Drewry: West Coast ports face uncertain future
The U.S. West Coast ports' maritime industry dominance is under assault and the future of these ports 'is one of almost universally progressive weakness,' according to a report Wednesday by Drewry Supply Chain Advisors.
The whitepaper said that while the recent downturn in West Coast port volumes may appear to be related to a general downturn in the overall world and national economies, the authors believe the 'changes are structural and long-term.'
'Future growth in Asian trade to the U.S. is more likely to benefit the Gulf Coast ports — served by the Panama Canal — and the East Coast ports, handling Southeast Asian cargo routed via Suez,' Drewry said.
The report points to several factors that are threatening the continued dominance of West Coast ports, which handle nearly half of all cargo headed into the United States.
First, data shows that despite much talk about the recent volume declines along the West Coast, ports such as Long Beach, Los Angeles, Oakland, Seattle and Tacoma have actually been losing steam for nearly three years.
'None of this takes into account the impact of the much-vaunted credit crisis, which is sure to make things worse not better in 2008-2009,' the whitepaper said.
Second, railroads serving the West Coast ports are failing as transportation partners. While also looking 'superficially healthy,' the railroads in recent years have merely increased their market share of the intermodal market while not actually increasing volumes, Drewry said.
'Faced with a tightening market and rising demand, the railroads have chosen to up their prices rather than invest in more capacity, in the mistaken belief that they had a captive market,' the report said.
A third factor is the expansion of the Panama Canal and the failure of the ports and railroads to take seriously the future impact to their businesses.
'It seems like stating the obvious to point out that railroads are fixed assets while ships are moveable assets, but this fact seems to have been forgotten by the rail companies on whose services Long Beach, Oakland and the rest depend,' the whitepaper said.
'Ports, being as immobile as railroads, will suffer in a similar way.'
The authors said that with the expansion of the Panama Canal in 2014 and additional development of the Suez Canal, the competitive position of the West Coast ports will disappear.
If the average ship size through the enlarged Panama Canal increase from the current 4,800-TEU average to a 6,400-TEU average, 'most places east of the Mississippi will fall out of the West Coast's sphere of influence.'
In addition, if the average size through the new locks rises to 8,000 TEUs, then the Drewry research shows that the West Coast sphere of influence recedes to the Missouri River.
'If the (Panama) Canal Authority fulfils its boast and succeeds in getting 13,000-TEU ships through its new locks, then the U.S. West Coast ports will be ejected from the Midwest market altogether,' Drewry said.
The report points out several steps the West Coast ports can take to hold onto their market, despite the 'fundamental business trends' being against them:
' Increase capacity. However, Drewry believes the current environmental climate is against this step being taken.
' Reorganize terminals for maximum efficiency.
' On-dock rail infrastructure must be expanded and trackage to selected markets must be increased.
' Importers must move distribution centers east.
'up to 25 percent of the U.S. West Coast ports' present cargo base (primarily hinterland cargo) could be lost to the East Coast and Gulf ports in the decade to come. How much is replaced by new volumes depends on how strongly the economies of the Pacific Coast grow in the coming decade, and whether the centers of manufacturing shift to more or less advantageous areas,' the whitepaper said. 'But without radical action, intermodal distribution to the Midwest and beyond will gradually die.'