Port pulse stable
Long Beach trade forecast event filled with cautious optimism as industry hopes for sustainable recovery.
By Eric Johnson
The Port of Long Beach originally started holding its Pulse of the Ports forecast event each March as a way for the industry to get a read on the peak season that lay ahead.
The first event, in 2005, came as the ports recovered from a year in which they were slammed by higher-than-expected volume, coupled with rail capacity and longshore labor shortfalls.
Four years later, in 2009, the event turned into something more like a wake, as attendees tried to convince each other that the sun would indeed come up the next day.
But the most recent edition of the Pulse of the Ports yielded more hope than anyone in Southern California has seen in nearly two years. As Fred Malesa, BNSF vice president of international intermodal marketing, put it, last year everyone was wondering if the ports had a pulse. This year, 'the prognosis for the patient is pretty good.'
The event is structured to allow a representative from each link in the supply chain to give their thoughts on the year ahead for the ports of Long Beach and Los Angeles. Speakers this year sounded a continual note of cautious optimism. Or perhaps optimistic caution.
They mostly said they expect 2010 to herald a phase of container volume growth, albeit gradual growth at first. And in a return to the theme of the original event, there was talk about a true 'peak season' returning to Southern California ports.
'There will definitely be a concentration of volume in the summer months,' said Jeff Siewert, director of international logistics for Home Depot. 'And it will be bigger than 2009.'
Siewert said Home Depot's peak volume is typically 20 percent higher than its volume the rest of the year. The company is forecasting sales to be 2.5 percent higher this year, though some retailers have even rosier outlooks.
'These forecasts are telling me that demand will increase,' he said. 'But we are seeing growth on a volume base that has shrunk. We won't reach volumes of a couple years ago.'
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| ' During good economic times, we tend to take these ports for granted. But during the bad times, we have other ports that provide competition. We have to be cognizant of the fact these ports need investment and balanced public policy.' | |
| Joe Magaddino chairman, economics department, California State University, Long Beach |
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Malesa was similarly optimistic.
'Consumer spending is up for five straight months,' he said. 'Rail traffic is a good gauge of the health of the overall economy,' and 2010 intermodal lifts are up about 8 percent over the similar period in 2009, he added.
Frank Capo, vice president of customer service and sales for Total Terminals International, said one good indicator is that longshore jobs were up 11 percent in January and February. Even longshore casuals, or Class B longshoremen with the International Longshore and Warehouse Union, are getting work now ' some as many as three to four shifts a week after not getting shifts a year ago at this time.
'Can the growth be sustained?' Capo said. 'My concern is 12 percent unemployment in California. The idea of a jobless recovery still bothers my mind.'
Though there was 5.6 percent growth in nationwide container volume in the fourth quarter of 2009, the growth doesn't appear sustainable, said Joe Magaddino, chair of the department of economics at California State University, Long Beach. He added he was cautiously optimistic of growth this year ' perhaps 2.5 percent.
'We think volume at the (Southern California) ports will gradually increase over the next year,' he said. 'We believe consumption has rebounded, but the 2.4 percent growth in consumption is off the low base of 2009. We're not expecting consumption to return to the previous highs for another year or so.'
The panel continued to be wary of high unemployment figures.
'Employers need to be convinced that the recovery is here to stay before they hire again,' Magaddino said.
In early 2007, unemployment was at 4.5 percent and it's now at more than 10 percent. He projected it would only recover to 8 percent by the fourth quarter of 2011, 'which is still an unacceptable level.'
What's more, at least one in 10 jobs lost in 2009 in Southern California were directly related to logistics, Magaddino said.
'During good economic times, we tend to take these ports for granted,' he said. 'But during the bad times, we have other ports that provide competition. We have to be cognizant of the fact these ports need investment and balanced public policy.'
Another focus of the event was the Southern California ports regaining their competitive advantage in terms of luring back discretionary cargo that has been captured by other North American gateways. The implication was that extra fees on containers moving through Los Angeles and Long Beach were driving shippers to look at alternative options.
'Carriers had asked me if we could move more discretionary cargo through the Southern California ports,' Siewert said. 'We said no. We didn't shrink our volume through Southern California ' it's our single-biggest destination. We just didn't increase our volume. This is a great set of ports, but it just seemed there was always a surprise waiting for shippers. Every other port was positioning themselves as the 7-Up of ports, the 'un-Los Angeles.' '
But Home Depot's thinking has changed.
'We're now considering putting more discretionary cargo through Long Beach,' Siewert said. 'Long Beach staff was the reason. They reached out to Home Depot. Ports need to consider their customers. It's more than just the carrier and terminal operators, it's the importers and truckers.'
Internally, Home Depot is eyeing Southern California because it wants to increase transload opportunities to better connect its international and domestic networks, 'and this is a great place to do that,' Siewert said. 'Some of our stock fits a faster-moving profile and some fits a stocking profile. Transload helps you divide your flow. It helps us be more sophisticated.'
Long term, Siewert said there will continue to be competition for inland-bound cargo.
'This will always be the gateway for local traffic, but what about discretionary traffic?' he said. 'What are the turn times, the rail dwell times? Where does it flow most reliably, most predictably? There is a cost element. There will always be a comparison for traffic going to inland points. We have to consider that and what's best for our supply chain and our end customer.'
Capo, of TTI, said his terminal has indeed seen a decrease in on-dock inland volume.
'It's partly because of the overall volume decrease, but we also lost some discretionary volume to other gateways,' he said.
The carrier representative on the panel said that more competition would arise from U.S. East and Gulf coast ports when the Panama Canal's new set of wider locks is complete in 2014.
'Southern California is an expensive place for carriers and cargo owners alike,' said Wolfgang Freese, president of Hapag-Lloyd (Americas).
Freese said slow steaming and the opening of wider locks in the Panama Canal will affect the ratio of U.S. West Coast to East Coast traffic.
'The deployment of ships will change,' he said. 'You have to acknowledge that the infrastructure of the East Coast ports has improved. More medium-sized ships will be able to call niche ports. You'll see more interest in the East Coast. I definitely believe that. The U.S. Gulf ports will gain some activity. It will attract some cargo owners, and at the end of the day, it's their decisions that drive us.'
Meanwhile, Freese tried to allay concerns that carriers would restrict capacity to improve rates the rest of 2010, saying that lines would provide 'ample capacity' the remainder of 2010.
'Carriers and cargo owners need to work together,' he said. 'The relationship should be like a good marriage. Some days are sunny. Some days are rainy. But I look forward to sunny days ahead.'