Ocean shipping: Port Tracker report says volumes may remain below 2007 levels

Jeff Berman, Senior Editor -- Logistics Management, 4/7/2008

WASHINGTON—While traffic at United States-based retail container ports is slowly picking up, its annual growth is likely to be on the low side due to economic conditions and a subsequent weakness in demand, according to the monthly Port Tracker report by the National Retail Federation, a retail trade association, and Global Insight, a provider of economic and financial information.

As reported in previous months, the current—and projected—weaker performance is due to rising energy prices, a consumer spending slowdown, the housing market, among others.

The ports surveyed in the report—including Los Angeles/Long Beach, Oakland, Tacoma, New York/New Jersey, Hampton Roads, Charleston, and Savannah—handled a cumulative 1.24 million TEU (Twenty-foot Equivalent Units) in February, the most recent month for which numbers are available. The report noted that February is typically the slowest month of the year for port traffic, and that it matched January’s performance. But it was off 5.4 percent from January 2007, marking the seventh consecutive month with an annual decline, according to the report.

In an interview with LM, Global Insight Analyst and Port Tracker Author Paul Bingham said that Global Insight is estimating that monthly volumes, measured on a same-month year-ago basis this year will be running below last year's level through August. 

“Global Insight is now estimating that the U.S. will be in recession in the first two quarters of 2008, with weak consumer and business spending reflected in weak import volumes through the ports,” said Bingham. “For shippers, the weak port traffic meansthere will be adequate capacity across the system, even as some transportation suppliers attempt to reduce the scale of their operations to match the weaker demand.”

Along with volume expected to be below last year’s levels, the report explained that there is an optimistic outlook regarding current negotiations on a West Coast labor contract—which is expiring on July 1.

The International Longshore and Warehouse Union and the Pacific Maritime Association met on March 17 to begin discussing a new contract in an effort to prevent what happened in 2002, when talks hit a standstill and resulted in an employer lockout that halted cargo movement at West Coast ports for 10 days and had severe financial and logistical repercussions that lasted for months.

Bingham said that things appear to be moving in the right direction on this front for various reasons.

“From talks with carriers and union management, we are optimistic that both sides see that they both would lose from a work stoppage this year and therefore are motivated to reach an agreement without disruption to port operations,” he said. “I believe that there are other, more recent, influences on this perspective than the aftermath of the 10 day lockout in 2002, though it is a factor.”

Among these influences, said Bingham, are a weak demand environment and the growing sources of alternative potential port gateway competition around the continent, combined with fears of environmental constraints on West Coast port traffic growth have combined to make both sides of the labor contract negotiations in 2008 cautious.  And he explained that with the terminal operators and the long shore workforce concerned about the continued potential future growth in their business, neither side wants to risk adding to reasons to divert cargo elsewhere. 

With the Port Tracker report indicating that volumes may begin rebounding in August, Bingham said a recovery may appear in some consumer spending increases that could influence peak season volumes. But he added that volumes will still be weak compared to the growth that occurred from the 2002-2006 period.

“The peak season traffic pattern this year may be influenced by more than underlying demand…with the implementation of the TWIC program and West Coast port container fees in the fall that may affect the timing of some shipping decisions, at the margin,” he said. “There are still risks on the downside that the economy may see a 'double dip' in demand with the fiscal stimulus only temporarily boosting consumer spending where a drop in spending follows for some time into 2009 before full recovery starts.  This would influence container volumes and show up as weak import traffic into next year.” 

In the coming months, the Port Tracker report expects March volume to be up 1.1 percent at 1.29 million TEU, which, if true, would snap the seven consecutive months of declines. Other projections include: April at 1.34 million TEU, up 1.1 percent from April 2007; May at 1.36 million TEU, down 1 percent from May 2007; June at 1.38 million TEU, down 4.9 percent from June 2007; July at 1.43 million TEU, down 1 percent from July 2007; and August at 1.46 million TEU, which would match August 2007.