As of January 11, the United States and the People’s Republic of China remained engaged in trade talks. If the two countries cannot come to an agreement, President Trump has threatened to implement 25% tariffs on billions in Chinese imports. The dispute stands to impact activity at the San Pedro Bay Ports and within trade-related sectors.
Jock O’Connell, international trade advisor for Beacon Economics, said that cargo volumes passing through the ports of Long Beach and Los Angeles would be “less robust” in 2019 than in 2018.
“2018 was unusual in the sense that a lot of the trade was being driven by the threat of increased tariffs,” O’Connell said. “What we saw were decisions on the part of importers in the United States to try to get their goods into the country and past the customs house before new tariffs go into effect.” He added, “As it turns out, that was not something they needed to do because the agreement reached between President Trump and President Xi in Buenos Aires put off the date of threatened tariffs until March 1.”
A similar rush to ship ahead of tariffs could occur again before March if the two countries do not reach an agreement, he noted.
Global trade is expected to slow down in 2019, according to O’Connell. “That is a function of the fact that the U.S. economy is likely to slow . . . in the next year behind the pace set in the last few years,” he said.
The Chinese economy also plays into global trade expectations. “The official statistic is that in 2018 the Chinese GDP [gross domestic product] grew by 6.5%. But there seem to be a lot of people, including some very well-informed people in Bejing, who think that the figure is much less,” O’Connell said.
The former chief economist of the Agricultural Bank of China recently told an audience in Beijing that “he felt that there is evidence that the real growth rate in the Chinese economy was less than 2% and that things did not look good for the near future,” O’Connell said, noting that this news was immediately suppressed by the Chinese government.
If the Chinese economy is in fact slowing down, it would be challenging for President Xi Jinping to agree to import more goods from the United States, O’Connell noted.
Over the past year, the world’s largest shipping companies have been operated under three major alliances, consolidated from four due to mergers and bankruptcies in 2016 and 2017. Shipping lines still face challenges, but are showing increasing profitability, O’Connell observed.
“The real challenges are going to be to the ports. Right now, they are facing some serious problems with congestion,” O’Connell said. As shipping lines continue to deploy larger vessels and “rejigger” their routes, the supply chain – which is made up of too many parties to keep operating in sync – struggles to keep up, he explained. “Port directors have an awful lot on their plates. And a lot of it is unsavory.”
Executive Director, Port of Long Beach
At the Port of Long Beach, we say that the growth we see in international trade is a reflection of the performance of the U.S. economy.
For example, consumer spending is a significant factor. As Americans buy goods, you can expect our trade to expand or contract accordingly. Last year was an anomaly in that retailers rushed some imports into the country to stay ahead of a gathering storm of tariffs as a result of the U.S.-China trade war.
This fast-forwarding of inventory was beneficial to us last year, bringing record container volumes. But in 2019, the unusual flow of commerce that developed in response to the trade war could catch up to the industry. Tariffs are in place and inventories are high, meaning imports could slow.
Yet during our 107-year history, we’ve learned these disputes don’t last, and those who don’t plan and invest for the future will get left behind.
If you offer the best customer service, technology and adherence to operational excellence, the business will come. That will remain our focus at the Port of Long Beach, to continue to be the port of choice and position ourselves for the needs of our customers today and tomorrow.
Chair, Board of Directors, FuturePorts
FuturePorts is optimistic about growth at our Ports in 2019. According to the World Trade Organization, in 2019 international trade is expected to grow by 3.7%, slightly lower than the previously forecasted 4.0%. The slower growth forecasts reflect heightened tensions between major trading partners, and the escalating tariffs imposed by the US on billions of dollars’ worth of goods entering the country from China, and vice versa.
However, a strong job market and employment growth are expected to continue, as well as the level of consumer spending. We can expect California’s job base and incomes to continue their steady rise, especially within sectors like construction and warehousing and logistics, and our Southern California ports continue to set records with their cargo volumes. As the world’s 5th largest economy, strong California growth isn’t just good for the US, but for the rest of the world.
2019 will not be without challenges for the San Pedro ports, particularly with respect to competitiveness with other ports, but we think slow and steady (growth) wins the race.
President, Pacific Merchant Shipping Association
Due to trade policy that is based on late night presidential tweets, it is difficult to say what the ports of Long Beach and Los Angeles will experience in 2019.
No one predicted the surge in trade volumes in the closing months of 2018. In an effort to beat a Trump imposed tariff deadline with China, cargo owners desperately moved imported goods through the nation’s ports.
Front loading cargo ahead of traditional market demands has artificially inflated import volume numbers for all container ports in the United States. Locally, it has also created problems by straining the supply chain – we are simply running out of space to put the cargo once it arrives at our ports. Lack of warehouse space, inadequate chassis, excessive dwell time at marine terminals converting them from transit points into open air warehouses, are all causing a cascading problem for the entire supply chain.
Absent import volumes being driven by ill-defined trade policy, conventional wisdom leans towards annual import container volume growth rates of between 3-5 percent for our Southern California ports. Despite that growth, our port complex has been on a path for many years of losing market share to other North America port gateways. The broader challenge for supply chain partners will be how to process the volume that we have in a manner that increases efficiency and minimizes cost. From a public policy standpoint, the additional challenge will be how to keep our ports competitive and promote their capabilities and environmental leadership.
Executive Director, Port of Los Angeles
Closing the books on 2018, the Port of Los Angeles witnessed record cargo volumes for the third consecutive year, processing nearly 9.5 million twenty-foot equivalent units (TEUs), as cargo owners tried to stay ahead of a planned tariff increase from China.
The new year may reveal the full impact of the deepening trade conflict. It is reasonable to expect higher consumer prices, decreased volumes, lower profitability and even shifting trade routes. While the degree to which these effects hit consumers, businesses, and transportation service providers is hard to predict, the uncertainty has created concern throughout the supply chain.
2019 will also show us whether we as a port community can remain committed to continued system improvement in the face of great uncertainty. The latest tariff-induced surge of cargo placed a familiar strain on cargo operations serving as a clear reminder that we still have much work to do together. This includes revisiting, improving and expanding the institutions established at the beginning of my tenure in 2014.
Whatever challenges we face in 2019, I am confident we can overcome them together in the spirit of collaboration and community.