U.S. Seaports: Year of the Ox May Signal Change

As the Lunar Year of the Ox approaches, U.S. importers and exporters are hoping that its symbol is truly auspicious, signaling a muscular return of surging imports from Asia culminating in the so-called “peak” shipping season next summer on the transpacific. Those of us who have been tracking ocean cargo vessel operations on this once vibrant trade lane, however, know there is scant chance of that. Offshore manufacturing cycles have continued to slacken, warehouse inventories are dormant, and vessel operators are withdrawing capacity at an unprecedented rate. But the real threat to West Coast cargo dominance has been undermined by a variety of other factors worth noting.

First, there is dockside labor, which has a long history of wildcat strikes, sudden work stoppages, and political “solidarity” actions. Shippers have tolerated the inefficiencies of the International Longshore and Warehouse Union (ILWU) up until now, because they recall the huge disruption a coastwise strike caused in 2002. Back then, of course, cargo throughput was constant and volumes were robust. Once the new labor contract had been signed, though, shippers also began exploring other sourcing options designed to reduce their dependence on West Coast load centers.

New vessel deployment schedules began to take shape, routing cargo on an “all-water” course from Asia through the Suez before calling U.S. East Coast ports. The falling value of the dollar also contributed to this pattern, as traders realized the obvious benefit of  off-loading some goods in the EU before reaching U.S. destinations at New York, Charleston, and Savannah. The Panama Canal, too, has experienced a resurgence of traffic, bringing more cargo to Houston and other U.S. Gulf ports. With expansion plans on schedule for 2014, this alternative will prove to be even more attractive to operators of the newest “mega” vessels, which have heretofore, not been able to transit the historic passage.

Furthermore, the International Longshore Union, (ILA) comprising most of East Coast dockside labor, has been working with terminal operators and port authorities to manage a more sustainable relationship built upon mutual benefit. Organized and  non-union workers alike have a substantial stake in keeping these gateways viable, and unlike their counterparts across the continent, know it.

Port authorities on the West Coast have also engaged in rampant and undisciplined  “greening” of their operations, thereby layering additional costs upon shippers at a time when they can least afford it. California, which is currently home to three of the nation’s largest ports, has been enacting “truck replacement plans” which have raised the driver’s short-term expenses, and may eliminate the owner-operator drayage force in favor of Teamster drivers who are provided with the mandatory new vehicles. And but for the state legislative veto recently signed by Governor Schwarzenegger, shippers would now be paying an additional “container tax” on every box moved in out of Long Beach, Los Angeles and Oakland.

The ports of Seattle and Tacoma are facing the same environmental compliance challenges, and must also remain mindful of the competition they face in the Pacific Northwest from the Port of Vancouver and its burgeoning Canadian neighbor, Port Prince Rupert. There is also talk among some maritime experts that a “northwest passage” through the Arctic Circle might be opened in the future to bypass this part of the hemisphere entirely. This scenario — while hardly urgent — certainly deserves watching.

The vessel operators themselves, however, are making the most immediate threat to U.S. West Coast dominance. While the rest of the world’s trade lanes are free from the vestiges of ocean carrier cartels, the Transpacific Stabilization Agreement (TSA) lives on. This is a loose confederation of 14 major players who meet regularly to “stabilize” rates and surcharges in an effort to preserve their tenuous hold on what declining business they still have. Several asset-based carriers have dropped out of the TSA in recent years to compete in the free market, and analysts suggest that the time is near for this one remaining price-fixing conference to fade away too.

But it may be too late for many logisticians and supply chain managers charged with managing the supply chains of 21^st century multinationals. For these key decision makers, the Year of the Ox might be one of measured reflection, culminating in a shared conclusion. In the end, the West Coast just might not seem so cool anymore.