Tariffs do hurt, especially when you’re operating on the West Coast.
The San Pedro Bay ports of Los Angeles and Long Beach have been feeling real pain from the Sino-American trade war. It’s not surprising: China accounts for more than half the value of the imports and nearly a third of the exports moving through the bay.
It’s no surprise either, then, that Los Angeles and Long Beach suffered a 4.6% drop in imports from January to October 2019, according to business intelligence from IHS Markit PIERS. And the Port of Los Angeles reported that the depressed volumes for OctoberOpens a new window marked a dozen consecutive months of declining exports, with 25% fewer ship calls and 19% less volume compared with the same month in 2018.
LA and Long Beach are on course to suffer furtherOpens a new window as the commercial impact of the coronavirus outbreak reaches American shores. Leading American ports could experience a 13% decline in containerized retail imports in February, followed by an additional 9.5% drop in March due to extended production shutdowns in China.
Even more painful for San Pedro Bay is that business has picked up at other ports on the US Gulf and East Coasts. PIERS data for the first three quarters of 2019 show that for West Coast ports – which also include the likes of Seattle-Tacoma and Oakland – imports from China fell 9.2% due to Trump administration tariffs. That was while Asian container imports over at their Gulf Coast counterparts jumped 17% year-on-year over those same nine months.
The rise of Gulf ports
The reason for the rise of the Gulf isn’t hard to fathom. It’s well documented that both domestic and overseas manufacturers have shifted a good amount of production out of China to near-neighbors Vietnam and Cambodia as well as further afield to Bangladesh.
Fortuitously, Gulf ports, along with others higher up the east coast, have been developing business with these markets for a while, and an increasing amount of traffic has been leaving the West Coast to pass instead through a recently-expanded Panama Canal or via the Suez Canal.
But the truth is that while LA and Long Beach are certainly suffering under the White House’s trade battles, those ports face systemic problems.
Back in 2014-15, long labor disputes in California created major disruptions for the US shippers that had become overly dependent on those ports. The shippers decided to shift to a four-corner strategyOpens a new window already in play at leading retailers such as Wal-Mart and Target, whose supply chain managers had shifted freight to the East and Gulf Coasts.
While it gave the shippers more flexibility to switch from one gateway to another as conditions demanded, it also gave the West Coast the headache of lost business.
Costly California
In addition, LA and Long Beach are expensive shipping propositions. They have America’s highest terminal lease charges – about twice the rate of other ports,Opens a new window according to John McLaurin, president of the Pacific Merchant Shipping Association. And, being in California, they also operate under tough state and local environmental regulations that add to their costs.
As McLaurin told the Journal of Commerce, shipping through the West Coast now comes at a premium.
The West Coast needs to fight back. Gene Seroka, executive director of the Port of Los Angeles, recently outlined several steps to regain lost businessOpens a new window . One core item of LA’s strategy is the “Terminal Efficiency Incentive Program†to improve drayage efficiency and reduce truck-turn times by linking monetary rewards to improvements on every container.
Plans are also afoot to make LA a so-called “smart port†by developing a community-wide technology system to share cargo data among all participants.
Over at Long Beach, the port is scheduled next year to complete a $1.5 billion container terminal designed to double its freight volume. Management claims it will be the most technologically and environmentally advanced facility in North America.
Still, it remains to be seen whether the ambitious game plans, investments and new technologies will bring all the ships and their containers back to the West Coast ports.