Port of LA warns of sharp Q4 volume drop on tariffs

Port of LA warns of sharp Q4 volume drop on tariffs

A panel (left to right: Gold, Seroka, Angela Hofmann, Rufus Yerxa) discuss how tariffs are hurting US ports, trucking, rail, shippers, and consumers. Photo credit: Ari Ashe/JOC.com.

The Port of Los Angeles is bracing for a 10 percent year-over-year decline in imports in the fourth quarter, after laden volumes through the LA-Long Beach gateway plunged 12.4 in October.

Additionally, Gene Seroka, executive director of the port of LA, said conversations with Chinese factory managers over the last four weeks give little hope for a pre-Lunar New Year surge in January. 

“We are not seeing any type of advancing of cargo like we saw last year in the third and fourth quarters because inventories haven’t been worked down fast enough,” said Seroka.

He said he saw no signs of a rise in manufacturing activity during a recent two-week visit to China ahead of the next round of United States tariffs due to go into effect Dec. 15 — a 25 percent levy on hundreds of consumer and industrial goods. Seroka spoke at an event in Washington, DC to unveil a study entitled “By the Numbers: Jeopardizing the National Benefits of Trade through America’s Busiest Port Complex.”

The study said tariffs on US imports from China threaten nearly 1.5 million US jobs and more than $186 billion of economic activity. Tariffs have already cost US companies some $38 billion, researchers said, not all of which can be passed down the supply chain to the consumer.

Tariffs also mean fewer headhaul opportunities out of the West Coast for truck drivers and empty miles on backhauls as retaliatory tariffs in China lower the number of exports from California.

Cargo volumes in Los Angeles for October reflect how the tariffs caused a slowdown in trade. Laden container traffic declined 19 percent year over year to 553,100 TEU, according to monthly port statistics. Laden exports also fell 19 percent to 140,331 TEU, the 12th consecutive month of declining US exports. There was also a 25 percent decline in ship calls in October compared with a year ago. The study finds tariffs impact more than 90 percent of exports shipped out of Los Angeles, which originate from 22 states.

The Port of Los Angeles believes little will change in the short term. It forecasts November volumes will be down at least 10 percent, while December will also be soft. 

“[Beneficial cargo owners] spent a lot of time and money advancing goods ahead of the Jan. 1, 2019 deadline, which ended up getting postponed twice,” Jonathan Gold, vice president of supply chain for the National Retail Federation, said at the event. “Those who put the time and effort to bring cargo in earlier got hit with extra costs they had not originally anticipated, so I think folks are being more careful this time around.”

Texas is being particularly hurt by the tariff-generated volume declines because nearly $25 billion in economic activity for the state is connected to trade through Los Angeles and Long Beach, according to the study.

Trucking, rail hurt, too

The declines are trickling inland, where intermodal volumes began the fourth quarter lower than the last two peak seasons and the worst October for US intermodal since 2016. Truckload volumes remain higher than a year ago, according to DAT Solutions and American Trucking Associations, but spot and contract rates are lower. Less-than-truckload (LTL) volumes are generally down, based on third-quarter earnings, especially those with shippers in manufacturing.

The softness in manufacturing and export declines in Los Angeles has caused a disjointed supply chain, according to Seroka.

“It’s difficult for a trucker to get a paying load both inbound and outbound at the same time,” he said. “The western railroads are seeing displaced crews, assets, and engine power because of that heavy one-way trade.” 

Without a backhaul, truck drivers and railroads have to choose between moving empty trailers or containers and collecting little to no revenue or be stuck in a market until freight becomes available. 

For truckload, it’s a choice of moving cheap freight or sitting without a load and being idle for a day. For drayage, it’s fewer matchback opportunities to repurpose an import box to an exporter. 

Tariffs do result in more fluid terminal operations, fewer chassis meltdowns and domestic container shortages, and better intermodal service because less volume is moving through the system. But trade associations and the cargo owners they represent would prefer to tackle these choke points from a position of strength in US trade.

Contact Ari Ashe at ari.ashe@ihsmarkit.com and follow him on Twitter: @arijashe.