It’s been a tough year for the Ports of Los Angeles and Long Beach.
Between the 2019 trade war and the 2020 pandemic, cargo volumes — which make up about 75% of the port’s revenue — from China have plunged.
While better times are expected to return sometime in 2021, the recovery may not ever come back full circle, according to the projections of an analysis published by the Pacific Maritime Shipping Association, an organization that advocates on behalf of terminal operators and other shipping business stakeholders.
West Coast ports have been losing overall market share, according to the report titled “Loss of Market Share at U.S. West Coast Ports” by international trade economist Jock O’Connell, as East Coast and Gulf Coast ports ramp up to compete.
According to the paper, the West Coast ports’ decline resulted in more than 668,980 containers to be diverted to other states and trade gateways in a single year.
High costs of doing business in a state where aggressive environmental policies are in place, a lag in updating port infrastructure and periodic labor-management issues have contributed to the trend, the paper states.
None of this is news to either of the regional ports in Los Angeles and Long Beach. Port leaders have been tracking and anticipating these changes for some time and recognized the challenges that lie ahead.
Not only are the West Coast ports (Los Angeles/Long Beach,Seattle/Tacoma/and Oakland) restricted in terms of physical growth, but evolving trade routes, higher costs for new environmental standards in the West, the opening of the Panama Canal and the fact that most of the U.S. population lives east of the Mississipi are pushing cargo routes in other directions, the report said.
“There’s a structural shift going on in trade routes that will slowly eat away at the advantage the West Coast ports used to have, and that’s an area of growing concern,” O’Connell said in a telephone interview.
The shift could be a gradual one, however, as other ports continue to woo shipping lines and build the infrastructure needed to accommodate larger cargo volumes.
Over time, ports along the Gulf Coast and East Coast can be expected to invest in creating warehouse space and other necessary infrastructure that would keep shippers coming back. Those ports are likely closer to the ultimate destination of the cargo and, at least for now, have not had to drive the cost of doing business up to pay for ambitious zero-emissions climate change programs now in place on the West Coast.
Another lure that could draw business elsewhere, O’Connell said, are sometimes rockier labor relations on the West Coast, in particular during contract negotiation periods.
“One of the chief reasons shippers began to look to other ports was the major disruption in trade in 2002 and again during the winter (contract dispute) of 2014-15,” O’Connell said.
A new labor contract comes up in 2022 when terminal automation will be likely the overriding issue.
East and Gulf Coast ports, the 11-page report states, have made gains in cargo since the end of the 2007 recession.
Even so, containerized trade volumes at West Coast ports have been “edging” up, the report states, but have been disrupted by the trade war and the COVID-19 pandemic.
And during recent years, rival gateways — such as the Ports of New York/New Jersey, Savannah and Houston — have recorded overall faster growth rates.
It was in the 1970s and 1980s that U.S. trade shifted to Asia, O’Connell said, which drew cargo away from the Atlantic to the Pacific.
But as trade bumps up in areas such as Thailand, India and East Africa, routes likely would opt for going through the Suez Canal , O’Connell said.
“There’s a structural shift going on in trade routes that will slowly eat away at the advantage West Coast ports used to have,” he said.
The West Coast could still see trade growth, he said, but “not nearly as robust as we’ve been seeing.”
Tensions have grown in the Ports of Los Angeles and Long Beach in the past year as the move toward automation has begun to materialize.
“The automation issue has to be addressed in the new contract,” O’Connell said.
John McLaurin, president of PMSA, said losing business to other ports will have economic “ripples that move across Southern California and then affect the entire state, with the loss of good paying logistics jobs. When a cargo owner decides to change a trade route, the port, warehouse and transportation system all lose business and it will take a concerted effort to bring that business back.”
But the International Longshore and Warehouse Union has mounted an aggressive challenge to automation, an issue that has become a flashpoint in labor relations. The potential loss of jobs will also impact the broader economic health, union officials argue.