FTR Associates predicts high long-haul truck rates as shippers try to rush goods to rest of country.
The labor slowdown at West Coast ports during contract negotiations likely sliced a full percentage point off of fourth quarter Gross Domestic Product, Deutsche Bank Chief Economist Joseph LaVorgna said.
The U.S. economy grew at a 2.6 percent annualized pace in the last three months of the year, according to a preliminary government estimate. In the third quarter, GDP raced forward at 5 percent.
LaVorgna based his conclusion on the assumption that without a slowdown the level of trade in December would have been close to its trailing three-month moving average as of November and that the trade deficit would have remained unchanged in the last quarter instead of widening $40 billion compared to the third quarter.
He attributed the unexpected widening of the December deficit by $6.8 billion to weak exports caused by the port disruption.
Although U.S. goods exports increased 2.7 percent to a record $1.64 trillion in 2014, according to the Commerce Department, growth was negative 1.5 percent in November and negative 1.9 percent in December, representing an annualized decline of negative 18.3 percent. The decline in export trade value correlates with a dramatic slowdown in outbound loaded container traffic relative to inbound loads, according to LaVorgna.
“We believe that the pronounced slowdown in the exports of goods is largely the result of labor strife affecting West Coast ports rather than anything primarily associated with macroeconomic factors,” LaVorgna wrote last week in a research note.
He predicted that the negative impact on GDP from a widening trade deficit may be even larger in the first quarter, although his note was published before the dockworkers’ union and management agreed Friday on a tentative multi-year contract. Nonetheless, port officials and logistics experts expect it will take the freight industry at least two months to reduce cargo backlogs to pre-November levels.
“Fortunately, once the current labor situation is rectified, there will be a sharp snap-back in measured economic activity. Therefore, we do not believe there will be any long-lasting negative effects on the economy. However, in the short term, the West Coast port slowdown represents another factor in a long list of headwinds the economy has faced and ultimately overcome over the past half-dozen years,” LaVorgna said.
The drag on U.S. economic productivity will probably be minimal, Jeffrey Werling, executive director of the University of Maryland’s INFORUM economic forecasting project, said last week on National Public Radio’s “Diane Rehm Show”.
“If this situation is taken care of in the next week or two weeks, I think we dodge the bullet and it would be difficult to pick up this damage in macroeconomic data,” he said the day before the collective bargaining was resolved.
Last summer, Werling wrote a study for two major trade associations in which he forecast that GDP would be reduced by $1.9 billion per day if there was a five-day port shutdown ($9.4 billion hit), $2.1 billion per day ($21.2 billion total) under a 10-day scenario and $50 billion total under a 20-day scenario.
While the West Coast ports never reached a full strike or lockout situation, there effectively was a 120-day rolling shutdown since November, which likely means any final damage estimates would fall somewhere below the worst case scenarios, but multiplied over a longer period of time.
Meanwhile, freight economist Larry Gross of FTR Associates has attempted to quantify the port recovery time in terms of TEUs.
In a blog post on the company’s website, he assumes 40 vessels averaging 8,000 TEUs floating offshore have about 320,000 TEUs waiting to be handled, which translates into about 215,000 actual container lifts given the mix of 20-foot and 40-foot boxes. He guesses there are 600,000 to 700,000 TEUs, or 400,000 to 500,000 individual containers waiting processing on the docks or on ships at berth.
In March 2014 the six major West Coast ports handled 710,000 inbound TEUs. Gross said the flow will be less this year due to cargo diversion and the timing of Chinese New Year, when factories shut down production. Even if volumes decline by 20 percent, he said, that leaves about 570,000 TEUS to move through the ports in March and that number will ramp up each month afterwards.
The peak month for import containers last year was October when West Coast ports handled 872,000 TEUs working at full speed.
“This therefore represents a reasonable top-side estimate for how many containers can be processed, and implying an ability to work down the backlog to the tune of 250,000 to 300,000 TEUs per month,” he said.
His “back-of-the-envelope” calculation of eight weeks or more to approach “normal” operations coincides with what several port directors have stated.
Gross warned that spot rates for expedited truck transport will likely spike as shippers will try to make up for lost time and get goods to stores or factories that are short of supplies.
“Conversely, the currently elevated westbound rates will decline as carriers will be seeking every load available to deploy equipment back to the West Coast. The normally high intermodal share of this volume will be somewhat reduced in light of the need for speed, but this effect will be swamped by the sheer volume increases that will occur,” Gross said.
Economist says West Coast port disruption dinged 4Q GDP
