Port Tracker report points to increasing import levels with backlog levels high

While the months-long West Coast port labor dispute between the Pacific Maritime Association and the International Longshore and Warehouse Union reached a cease fire, with the parties coming to terms on a tentative new five-year labor contract late last month, the subsequent cargo backlog at United States West Coast ports is expected to see cargo volumes head up, according to the most recent edition of the Port Tracker report from the National Retail Federation and Hackett Associates. 

The stalled port negotiations that led up to the recent détente between the PMA and ILWU saw a number of stops and starts. Shortly before a deal was reached, the 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 alleged were ongoing union slowdowns” up and down the coast, it brought port activity almost to a standstill and crisis-level conditions.

With nearly 20,000 ILWU workers at 29 West Coast ports in California, Oregon and Washington front and center in what became 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. A federal mediator was eventually was brought in last January but a tentative agreement was not reached until February 20, with U.S. Labor Secretary Tom Perez meeting with both sides to help them reach a deal.

“The contract talks are over, but the tentative agreement still has to be ratified and it’s going to take months to get back to normal on the West Coast,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said. “Retailers’ immediate priority is to make sure spring merchandise reaches store shelves in time. Going forward, we want labor, management and Washington to work together to see that we never again have a situation like what we went through these past several months.”

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 January, the most recent month for which data is available, reached 1.24 million TEU (Twenty-Foot Equivalent Units), which was down 13.4 percent from December and down 9.5 percent compared to January 2014.

The report estimated February volumes to come in at 1.27 million TEU, which would be up 2.3 percent annually, and March is expected to reach at 1.52 million TEU for a 16.9 percent annual increase, with the increase attributed to the arrival of spring merchandise, as well as the high backlog of ships at anchor still waiting to be unloaded and the later date of the Lunar New Year, which the report said is pushing some February cargo into March. April and May are each estimated to hit 1.51 million TEU for a 5.2 percent increase and 1.57 million TEU for a 6.1 percent increase, respectively. 

Ben Hackett, founder of Hackett Associates, wrote in the report that while the labor disruptions are in the past, speculation remains as to whether there will be a shift in coastal port market share.

“Without a doubt, the last four months have seen a clear shift from the west coast to the east coast after two-and-a-half years of relative stability within a five percent range,” wrote Hackett. “Terminals are still congested due to the large number of containers being discharged in a short time as terminal operators and unions work together to clear the backlog as quickly as possible.”

As parties work to clear the backlog, Hackett explained that railroads are having a hard time finding enough capacity for the long haul of import cargo to the Midwest, which, in turn presents conflicting future scenarios and has importers and exporters reviewing their future supply chain plans, which may not favor moving cargo in and out of the West Coast.

The reason for that, he said, is that they may want to avoid future West Coast port disruptions, when the next labor contract expires in five years, but he also noted that East Coast ports could be dealing with a similar situation when their contract expires in 2017.

“But costs differentials will be what brings them back to the West Coast,” he said in an interview. “It costs twice as much to ship to the East Coast, with cargo still needing to be hauled to the Midwest. And shippers and distributors have made major investments out west into distribution centers, which means there is still a lot going for the West Coast.”

When the parties initially reached a deal in late February, industry estimates suggested it would take about two months to clear out the cargo backlog. Hackett said that he expects that ships will discharge very rapidly, resulting in backlog getting cargo out of the ports. To augment things, though, he said large alliance carriers will make better use of terminals in an effort to be more efficient, adding that even with the labor disruption there were some West Coast port terminals that were relatively empty.