Reversing Share

Before the 10-day West Coast port shutdown nearly a decade ago and the various disruptions at the ports of Los Angeles and Long Beach that followed between 2004 and 2007, few thought about East Coast-West Coast competition for container cargo. Aided by efficient rail connections, West Coast ports captured the surge in China trade beginning in the early 1990s, while their East Coast counterparts quietly made their living mostly from slower-growing markets in Europe, the Middle East and Latin America.

That changed after the 2002 port shutdown as shipper strategies to diversify ports of entry led to a surge in all-water services from Asia to the East Coast via the Panama Canal, and the rise of ports such as Savannah, Ga., that were positioned as enablers of trans-Pacific supply chains.

  But now the 4 to 5 percentage points of import market share that East Coast ports picked up at the expense of their West Coast counterparts is shifting back. For the year-to-date through November 2010 compared to 2009, the West Coast gained 2 percentage points of import market share. Compared to 2005 figures, the West Coast is down by only 1 percentage point of import market share.

That means the West Coast has made up nearly all of the share it lost in the years prior to the recession as shippers engaged in port diversification strategies that favored the East Coast, according to PIERS, a sister company of The Journal of Commerce.

Certain key factors can help explain the apparent shift in share back to the West Coast — a surge in West Coast transloading and rail moves to Midwest transload locations; the impact of slow-steaming on all-water services, which can add literally weeks to Asia-origin transit times; and higher fuel surcharges, given the longer waterborne transits to the East Coast. In addition, there’s been a lack of the sort of negative news that once seemed to flow continuously from the West Coast, providing something like free marketing for Savannah and other East Coast ports seeking gain at the West Coast’s expense.

One of the largest U.S. retail shippers mentioned to me last week, for example, that he had newfound concerns about East Coast longshore labor unrest.

“I think carriers and shippers have a good understanding of the suite of supply chain assets the West Coast offers, and those all work together to give them great flexibility in their decision-making process,” said Dick Steinke, executive director of the Port of Long Beach. “With West Coast ports operating efficiently, it looks like a rebalancing has occurred.”

Concerns about East Coast costs and transit times are a factor in the trans-Pacific service contract negotiations now under way. The shipper interviewed last week said some carriers have proposed slow-steaming transit times of 34 to 37 days from Shenzhen and Yantian to Savannah, which is 10 to 14 days longer than the roughly 22-day total (12 days on the water plus 10 days intermodal) that it would take going through Los Angeles. Alphaliner has noted only an estimated 50 percent of eastbound trans-Pacific services are slow-steaming, with some carriers such as Hyundai Merchant Marine declining to slow-steam at all, versus more comprehensive slow-steaming schedules in the all-water market. When you add East Coast fuel surcharges that can run as high as $800 per container, the shipper said, speaking on condition of anonymity, “I can get it there cheaper and in less time” via the West Coast.

The shift in share back to the West Coast makes one wonder how adequately East Coast ports are really positioned in the final run-up to the scheduled opening of the expanded Panama Canal locks in 2014, which East Coast ports have long seen as a potential boon for cargo volumes from Asia.

Many believe the Port of New York and New Jersey has been slow to address the air draft issues of the Bayonne Bridge. Savannah’s plan to deepen its channel to 48 feet, meanwhile, is embroiled in a dispute with neighboring South Carolina, which has say in the project and whose Port of Charleston has stagnated for years as Savannah’s volumes surged.

Taken together, the development of the type of ports that post-Panamax container ships need to operate effectively — deep-draft with unobstructed channels and the ability to offload large volumes of cargo without crippling terminals and local infrastructure — is now looking a long way off on the East Coast.

Peter Tirschwell is senior vice president of strategy at UBM Global Trade. Contact him at ptirschwell@joc.com and follow him at twitter.com/petertirschwell.
 

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