French company considered bringing cargo to TraPac but backed out when company executives determined the terminal would not be large enough. CMA-CGM also owns ANL.

Ed Aldridge, chief executive of U.S. Lines, said he had a good relationship with TraPac, but the acquisition made moving a necessity given the terminal's present size. "We might as well be in the same common facility. It makes more sense to combine our volumes," he said.

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Now, the only shipping line regularly using the TraPac terminal is its parent company, Tokyo-based Mitsui O.S.K. Lines  Ltd.

Pisano, TraPac vice president, said the terminal is suffering pains unlike any he has witnessed in his 21 years in the industry. After years of growth in excess of 10 percent, revenue has dipped considerably.

"We've had zero growth in the last year," he said. "Right now, we're at 50 percent of capacity."

Meanwhile, port Executive Director Knatz said she fears that the struggles of TraPac could spread to other terminals as shipping lines leave the port's cramped facilities.

"I think there's a very strong potential for that," she said.

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BY RICHARD CLOUGH

Staff Reporter