Speakers at the Port of Long Beach’s annual Pulse of the Port event were not letting the threat of a trade war between the US and China interrupt their optimism for the future, but there are bigger threats on the horizon to for the second largest container port in the US.
This year’s Pulse of the Port even took place against the backdrop of a potential trade war between the US and China, with the Trump administration threatening tariffs and other measure to address the US’s trade deficit with its largest supplier of consumer goods.
If such a war were to break out the Ports of Los Angles and Long Beach would be ground zero. 68% of US containerised imports come through the west coast, and the LA Long Beach port complex is largest gateway.
Speaking at the event Drewry Maritime Research Senior Quantitative Economist Mario Moreno predicted a trade war is unlikely. He cautioned that there are no details as yet on what containerised imports the US might target, but the figure of tariffs on US$60 billion worth of imports that is being bandied around represents around 11% of the value of US imports from China.
Putting aside the trade issue, Moreno predicted the Asia-U.S. trade will grow 6.8% in 2018, the fastest pace in more than half-a-dozen years. Last year Drewry forecast US imports from Asia would grow 6.9%, but the actual growth rate came in much lower at 3.5%, which Moreno said was “disappointing”.
The bigger threat emerging to the container trade through LA and Long Beach, however, is not Donald Trump, but the cost of the investment necessary to support future growth. Long Beach playing a long term game, with very ambitions targets in the environment and intermodal areas. Long Beach Executive Director Mario Cordero stressed that running the largest container gateway in the US is all about “delayed gratification”. LA and Long Beach had their best ever years in 2017, which can be traced back to measures put in place after 2004, when the ports struggled with congestion, he stated.
Cordero was confident that when 2028 arrives Long Beach will be able to look back on decisions taken today as milestones in preserving the port’s market position. The massive investment required to meet some of the aspirational targets, such as having 50% of port volume arrive or depart by rail, however, is of great concern to others. Lawrence Burns, Senior Vice President of Trades & Sales, Hyundai America Shipping Agency, Inc said it is the carriers that have to deliver the cargo to its destination, and the costs of meeting this obligation are rising.
Burns stressed that through M&A, bigger vessels and alliances the carriers “can deliver the ocean piece at a lost cost element, but land costs are increasing and we will need to pass those costs on.” The landside is where the big challenge lies - despite the port claiming dwell time fell 23% in 2017 Burns said it took between 7 to 21 days for HMM to completely clear intermodal containers off the terminals during peak season last year. “We need a faster method. We need to do better and it will be costly. Again we can’t be bundling that cost back into the ocean contract,” he stressed.
That costs must rise is not a message BCOs ever want to hear. A representative from DHL global forwarding told the speakers price is the BCOs top priority, and they are putting constant pressure on DHL to keep costs as low as possible. “The future is rising costs, the consumer will have to pay for this, what role or solutions need to be taken to make the market sustainable?” he asked.
The short answer from Daniel Gardner, Vice President, Supply Chain, Lakeshore Learning Materials (an import BCO) was that there is already too much competition in the market and no easy way to lower costs. “In the US market today there are 6,000 NVOCCs fighting it out for $25 a box and 30,000 customs brokers competing for 50 to 75 bucks an entry…where is the relief coming from? It isn’t,” he said.