Port Tracker says future look positive, but West Coast port labor talks loom

Growth is anticipated in the coming months at U.S. retail container ports despite some looming challenges along the way, according to the most recent edition of the Port Tracker report from the National Retail Federation (NRF) and maritime consultancy Hackett Associates.

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.

Future volumes to a degree are contingent on contract talks for West Coast dockworkers that are slated to kick off next week between the Pacific Maritime Association and the International Longshore and Warehouse Union, according to Port Tracker. With the current contract set to expire on June, 30, the NRF is calling on both parties to avoid potential disruptions that could affect the flow of back-to-school or holiday season merchandise.

“We’re expecting a lot of cargo to move through the ports this summer and we want to make sure there aren’t any supply chain disruptions that would impact the cargo flow,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said in a statement. “We hope there won’t be any issues, but the sooner labor and management can agree on a new contract, the better it will be for everyone who relies on the West Coast ports.”

The report highlighted the importance of successful negotiations, pointing to the ten-day West Coast ports shutdown, which resulted in a significant backlog and caused an estimated $15 billion in reported losses.

For May volumes, Port Tracker expects to see a 3.5 percent increase at 1.44 million TEU (Twenty-foot Equivalent Units). And for March, the most recent month for which data is available, total volume came in at 1.3 million TEU for a 5.1 percent sequential gain over February, which is usually the slowest month of the year, and up 14.5 percent annually.

The report estimated April volumes to be up 6.1 percent annually at 1.38 million TEU along with the aforementioned 3.5 percent May gain. June and July are expected to be up 5.6 percent and 3 percent, respectively, at 1.43 million TEU and 1.49 million TEU, with the first half of 2014 expected to be up 5.1 percent at 8.2 million TEU.

Hackett Associates Founder Ben Hackett wrote in the report that “most economic fundamentals are pointing in the direction of continued sustained recovery in consumer demand and import volumes, much as we had projected. This is turning out to be the longest period of growth for some time now.”

But as he has in recent months, Hackett expressed concern about a still too high inventory-to-sales ratio, which is higher than usual, which he said could be due to a mix of rate negotiations and fear of industrial action. And he explained that should import growth continue as is expected, the data will show that the ratio declined in March and April before leveling out again.

“Part of the inventories built up due to bad weather, with things not moving” said Hackett in an interview. “Personal consumption compared to income was also pretty flat, with people not buying at the same levels as usual, so the importers were sitting on more inventory than they usually would. And with rate negotiations now at an end, importers are bringing in cargo earlier rather than waiting, which is a reason inventory was going up. If we continue to see a rise in inventory after April, that would indicate something is wrong. It would be more of a problem for carriers, though, as vessels will not be as full as they would like them to be in June and July. But if inventory drops, it is a positive sign and says we are on the right track for continued growth.” 

Carriers need to focus on capacity management in light of weak freight rates in 2014, with shippers looking to leverage that situation, according to Hackett. Extra capacity remains an issue for ocean carriers, with competition among members of the same shipping alliances, too, he said, which means they need to focus on managing capacity better or run the risk of having empty vessels.