The Clean Truck Program: Implementation of an Environmental Sustainability Initiative

Christopher B. Clott & Bruce C. HartmanABS School of Maritime Policy and

ManagementCalifornia Maritime Academy

Introduction• Clean Truck Program is a controversial environmental

sustainability initiative adopted by several major North American maritime ports as a means of restricting use of drayage trucks hauling goods to and from port terminal operations.

• The Port of Los Angeles implementation of Clean Truck initiative involves environmental considerations, legal questions, labor and private industry considerations.

• Has national implications for implementation of regulatory policies on interstate commerce.

Our study probes the following points:• The issues and interest groups involved in the effort of seaports to regulate harbor trucking.• Harbor trucking pollution policies and current litigation surrounding the issue.• Market concerns and economic decisions of the interest groups involved.• Individual port decision making.• Incentive based responses to social policy imperatives.

BackgroundI. Containers brought to and from vessels

by short haul diesel trucks connecting ports with nearby yards, railheads, warehouses, etc.

II. Until the Clean Truck initiative rigs primarily operated by independent owner-operators with older model trucks working on per contract or per load basis with low pay and low barriers to entry.

A. Infrastructure and Pollution Issues• L.A. Basin regarded as one of most air polluted

regions within United States.• Growth of trade volume thru LA and LGB in last two

decades led to increased congestion and concentrated port truck traffic.

• Civil suits filed against Ports on behalf of nearby residents suffering health problems.

• Federal efforts to reduce diesel truck exhaust have been ongoing since 1980’s.

• State efforts thru CARB to reduce emissions over and above Federal EPA regulations.

B. Clean Air Plan• Progressive goals to ban old trucks from port and require purchase of new trucks or refitting of trucks to meet 2007 emission standards.• Concession agreement part of plan put into place by POLA would require truckers to operate with employer driver workforce, phase out owner operators.• Concession arrangement opposed by a multitude of business interests as infringement in violation of trucking deregulation through Congressional action in the 1980’s and 90’s.

C. Port Trucking Industry• Typical port truck driver unable to afford purchase of newer model trucks or retrofitting without significant economic support.• Federal law under the FAAAA Act of 1986 prohibits states and localities from imposing rules on motor carriers engaged in interstate commerce.• POLA argued they needed legal authority to enact policies to protect their financial interests under “market participant” doctrine.• The Ports of Long Beach, Oakland, Seattle, Tacoma and New York/New Jersey have Clean Truck Programs in operation.

D. Lawsuit and Court Proceedings• American Trucking Association (ATA) brought suit against POLA arguing that concession agreement was violation of Commerce Clause of the U.S. Constitution.• In Sept. 2008 U.S. District Court ruled against ATA allowing Port to proceed with plan as scheduled.• FMC first opposed and then supported Clean Truck Program.

D. Lawsuit and Court Proceedings (cont.)• ATA appealed to Ninth Circuit Court of Appeals in 2009, won injunction against concession agreement. • Left unchallenged by ATA were aspects related to older vehicle retirement, truck registry and other efficiencies.• In Oct. 2009 Port of Long Beach reached separate agreement with ATA requiring drivers to meet environmental guidelines, but no concession agreement.

D. Lawsuit and Court Proceedings (cont.)• A civil trial of ATA lawsuit was argued in April 2010 in the U.S. District Court. A ruling on Sept. 10 upheld the POLA concession agreements. ATA challenged that decision and on Oct. 27 the Judge granted a preliminary injunction blocking implementation. • Ninth Circuit Court of Appeals will hear the case again in March 2011. • Case expected to ultimately reach U.S. Supreme Court on primacy of federal law in interstate commerce.

E. Labor Involvement?• Independent owner-operators by law cannot be organized by labor unions.• If motor carriers are required to have employee-drivers by the Port, drivers could be legally organized.• Environmental, community and labor groups, including Teamsters support the POLA position.• ATA argues that Clean Truck program is primarily a Teamster backed initiative to rewrite deregulation of trucking .

III. Modeling Port Pollution Control• Stakeholder interests conflict regarding pollution abatement.• Legal challenges prevented full implementation of some plans.• Ports must maintain competitive position and service container traffic while reducing pollution by a target percentage within a particular time frame.• Should ports set own standards or wait for decisions on global or federal level?• Insight from a simple game theory model of trucking process.

Players

• Decisions affect(1) competitive position of the port (2) investment in pollution control for

trucks(3) use of trucks in supply chains.

a) Port Authorities- set standards and operate with some govt. oversight.

b) Port Terminal Operators- choose carriers

c) Large Motor Carriers- upgrade trucks.

d) Small Motor Carriers- choose operators

e) Owner-Operators- upgrade trucksf) Unions/Teamsters- contract with

large carriersg) Federal Govt.- set pollution

standardsh) Regional/City Govt.- set local

standardsi) Environmental Interests- part. In

legal actionj) Industry Interests- part. In legal

action

• Teamsters Union appears in our model only by effect on cost of freight movement through higher wage, therefore higher cost per TEU moved thru a given port.

• Not considered as lobbyists, influencers, and legal activists, or as organizers of employee operators.

Decision Relations• Port sets the goals, capital support for improvement, participant fees, other rules.• Each PTO selects motor carriers that are small and large. • LMC’s responsible for truck upgrades. SMC’s might or might not upgrade truck.

• LMC selects OPS as employee operators (higher wage rate) or owner-operators (lower wage rate)

• SMC selects only OPS-OO’s at lower wage.

• Subsidies can induce more cooperation to reach pollution goals.• Too low a subsidy may create reluctance to upgrade.

VI. Port Competition and Cooperationa) All North American ports must set

pollution standards high enough to satisfy regional interest groups but low enough to assure that there will be available trucks to handle volume.

b) Lawsuit progression suggests federal standards may be put in place. Individual port negotiations would be null and void.

c) Interest in ports to join together in setting common pollution standards.

Assumption

• Assumption: if an LMC elects 100% participation in an upgrade of trucks to the standard set they will also pay the union wage.

• We found some basis for this assumption from practitioners

Upgrading Trucks• LMC’s,SMC’s have a choice about percentage of their

operators they will choose with upgraded trucks. • If LMC upgrades entire fleet, percentage pD is 100%,

and LMC will choose EO’s or will pay high wage rate; translates into higher truck cost per TEU moved. If LMC chooses pD EO’s and (1- pD) OO’s, it will on average pay blended cost per TEU.

• OO has a choice of whether to upgrade her truck at capital expense. OO gets lower wage rate but must cover capital cost. Percent qk is likelihood that OOk chooses to upgrade her truck.

Simple Game Model• Interaction between MC and OO a simultaneous move

strategic game; MC chooses strategy pD; OO chooses qk

• Payoff function for each player is income less cost:– MC associating with OO: f lt – cD (pd – qk)

– OO associating with MC: w lt – ck (pd – qk)• f , lt w lt are freight rate and wage/period

– lt are average TEUs/trip, trips/period• cD , ck are cost per period to upgrade net of subsidy

• Assume reasonable life of upgrade, eg 5 years, linear depreciation

• Some ports may give different subsidies to MC and OO• Rational play and common knowledge

Nash Equilibrium Outcome

Strategy Space of MC and OO types

Model Results

• Each best response exists only in upper or lower triangle (respectively).

• The Pareto order of each best response from smaller values to larger– player prefers smallest percent strategy it can.

• Nash Equilibrium strategy profiles for this game are exactly on diagonal p=q.

• Pareto ordered from (0,0) best, to (1,1) worst.• Certain regions infeasible – cost exceeds income

What should Port Do?• Both MC and OO prefer no upgrade (probability zero).• In NE each chooses percentage other chooses. • Port tries to increase percentages. Port should keep

percentage same for both D and O. • Induce parties to jointly play high p = q. Treat MC and OO

same.• Higher subsidies reduce costs c per period. • Keep c low for MC and OO to increase profit; more likely

to play NE with higher p=q, more likely to convert trucks.

Players’ Expectations Matter• If either freight rates f or wages w are too low

relative to subsidy, gray infeasible region creeps close to NE line.

• If either f or w are expected to be volatile, player of that type might decide that risk it drops too low means she should not join game.

• Subsidies keep infeasible regions away from NE. • Different subsidies to OO and MC do not affect

NE; simply change feasible regions.

Our Suggestions1. Percentages of trucks upgraded should be the

same for drayage firms and owner operators.2. Trucking participants will seek the lowest

percentage of upgrade possible.3. Subsidies for upgrading should be large

enough such that participants will choose to participate or risk losing business for not doing so.

Relevant in periods like the recent one when freight rates plummeted. Many truckers felt they could not hold on if rates went lower, and chose not to upgrade. Result today is shortages of trucks in some ports; volume cannot be handled without longer waits.

ConclusionsA. Current legal actions show that many interest

groups can hold up implementation of air pollution abatement procedures.

B. Legal/legislative decisions can prove counterproductive to ports

C. Clean truck policies can be modeled as a strategy for the probability of upgrading, freight rates for operators, wages and the cost of upgrading fleets.

Final Thought• Actions must take in account freight rate fluctuations

and wages that would cause parties not to generate a profit.

• Risk factor will cause parties not to participate without an expectation of success.

• Upgrade of drayage trucks can be implemented by port management when subsidies are conditioned by an understanding of choices made by participants.