When discussing the outlook for international trade through the San Pedro Bay Ports this year, one word comes up again and again among industry executives: uncertainty. Given the ongoing trade dispute between the United States and China, it’s no wonder. In May, the Trump administration escalated the tariff rate on $200 billion worth of Chinese imports from 10% to 25%. China responded by imposing increased tariffs on about $60 billion in American goods.
After the Business Journal’s press time, President Donald Trump was expected to meet with China President Xi Jinping at the G20 summit in Japan to discuss the matter.
“We have a trade policy and apparently now a foreign policy that is shaped by tweets that change by the day and by the hour, so I think it’s really difficult to predict how the rest of the year is going to unfold,” John McLaurin, president of the Pacific Merchant Shipping Association (PMSA), told the Business Journal. The PMSA represents the interests of shipping lines and terminal operators doing business at West Coast ports.
“What we saw last year was more front loading of cargo in advance of tariff deadlines. So we saw a lot of growth in terms of imports. That clearly has slowed for this year,” McLaurin said. “People are trying to figure out what’s going to happen next. Are we going to see additional tariffs imposed or increased, and will it impact the volumes? Will it impact where goods start to originate or [are] manufactured overseas, which would also affect the supply chain?”
As of June 11, year to date, the Port of Long Beach (POLB) has experienced a 6% decrease in containerized cargo volumes, while the Port of Los Angeles (POLA) has experienced a 5.2% increase. Top executives at both ports say that the trade dispute with China is impacting their cargo volumes, noting that the largest cargo traffic gains have been in the empty shipment of containers overseas, rather than in actual goods movement.
Asked about why POLA was experiencing an increase and POLB has had a decrease in cargo volumes, POLB Executive Director Mario Cordero pointed out that such fluctuations are common between the ports, which are in direct competition.
“Tariffs do create that uncertainty for the industry and stakeholders as a whole,” Cordero said. “Going forward, in terms of this year, we have modest expectations in terms of the cargo movement for the nation. We’re talking about an increase of 1.8% on loaded imports overall as a nation. So [the outlook for] this gateway kind of reflects that.”
Gene Seroka, executive director of POLA, pointed out that exports to China between both ports have decreased by 28% this year. Nationwide, that figure is 25%, he noted. “One word describes my expectations, and that is all-around ‘uncertainty,’” he said. “What we’ve seen thus far is that imports to the Port of Los Angeles are virtually even with what they were last year. And exports have declined marginally, just a little bit less than 2%. The area of increase has been on the empty containers that are being repositioned back to Asia, and we have taken a precipitous hit on cargo that moves through our gateway to China.” More than half of POLA’s business is with China, he noted.
The shipment of empty containers overseas increased 11.7% through the Port of Long Beach in May, and 20% through POLA, according to statistics released by the ports. With an imbalance of more imports to fewer exports, increasing numbers of containers are sent back overseas to be refilled with more imports, Seroka explained.
Seroka said that the cost of tariffs has been passed on to American companies. “Therefore those companies are absorbing some of this increased taxation, which has an impact on jobs, investments and outlook as to how they are going to manage their businesses and to use their supply chains,” he said.
Beyond the trade dispute with China, Cordero noted that strong economic factors domestically also play into the outlook. “There has been up to this point a strong consumer demand,” he said.
The inventory-to-sales ratio for retailers is at its highest point since the days prior to the recession, Seroka noted. This is because retailers placed orders in advance of tariff implementations to try to save money, and those goods are now sitting in regional warehouses, he explained. “We have warehouses that are bursting at the seams,” he said.
While the tariffs are not within the ports’ control, both port authorities are focusing on what is: namely, improving their infrastructure and operational efficiency. Both ports are investing in technologies to improve supply chain visibility and efficiency, as well as capital improvement projects to upgrade facilities.
The construction of the Gerald Desmond Bridge replacement, which will accommodate more vehicular traffic and the passage of larger ships beneath it, is on track to be complete in Spring 2020, according to Cordero. While it was originally scheduled to open in late 2019 or the first quarter of 2020, an unusually wet rainy season delayed progress, he explained. The completion of the Middle Harbor Redevelopment Project, which is transforming Long Beach Container Terminal into a fully-automated, zero-emission facility, is scheduled for completion in 2021. The port is also planning extensive additions to its on-dock rail capacity.
Orient Overseas Carrier Line’s (OOCL) is selling Long Beach Container Terminal to Macquarie Infrastructure and Real Assets, an international asset fund. OOCL’s parent company was required to divest the asset when it was bought out by COSCO Shipping. According to Cordero, the deal is still going through an approval process with the federal government. He expects it to be completed within two months.
At the Port of Los Angeles, “There is some exciting work happening today at Evergreen [Container Terminal] as well as several of our other facilities including furtherance of our on-dock rail project,” Seroka said. “We also in January implemented Version 1 of the General Electric Port Optimizer, and now, with the participation of the liner shipping companies and terminal operators, we have 95% of all the import cargo covered within this port community system.”
The General Electric Port Optimizer allows supply chain stakeholders to track the shipment of goods through POLA as it passes to various entities such as trucking companies and rail lines. Seroka said the program is the first of its kind in the United States. Cordero said the Port of Long Beach is considering implementing similar technology.
“For the Port of Long Beach, we are going to continue with our plan of action in terms of the priority of operational excellence, which includes taking a second look at vacant land that we have . . . which we can use to either enhance our revenue and/or for logistic purposes,” Cordero said.
California ports may be up for a challenge if any of their terminal operators wish to implement automated technology – Assembly Bill 1321, which is currently making its way through the state legislature, would require State Lands Commission approval of any such changes. To approve automation, the commission would have to find that it would “provide a safe working environment and not cause critical damage to the state economy or to the economies of surrounding local communities, as specified.” The bill is currently going through committee readings in the state senate following passage in the assembly.
At the Port of Los Angeles, the approval of a coastal development permit in June that would pave the way for automation at APM Terminal led to public protests by the International Longshore and Warehousing Union (ILWU) , which represents West Coast dock workers. “The company announced over 18 months ago that they wanted to put into works semi-automated machinery that would not require ILWU labor to operate. And since then there have been ongoing discussions,” Seroka said on the subject. “Technology improvements are all around us, including in our port industry. But technology advancements should not leave the working people behind. And that’s what we’re trying to solve for today.”
McLaurin noted that terminals in both ports employ automation. “It sounds like this is going to be an ongoing issue and struggle between the union and the trade community,” he said.