An aging population in the U.S., a shift in manufacturing from China to Southeast Asia and Mexico, and competition from ports on the East Coast and Canada’s Pacific Coast are forcing West Coast ports to become more efficient in order to protect their cargo base.
Changing global economics and the nation’s painfully slow recovery from the recession of 2008-09 have had an especially devastating impact on California ports, said Michael Jacob, vice president and general counsel at the Pacific Merchant Shipping Association.
Jacob told the annual California Maritime Leadership Symposium Wednesday in Sacramento that aggregate annual International Longshore and Warehouse Union wages are down $200 million from the peak year of 2006.
Nevertheless, the ports of Los Angeles, Long Beach and Oakland still handle about 40 percent of U.S. imports and generate billions of dollars in economic activity and millions of jobs throughout the trade economy, and “that’s why other ports covet our containers,” Jacob said.
All U.S. ports must prepare for slower growth because of changing economic trends. The “grey tsunami” that is taking place as the baby boom population of the 1950s ages means that a growing number of Americans will spend more money on medical care and other services and less money on consumer goods imported from Asia, said Anne Landstrom, principal adviser in the commercial group of Moffett and Nichol engineers.
The days of annual double-digit growth in imports from China are over. Furthermore, with wages in China increasing rapidly, manufacturing is shifting to Southeast Asia and the Indian subcontinent, which positions East Coast ports to be more competitive for that cargo.
Mexico is also becoming more competitive in manufacturing. The near-sourcing of production to Mexico is shifting freight movement away Asia to West Coast shipping routes to cross-border movement by rail and truck.
Canada’s Pacific Coast ports are successfully competing for imports from Asia, with container volumes in Prince Rupert growing more than 20 percent a year while U.S. West Coast ports are scratching out gains in the low single-digits.
Prince Rupert last year handled more than 550,000 20-foot container units, two-thirds of which were for the U.S. market. Prince Rupert is an efficient intermodal rail-oriented port with a shorter transit time from Asia and strong support at the federal and provincial levels through Canada’s Pacific Gateway Initiative, Landstrom said. “Prince Rupert built a better mousetrap,” she said.
Prince Rupert and Vancouver, 500 miles to the south, have expansion plans that will increase their container-handling capacity by 6.4 million TEUs a year, Landstrom said.
Ports on the West Coast must also improve their efficiency in order to compete with East Coast ports when the Panama Canal expansion project is completed in 2015, but competition is already heating up as carriers are launching services with large 8,000-TEU ships steaming from Asia to the East Coast through the Suez Canal.
The ports of Los Angeles, Long Beach and Oakland also face potential loss of market share as they grapple with “California only” requirements that may be both positive and negative at the same time, Jacob said.
California’s ports face strict environmental requirements for clean trucks and, beginning next year, the operation of 50 percent of container vessels from shore-side electrical power while at berth.
Environmental and community groups would not have permitted port expansion without these pollution-reduction mandates, and the results are already overwhelmingly positive as Los Angeles and Long Beach have slashed harmful truck emissions by more than 80 percent since 2008.
While there is no turning back on these costly but environmentally effective regulations, California’s ports must be careful not to impose other fees that would increase the cost of moving discretionary cargo through the ports, Jacob said.
West Coast ports and their terminal operators must also reign in labor costs and improve cargo-handling efficiency and intermodal hand-offs between the terminals and railroads to retain market share in the face of strong competition for their business, the symposium speakers said.