January 02, 2024
Intermodal

Intermodal Briefs: POLB, Port Bienville

Written by Marybeth Luczak, Executive Editor

The Port of Long Beach, Calif., releases a “Supply Chain Insight” interview with Paul Bingham of S&P Global Market Intelligence. Also, the state of Mississippi awards an industrial development grant to Port Bienville and Hancock County Port and Harbor Commission (HCPHC).

POLB

POLB on Dec. 28 released the latest installment of its Supply Chain Insight video series: “What’s In Store for ’24 and More!” Paul Bingham, Director of Transportation Consulting for Economics and Country Risk within S&P Global Market Intelligence, provides a cargo update, a rundown of the challenges facing two of the world’s key shipping routes, and a look ahead at 2024. Following is a transcript (edited for length and clarity) of the interview, which can also be watched above.

Dr. Noel Hacegaba, Chief Operating Officer, POLB: 2023 for us here in Long Beach has been a return to pre-pandemic levels in fact we’re on track to end the calendar year right on track with 2019 if not a bit higher. What is your assessment of 2023 especially in the backdrop of 2022 and 2021?

Paul Bingham, S&P Global Market Intelligence: Well, 2023 has been a year of more normalization of conditions. Obviously, we’re past the peak of the pandemic. Consumer spending, it lingered into 2023 a little bit. But we’ve seen in 2023, finally we’re back to 2019 seasonality patterns. Inflation has come down. Some of the other indicators that we look at for the health of the economy and the health of trade have been trending in the right direction. In 2023, we’ve achieved labor peace, which was a big question as we headed into the beginning of the year, and we have conditions coming out at the end of 2023, it’s not a really strong economy overall but is still one where consumers are spending and trade is rebounding as you’ve pointed out .

Dr. Noel Hacegaba, POLB: Paul, is there anything about 2023 that has surprised you?

Paul Bingham, S&P Global Market Intelligence: Well, there been a number of disruptions to the supply chain system, mostly outside the country, though we’ve got one right now going on at the Texas-Mexico border with some rail crossings. [Editor’s Note: Following five days of closures at Eagle Pass and El Paso, Tex., U.S. Customs and Border Protection announced Dec. 22 the reopening of these key international crossings.] For supply chain managers, continued surprises—not perhaps to the magnitude that we saw with the pandemic—but disruptions in Panama or the Suez Canal, the Hamas attacks against Israel and the war that’s followed. All were not something that we could have anticipated a year ago and clearly have some potential to affect supply chains. And all these global events have a domino effect across the supply chain. It’s hard enough to plan for the expected; it’s harder still to plan for the unexpected.

Dr. Noel Hacegaba, POLB: So speaking of some of these shocks or surprises, we’re well past the supply chain crisis and related disruptions, but in 2023 the Panama Canal Authority had to restrict capacity due to water shortages stemming from a historic drought. How long do you see this continuing, and how do you think this will affect the global supply chain?

Paul Bingham, S&P Global Market Intelligence: The Panamanians face a real obstacle. They’ve got a freshwater system. They’re dependent on rainfall. And so, if climate change and severe weather lead to inadequate rainfall, they’re in a position where there’s not a whole lot they can do about it in the short run and consequently that’s affected the capacity they have to offer for global shipping. Even though they’ve recently had some rainfall, we’ve seen that the transit numbers they’re projecting on into the beginning of 2024 are still going to be down from about a third from what they normally would be if they had sufficient rainwater. That’s a big problem in terms of total capacity of what you can move through the canal system and there’s no getting around that that affects the U.S. The biggest customer of the Panama Canal has been and continues to be the United States. It’s U.S. trade that’s primarily affected by that low-water situation and there’s no easy solution. The Panamanians have engineering, planning to try to expand the watershed, to take some other actions to try to better manage the water that they use in the lock system, but ultimately it’s a severe challenge in the long run on a system that’s based on freshwater and rainfall. And for shippers using the Panama Canal, the alternative to that is the West Coast ports if you’re on transpacific trade or going all the way down around the Cape, and the extra time and expense and emissions that are associated with that.

Dr. Noel Hacegaba, POLB: In fact, one of the common questions we’re getting today is what effect the Panama Canal Authority restrictions are having here on the West Coast. And speaking just for the Port of Long Beach, we have seen an uptick in recent months and we expected for that uptick to continue, and we think a good chunk of that is a result of what’s happening there in Panama.

Paul Bingham, S&P Global Market Intelligence: There’s no question that that shipping managers have seen the reactions of the steam ship lines. Even though container ships get priority to transit the canal with a reservation system, they’ve had to lighten loads. They can’t sail through fully loaded, which affects the operating efficiency and, obviously, the cost for that and the dependability—can they be assured that there won’t be a delay when they get to the canal. That’s an issue. And the alternative of the Suez route, I’m sure we’ll talk about too, but the Panamanian problem is one that’s not solvable by a naval task force. There’s no easy quick solution, which then means supply chain managers have to think about what are the alternatives to using that route for cargo.

Dr. Noel Hacegaba, POLB: More recently, major shipping lines announced that they’re bypassing the Suez canal in response to the safety risks posed at the Red Sea. How do you see that situation unfolding and impacting the global supply chain?

Paul Bingham, S&P Global Market Intelligence: In some ways, it’s a bigger issue for global trade because the Europeans depend on the Suez Canal much more than the U.S. does for trade with Indian subcontinent and parts of Asia. That problem may be resolved a little bit more quickly with this new naval task force, but I’m not so sure how quickly that will happen. The vessels that have been diverted there, that’s at least seven to 10 days or more depending upon the actual routing and where they were when they were rerouted around the Cape of Good Hope. There’s issues with war risk insurance that even if you were able to have your vessel transit, now the cost of that in addition to the Suez Canal tolls, to have to pay the insurance cost of being essentially in a war zone as opposed to alternative routes, increase the cost to those carriers. And there’s the reluctance on the part of some of the steam ship lines to expose their crews or their or ships to potential military threats, which, really, they can’t defend against. There’s only so much a Navy can do for the types of attacks that we’re seeing, so that becomes a very significant challenge especially for the U.S. for the pendulum services that have gone between say Asia, the Indian subcontinent, and the U.S. Coast as an alternative to the Panama Canal or to transpacific services into the West Coast. Obviously, that has repercussions as well for supply chain managers trying to determine how they design their supply chains in terms of what routes they’re going to depend on as they look into 2024. So that combined with the Panama Canal provides tremendous impetus to where we believe that the West Coast ends up benefiting.

Dr. Noel Hacegaba, POLB: We can’t talk about global trade without talking about geopolitics and its impact on the global supply chain. Many shippers have shifted in recent years to a China plus-one strategy. Where do you see growth in the plus-one category specifically and who do you see as the main winners?

Paul Bingham, S&P Global Market Intelligence: We don’t believe that there will be a single substitute country. There will never again be a single country like China dominating global supply chains on the goods production side, the factory floor for the world or whatever people want to call it. Instead, it will be a regionalization of trade with some dominant patterns emerging for certain types of Industries. India is one example of a country with great potential for the future, but by no means the only one. We believe a substantial amount of trade has and already will continue to shift into other parts of Asia, which will still depend on transpacific trade for trade with the United States. As well, we’re seeing shifts into countries like Mexico that do not have anywhere near the population or the capacity of China but have the proximity advantage to the United States. And for other regions of the world such as Europe, they may depend and rely more on Central and Eastern Europe than they have on Asia for some of their supply chain developments in the future.

Dr. Noel Hacegaba, POLB: Is near-shoring and French-shoring finally turning into a trend? And what do you think this means for the U.S. market, especially here on the U.S. West Coast?

Paul Bingham, S&P Global Market Intelligence: There’s no question that however we want to call it—friend-shoring, near-shoring, ally-shoring—this x-shoring category of shifting your supply chains to looking at country risk not just looking at purely your cost of production in a foreign country. Taking those into account more substantially is likely to be the future of supply chain risk management that benefits countries like Mexico, but it also benefits friendly democracies in other regions such as in Asia in terms of who we will be doing business with. It doesn’t mean companies are going to abandon China, like you said it becomes a China plus-one strategy where they still want to serve that very substantial end market with especially on the U.S. export side. But as far as putting your supply chain at risk but depending upon a single source country, those days are probably over. And that can extend to even the nearshoring but there are definitely benefits in near-shoring in terms of reducing your supply chain risk by shortening those supply chains. However we also understand there’s some complexity to that and which may mean that there are components that go into factories for final consumption in a country like Mexico but still depend on international ocean trade for some portion of the inputs that feed into that, what’s so-called near-sourcing of commodities and yet the supply chain remains truly global, not truly bilateral between everything that goes into that production being between say two countries, whether that would be Mexico and the U.S., or Canada or Korea, or whatever the other country would be.

Dr. Noel Hacegaba, POLB: When you look at all the cargo volumes that come in through our port here in Southern California, a percentage of that ends up in Mexico used for manufacturing another growing trend that we’ve made notice of is e-commerce. A lot of e-commerce product is being repositioned to South of the Border in Mexico, comes in through the San Pedro Bay ports complex. What are some of the other “mega” trends that you see emerging in the years ahead in response to all of this diversification?

Paul Bingham, S&P Global Market Intelligence: If we look out at the bigger picture, the one that we can’t get around besides the geopolitics issue is the energy transition. It’s the movement globally away from car fossil fuels and reduction in carbon emissions, whether it’s from the transport side or stationary sources of emissions production, trying to fight global warming and climate change over time. It’s pervasive in places like Europe already. It’s advancing through International ongoing discussions across industries, across countries, and sort of on an unrelenting basis, including advances of technology, advances of capital investment, financial flows, many different aspects to that. All of which are going to affect businesses in ways that will increasingly be important. Some of it’s on the regulatory side; some of it comes from the customer demand side, where your supply chain partner wants to see the carbon footprint of your operations. And that is going to affect decision-making in terms of supply chain choice, including down to the level of carriers and facilities that the shippers and their supply chains depend upon.

Dr. Noel Hacegaba, POLB: What is your market outlook for 2024 and what do you view as the biggest risks and the biggest opportunities?

Paul Bingham, S&P Global Market Intelligence: Let’s start with the biggest picture, which is a global economy that’s slowing a little bit from where we were in 2023. We’re forecasting that these interest rate policies that have been pursued by central banks to fight inflation are having some success, but they haven’t worked through the system yet entirely and inflation hasn’t fully been conquered. We’re not down in the United States to the target level from the central bank … We saw in the United States, the third quarter was actually the strongest quarter of growth the economy for the year. We believe that’s not going to be sustainable and we’re going to see growth, GDP growth now forecast of 1.5% for 2024 compared to 2.3%, which is what we’re forecasting we’ll see by the end of this month [December]. And if we look particularly at what’s going to happen with consumption and trade, there’s some reasons to believe that the goods consumption side tied to international trade will do a little bit better. In fact from an import side, we’re actually forecasting a reversal of the decline that we saw for all of 2023, where it declined substantially in the first part of the year and has started to come back in the second half of 2023 such that it’s going to continue with growth a little bit over 2% on imports for 2024. On the export side, we did have a positive 2023 and we’re actually anticipating that that will continue into 2024, but still at a relatively moderate pace and partly that’s tied to the economic health of our trade partners. It’s not only what happens within the United States. Some of the weakness in manufacturing we’ve seen in the United States is not tied only to that interest rate and cost of capital; it’s also been weakness in some of our trade partner country economies that supply some of the demand for our economic activity. We’re also seeing some reductions in some of the government stimulus still playing out. We had the big infrastructure bill that’s been played out with higher levels of construction. We had some specific programs to bolster green manufacturing and some of the other sectors like semiconductor chips that played out into construction spending and manufacturing on 2023. That’s not going to be repeated at the same level in 2024 but there’ll be some other things that will help offset that. As we get to the end of 2024, we believe the economy will be strengthening and the trade will continue to grow as we come out of the year.

Dr. Noel Hacegaba, POLB: What advice do you have for shippers heading into 2024?

Paul Bingham, S&P Global Market Intelligence: The first advice would be to resist some of the cost-driven temptations to revert to a just-in-time supply chain management where you reduce the number of suppliers and try to lean out your supply chain to minimize cost, increasing your risk and vulnerability to disruptions. If what has happened in the last few months isn’t evidence enough, clearly the investment which is paying for insurance for your business to have a resilient system is really required, and the argument up to the C-Suite, the management chain, has to be to defend the Investments that were being pursued in terms of resilience during the pandemic, those really have to be continued. And in the face of cost pressures that are relentless, when trying to have inflation come down, requires some price pressure on everybody trying to cover their increased costs and that includes on the labor side. And yet trying to build for resilience is critical in the face of the pressures that everybody can see. And we’ve hopefully learned some lessons through the pandemic that if you don’t do that, your company’s going to suffer, you personally may suffer, in terms of your job health if you’re not adequately prepared.

Port Bienville and HCPHC

The Port Bienville and HCPHC have received a $450,000 site development grant from the Mississippi Development Authority (MDA) for the 475-acre Site 1 at the Port Bienville Industrial Park in Hancock County, Miss. The grant will go toward a wastewater capacity study, pre-engineering to increase wastewater capacity, and engineering and design to permit Site 1 for new industry at the 3,600-acre industrial park.

HCPHC operates a dedicated short line that services industrial park tenants, offering a direct connection to CSX.

“Current investments to expand rail and water capacity strengthen our position for new industry and this grant will help us identify needs with our wastewater infrastructure for new industry and perform necessary design to permit the wetlands and reduce the timeline for new industry at Port Bienville,” HCPHC Executive Director Blaine LaFontaine said.