A Pivot to the East: Can West Coast Ports Recapture Shifting Trade?
There’s an increasingly consistent trend at West Coast ports: business is slowing down.
This is particularly true at the Port of Los Angeles, where traffic has dropped significantly compared to this time last year.
Reflecting on September 2022 data, the John McCown Container Report captured the plunge.
“The West Coast decrease of 17.0% in September extended a sharp downtrend from an 11.5% decline in August and 5.1% decline in July and was the largest decrease over the last twenty-seven month period,” McCown said. “The West Coast ports have registered year over year decreases in nine of the last thirteen months.”
Concerns in the West
McCown noted that the drop in traffic at the Port of Los Angeles was particularly steep, decreasing by 26.3% that month. Along with the Port of Long Beach, the combined inbound volume was down 13.2% compared to the previous year.
When the pandemic’s ecommerce surge initially hit, West Coast traffic surged due to a “cycle time edge” for the Asia to West Coast voyage, which McCown said ended in mid-2021 when the shift to East/Gulf Coast ports started to gain momentum.
“Since mid-2021 there has been a more pronounced move away from the West Coast as shippers redirected container routings to minimize the effect of widely reported delays related to congestion,” McCown noted.
He described December 2021 as a “low point” in West Coast traffic, which started to pick up early in 2022.
“However, the figures have returned to a downward trend since March and are now at record lows,” McCown said.
Brandon Richardson described the shifting trends in a December 30, 2022 article for the Long Beach Business Journal.
“In September, October and November the Port Authority of New York and New Jersey, which is regularly ranked the third busiest port behind LA and Long Beach, outperformed the West Coast facilities in terms of container volumes,” Richardson wrote.
As McCown noted, persistent congestion was one factor that fueled the West Coast slowdown, but that’s no longer a concern.
However, another nagging issue is: the unresolved labor dispute between the International Longshore & Warehouse Union (ILWU) and Pacific Maritime Association (PMA).
Fears of a work slowdown—or worse—have resulted in a shift to East and Gulf Coast ports that may not be a temporary thing. Instead, shippers and carriers are eyeing the infrastructure investments being made there and the efficiencies they can provide.
Gene Seroka, Port of Los Angeles executive director, has been very clear that the loss of business to eastern competitors is a big concern—which is why he’s been on the road meeting with supply chain stakeholders to try to get it back.
Source: CNBC via YouTube
Planning Pays Off
East and Gulf Coast ports have been signaling their intent to capitalize on the influx of new business for some time. Such efforts started with the expansion of the Panama Canal—which enabled passage of bigger container ships starting in June of 2016.
Our article in late February 2022 highlighted this trend and described how East and Gulf Coast ports have been planning and investing to make the most of such opportunities—including projects such as dredging, terminal expansions, raising bridges when needed, expanding rail services, and creating new inland ports.
In a December 15 article for CNBC, Lori Ann LaRocco underscored the role of “unresolved port labor negotiations” and the AB5 trucking law in moving trade from the West Coast to the East Coast and Gulf ports, “cementing what seems to be with each month a more likely permanent shift…”.
LaRocco also noted that in addition to the ports, those benefiting from this trend also include warehousing and CSX and Norfolk Southern railroads, which provide service there.
She listed an array of investments being made at East Coast ports and cited several port leaders about the current- and long-term efforts. One was Richard Cotton, the executive director of the Port Authority of New York and New Jersey, who told CNBC that “The port is working extremely hard on making it the most attractive port for ocean carriers and cargo shippers.”
Cotton also told the outlet that in addition to other factors, diversification is playing a role in shifting trade patterns: “They don’t want to have all their eggs in one basket so what we see happening in terms of the decline of other ports, is that much of it has come to the Port of New York and New Jersey.”
LaRocco said Cotton was also “confident that New York’s gains will be lasting, especially after five years of investments.”
“If you compare today’s performance to prior years, it has absolutely stayed at an extraordinary level above the prior years. We are not seeing the decline the other ports are seeing,” he told CNBC. “The port will continue to set records for the rest of the year and we think that trend will continue. There may be seasonal declines, but the port is hitting on all cylinders.”
“Contract, Cargo, and Commitment”
In a December 14 media briefing, Port of Los Angeles Executive Director Gene Seroka acknowledged both the shifts and his concern.
He listed “three key areas” that he’s focusing on in the near term: “contract, cargo, and commitment.”
“First, we've got to get this labor contract done,” Seroka said. “Both sides are working hard and I remain optimistic that these very capable negotiators are going to get an agreement together early next year. That's the certainty cargo owners are waiting for, so it can't happen fast enough.”
He said the second priority is to “get out and work for every pound of freight.”
“Just like we collaborated with our partners to clear the backlog, we need a united industry push to demonstrate why LA should be our customers’ first choice,” Seroka explained. “I've personally been on a whistle stop tour crisscrossing the country during these past six weeks, and I will continue to do so, preferably with some key partners in order to bring cargo back to Los Angeles.”
He said the final priority relates to improving service.
“As the cargo returns—and it will—we need to continue to up our game with better data, less wait times, and more efficiency,” Seroka said. “Every ship, every train, every truck move needs to be handled with the top-line service our customers expect and deserve.”
“So, contract, cargo, and commitment,” he said. “Once we address all of that we can move the needle.”
When asked whether he viewed the shift to East Coast ports as permanent or cyclical, Seroka said that if action isn’t taken, the former is a possibility.
“Doing nothing? Yes, absolutely, cargo will stick at these other ports,” he said. “Once the supply chain starts finding its way, if an importer is waiting for that cargo, the ship arrives every Friday, and they get it in their warehouse in the Midwest every Friday a week from then, they're feeling pretty good. So we've got to go out there and earn that cargo. We've got to make sure we have our ducks in a row on all the service parameters that are necessary.”
He said history has demonstrated why a robust effort is needed to regain business.
“In the end, history has shown…cargo is going to keep finding its way to the easiest pass, and some of it will stay. That's reality,” Seroka said. “But I'm ultra-competitive and I'm going after every pound. We're coming.”
In the following CNBC video published Jan 3, Seroka discusses current port trends.
Source: CNBC on YouTube