About the author: Christopher Tang is a Distinguished Professor at UCLA’s Anderson School of Management.
The chaotic scene of 100 ships waiting to unload their containers in the twin ports of Los Angeles and Long Beach in October 2021 is a forgotten past. At one point in March there were only 15 ships in these two ports, down 50% from normal pre-pandemic times.
In the first three months of 2023, the ports of Los Angeles and Long Beach handled 3.5 million 20-foot unit containers (1.8 million containers for Los Angeles and 1.7 million containers for Long Beach), a decline of 30% compared to the same period corresponds to 2022. This drop should worry anyone hoping for a robust recovery from the Covid pandemic. The federal government must work with the state government, business leaders and port union workers to improve the competitiveness of these ports.
The twin ports of Los Angeles handle approximately 40% of all containerized imports and 30% of all exports to the United States. Their decline could trigger a domino effect that could hurt industries across the supply chain, including logistics, warehousing, manufacturing and retail. Sustaining economic growth requires urgent efforts to stimulate trade flows through these ports.
What are the root causes of the decline in these two ports?
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First, overall US import demand has eased so far this year.
As we emerge from the Covid crisis, US consumers are spending more on services ranging from food to travel and less on consumer goods. Retail sales fell 1% in March due to high inflation. And while demand stagnates, retailers are faced with bloated inventory they ordered during the pandemic to cope with rising demand in 2021.
US import volumes have declined as US firms struggle to sell excess inventory. Import freight volumes at major US container ports fell to a three-year low in February.
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Second, geopolitics is pushing importers to ship their goods through East Coast ports.
The additional tariffs linked to the US-China trade war that began in 2018 and the supply chain disruptions caused by the zero-Covid lockdowns have prompted US firms to move some of their offshore operations away from China to relocate. While some companies are importing more from Mexico, taking advantage of the US-Mexico-Canada agreement, others are importing more from other low-wage Asian countries like Vietnam.
Deliveries from Vietnam to the USA are normally made by sea freight. There are two major sea routes. One route runs through the Suez Canal, crosses the Strait of Gibraltar and then the Atlantic to unload the containers at various East Coast ports including the Port of New York and New Jersey, the Port of Charleston and the Port of Savannah. The second route goes through the Philippines, across the Pacific Ocean and then unloads at various ports on the west coast.
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After the ugly round of West Coast port congestion, many US importers prefer to ship Vietnam through various East Coast ports, causing an additional drop at West Coast ports.
Third, inefficiency and uncertainty also discourage many US importers from relying on West Coast ports for imports. The ports of Los Angeles and Long Beach are notoriously inefficient. Out of 351 container ports around the world, the World Bank ranks the Port of Los Angeles 328th and Long Beach 333rd.
The introduction of automation and digital technology would improve port efficiency, but the dockers’ union is concerned that innovative technology could affect its members’ job security. As such, the modernization of West Coast ports is a sensitive issue as negotiations continue to replace a contract that expired in July 2022.
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Negotiations with the International Longshore and Warehouse Union and the Pacific Maritime Association began in May 2022 but are dragging on. Terminal operations in the ports of Los Angeles and Long Beach were shut down for two shifts in early April.
The efficiency and reliability of US ports is critical if the US is to accelerate its economic recovery.
The ILWU has strong bargaining power. It can prevent these ports from adopting new technologies to become more competitive. However, dockers risk a Pyrrhic victory, which could result in a lose-lose situation.
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If these ports are not competitive, it will trigger an economic downturn in the western US that could affect the well-being of these dockers and their families.
While US importers have some flexibility in choosing the port into which to import their goods, US exporters have limited choices. For example, time is a crucial factor when exporting perishable agricultural products. These exporters need to ship their fruit and vegetables through the nearest ports so that their overseas customers can receive these products while they are still fresh.
With advanced robotics doing the heavy lifting, dockers can do more to improve port efficiency. You can follow the shining example of companies like Amazon in promoting human-robot collaboration. Digitizing port operations would also help improve supply chain efficiency by facilitating communication between stakeholders.
Dockers have understandable concerns. The federal government should help tackle them. It must work with business leaders to develop a workable contract that will enable technology adoption and protect workers’ jobs.
We all have an interest in revitalizing these ports. It’s time to work together to help the economy recover.
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