FreightWaves SONAR: California Gov. Urged to Reverse Ports’ Receding Market Share

Written by Kim Link-Wills, Editor, FreightWaves
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Economist reports container volume is moving to East and Gulf coasts.

California Gov. Gavin Newsom got a letter Monday asking that the state take action to reverse the loss of market share at West Coast container ports.

The Pacific Merchant Shipping Association (PMSA), the first signatory, was joined by such organizations as the California Trucking Association, Harbor Trucking Association, California Railroad Association, Future Ports, Pacific Maritime Association, National Retail Federation, Agriculture Transportation Coalition, and Pacific Coast Customs Brokers and Freight Forwarders.

In all, 52 trade associations, industry organizations and businesses signed the letter pleading with Newsom and the California Legislature to do something about what they identified as a 19.4% drop in West Coast ports’ market share.

From a smaller base, Savannah maritime import shipments have grown faster than the Ports of L.A. and Long Beach.

FreightWaves SONAR: Shown as relative changes since March 1, 2018, the blue line above shows maritime import shipments (containerized and non-containerized) for the ports in the L.A. region (includes both the Ports of L.A. and Long Beach) and the orange line shows maritime import shipments through the Port of Savannah.

The letter, dated Monday, said action needs to be taken “before California permanently loses jobs and direly needed state revenue.”

“The importance of a robust goods movement sector throughout the state cannot be understated. The sector supports one in three jobs in California and 1.6 million trade-related jobs in Southern California, generates direly needed tax revenue and services the state’s critical industries,” the letter said.

It asked that the state:

  • Promote California ports “as the most efficient and environmentally progressive” in the country.
  • Meet the challenge from East and Gulf Coast states, which have leaders who “promote and invest in their ports and goods movement industries.” 
  • “Reexamine the state and regional regulations that are creating a disincentive to use California gateways. Determine whether the policies, particularly in environmental areas, are backfiring and encouraging more greenhouse gas emissions by sending more business to ports that are far behind California’s climate program.
  • “Reconcile state laws encouraging environmental and efficiency mandates with the need to retrain workers to adapt to a changing work environment.”
Fifty-two signatories called for action. (Image: PMSA)

‘Discomforting numbers’

The letter cited analysis prepared for the PMSA by economist Jock O’Connell in June that found West Coast ports’ market share has declined 19.4% since 2006. 

Import market share for the Port of LA fell during 2019 before (temporarily?) improving in mid-2020 as shippers rushed delayed goods to market

FreightWaves SONAR: the market share of imports for the ports of Los Angeles, Long Beach and New York/New Jersey are shown in the above chart in blue, purple and green, respectively.

In “Briefing Paper: Loss of Market Share at U.S. West Coast Ports,” O’Connell highlighted what he called “some of the more discomforting numbers”:

  • 352,846 — the increase from 2018 through 2019 in inbound loaded twenty-foot equivalent units (TEUs) through nine East Coast ports.
  • 191,176 — the gain from 2018 through 2019 in inbound loaded TEUs handled at the British Columbia ports of Vancouver and Prince Rupert with which the U.S. West Coast ports directly compete.
  • 80,292 — the hike from 2018 through 2019 in inbound loaded TEUs handled at the Gulf Coast ports of New Orleans and Houston.
  • 668,980 — the drop from 2018 through 2019 in inbound loaded TEUs handled at the West Coast ports of Los Angeles, Long Beach, Oakland, Tacoma and Seattle.

“According to the account often repeated in the maritime industry press, an obstreperous labor union has been singularly responsible for the loss of market share,” O’Connell wrote. “The saga is said to have begun in 2002, when a 10-day shutdown of USWC ports prompted beneficial cargo owners (BCOs) to reassess their reliance on trans-Pacific supply chains that traversed USWC ports.

“Importers in particular are said to have concluded that labor-management relations were more volatile on the USWC than at ports elsewhere in the country” and began moving containers through other North American gateways, he said. 

Ocean spreads narrowed in 2Q20 as shippers moved goods through the West Coast ports to get goods to market quickly

FreightWaves SONAR: Spot ocean rates to move goods from China to the U.S. west coast and the U.S. east coast are shown in orange and green, respectively, on the left axis. The blue line shows the spread, or the difference between the rates (i.e., the rates from China to the east coast minus the rates from China to the west coast).

‘Iffy proposition’

O’Connell also pointed to the “generally higher cost of doing business in the states of California and Washington. And that is especially the case if your business attracts the scrutiny of environmental regulators as aggressive as the California Air Resources Board. 

“Even if ports elsewhere in the country are obliged to bear the cost of complying with stricter air quality regulations — an increasingly iffy proposition given current political divisions among the several states — USWC ports are expected to transition to zero-emissions standards right now. That obviously puts them at a competitive disadvantage against ports in political jurisdictions that are less fastidious about environmental issues,” he said. 

O’Connell said West Coast state governments “have been less than assertive in bolstering the physical infrastructure needed to support international trade. While there has been a productive market for consultants’ reports detailing the economic value of such things as designated trade corridors, there has been relatively little in the way of concrete investment or policy measures aimed at facilitating international goods movement. By contrast, other states have not been neglecting the material needs of their ports.” 

Expansion of the Panama Canal, completed in June 2016, also enabled shippers to divert higher volumes of trans-Pacific container traffic from the West Coast to the East and Gulf coasts, he said. 

O’Connell noted that declining market shares do not equate to declining volumes. In fact, container volumes through West Coast ports increased prior to the tariff war and the coronavirus pandemic — but not nearly as much as at ports on the East and Gulf coasts. 

“Between 2010 and last year, containerized import tonnage from East Asia grew by 12.5% at the ports of Los Angeles and Long Beach, by 16.6% at the Port of Oakland and by 22.9% at the [Northwest Seaport Alliance] ports,” he wrote. “But the largest East Coast port, the Port of New York/New Jersey, recorded a 37.9% expansion of its containerized import tonnage from East Asia between 2010 and 2019. Savannah saw a 93% boost, while Charleston posted a 124.5% surge. Along the Gulf Coast, the Port of Houston reported a 200.2% jump.”

The West Coast ports: Faster from China to the Midwest, but also more expensive

FreightWaves SONAR: The above line shows the difference in cost between moving a shipping container from China to Chicago through the east coast ports and from China to Chicago through the west coast ports, taking into account the combined ocean and rail rates. Click here for additional detail.

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