Despite West Coast ports labor issues, Port Tracker calls for import growth

Even with the months-long labor dispute between the Pacific Maritime Association and the International Longshore and Warehouse Union still in full effect, with the possibility of a full-blown West Coast port shutdown rising, the Port Tracker report from the National Retail Federation (NRF) and Hackett Associates issued today is calling for import volume growth at U.S-based container retail ports.

The labor dispute between the PMA and the ILWU dates back to the middle of 2014. In January, the parties this week agreed to negotiate with a federal mediator, with the goal of coming to terms on a new contract, but it appears that chances of that occurring soon remain far off at this point.

Late last week, PMA announced that weekend vessel loading and unloading operations would be temporarily suspended, with yard, rail and gate operations continuing at terminal operators’ discretion. In light of what the PMA alleges are “ongoing union slowdowns” up and down the coast, it has brought port activity almost to a standstill. With nearly 20,000 ILWU workers at 29 West Coast ports in California, Oregon and Washington front and center in what has become an untenable situation going back to last July, when the existing contract between the parties expired, it was hoped, at least early on, that things would get back to normal in terms of port operations, with a new contract coming together fairly quickly.

The current situation, the report noted, has resulted in “crisis-level conditions at the ports.”

“With cargo volume growing as the economy continues to recover, the last thing we need is a port shutdown that would bring billions of dollars of economic activity to a halt,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said. “Whether it’s in retail, manufacturing, agriculture or other industries, there are too many jobs that rely on the ports to let that happen. Labor and management need to do whatever it takes to reach an agreement and do it today.”

The ports surveyed in the report include: Los Angeles/Long Beach, Oakland, Tacoma, Seattle, Houston, New York/New Jersey, Hampton Roads, Charleston, and Savannah, Miami, and Fort Lauderdale, Fla.-based Port Everglades. Authors of the report explained that cargo import numbers do not correlate directly with retail sales or employment because they count only the number of cargo containers brought into the country, not the value of the merchandise inside them, adding that the amount of merchandise imported provides a rough barometer of retailers’ expectations.

The Port Tracker report said that for December, the most recent month for which data is available, reached 1.44 million TEU (Twenty-Foot Equivalent Units), which was up 3.2 percent from November and 9.3 percent compared to December 2013. Total 2014 volume––at 17.3 million TEU––was up 6.6 percent compared to the 16.2 million TEU recorded in 2013 and was ahead of a previous estimate of 17.2 million TEU.

The report estimated January volumes to come in at 1.48 million TEU, which would be up 7.5 percent annually, and February is pegged at 1.37 million TEU for a 10.1 percent annual increase. March and April are each estimated to hit 1.34 million TEU and 1.49 million TEU, respectively, with May at 1.56 million TEU for a 4.9 percent gain and June up 5.3 percent at 1.56 million TEU.

Hackett Associates Founder Ben Hackett wrote in the report that East Coast ports have benefitted from the West Coast labor disputes, with not as much growth expected for East Coast ports in 2015, with cargo destinations, expected, to a large extent, revert back to their natural ports of call, while pointing out that it is cheaper to ship to West Coast ports as opposed to via an all-water route. 

“Despite the disruption and turmoil, the volume growth continued apace,” wrote Hackett. The west coast third quarter was higher than at any time in the last five years. Our projection for the same period this year is for a further peak to be reached. Once the disruptions are behind us, we expect some shift of the diverted cargo back to the west coast, which may well further raise the throughput levels. As it was, 2014 was a busy year for ports: nine of the ports we track had record high levels of imports.”

Hackett told LM on average East Coast port growth rates were in double-digits, which highlights how cargo has been diverted due to the West Coast labor issues. This was exemplified in the report as it showed how total West Coast volume share as of December was below 60 percent at 58 percent, with the East Coast at 38 percent (which is up 3 percent), and Gulf Coast at 4 percent.

“The big question is just how much cargo will come back to the West Coast when a labor deal is reached or will importers adjust their supply chains to the East Coast? I personally believe it will change back to West Coast routes not just because of costs benefits but also due to all-water transit benefits.”

He also said that vessels can afford to increase velocity with bunker fuel prices down about 50 percent compared to just a few months ago, with carriers not losing capacity as vessels currently deal with long waiting times to call on ports. In this light, he explained that port capacity can be viewed in the same way as labor relations, in that they are both major factors for the current situation at West Coast ports. To that end, he said there is not a lack of capacity at the Ports of Los Angeles and Long Beach as well as Seattle-Tacoma.

“Except for 2002 [when there was a major West Coast port strike that cost the U.S. economy billions] this can be viewed as the worst things have been for West Coast ports,” said Hackett.