The onset of the COVID-19 pandemic and the closure of manufacturing plants in China slowed goods movement through San Pedro Bay for much of the first half of 2020, throwing a shroud of uncertainty over the trade sector. But the subsequent resumption of manufacturing and an explosion of e-commerce across the U.S. resulted in 10 straight months of record-breaking cargo movement at the ports of Long Beach and Los Angeles.
“The last big shock to the economic system, the Great Recession, caused a 10-year respite to get back to the volumes we had before,” Port of LA Executive Director Gene Seroka said. “So [the pandemic] was pretty unnerving to say the least.”
Nonetheless, the Port of LA has moved an average of 900,000 20-foot equivalent units—the common unit of measure for shipping containers—every month for the last 10 months, the longest streak at that volume of any port in the western hemisphere, according to Seroka. In March, the LA port moved 113% more containers than the same month in 2020.
In Long Beach, which historically handles less cargo than LA, the port has moved more than 700,000 TEUs every month since July, a feat accomplished only once in 2019 and six other times in the port’s history. In October 2020, the port moved over 800,000 TEUs for the first time ever, a record it quickly broke in December and again in March of this year.
“I do think there will be a sense of normalcy in the third or fourth quarter of this year,” said Mario Cordero, executive director of the Port of Long Beach. Peak season for the ports usually kicks off in July when retailers begin preparations for back-to-school shopping and fall fashion followed by stocking up for the holiday season, the directors noted.
There are multiple factors that have contributed to the months-long surge in cargo movement through the nation’s busiest port complex, Cordero said. When Chinese factories shuttered, orders for various goods did not stop rolling in. So, when manufacturing resumed, the subsequent backlog of orders caused ships to pile up off the California coast waiting to be unloaded.
Continued demand for medical equipment such as masks and gloves also has been contributing to the surge, Cordero said. Additionally, people being confined to their homes for months on end led to the increased purchase of electronics, indoor and outdoor furniture, and other goods spurred by stimulus money from the federal government to make isolation more bearable, he added.
Both ports remained fully operational throughout the pandemic, Seroka said, noting the fact that goods coming into the San Pedro Bay ports travel to each of the nation’s 435 congressional districts.
“We had to keep commerce in America going,” Seroka said.
In January, one of the worst months of the pandemic, Seroka said the ports were concerned about a potential labor shortage. At one point, 5-6% of the workforce was sick or in isolation, he said. But with the exception of minor spot shortages of specific skilled laborers, congestion at the terminals allowed the ports to avoid any labor issues, Seroka said.
Even before the pandemic, uncertainty clouded the ports with the years-long trade war between China and the U.S. Tariffs first enacted by the Trump administration imposed on hundreds of billions of dollars worth Chinese goods remain in place today, the port directors said. In turn, tariffs on U.S. goods entering China also remain active.
“History should teach you that tariffs do not work,” Cordero said. “They didn’t improve the trade imbalance. In fact, they made it worse.”
The Port of LA ended 2019 down 16% in the fourth quarter due to what Seroka called “ill-advised” trade policies. Cargo volumes were essentially flat in 2019 overall compared to 2018, he added.
Cordero and Seroka both said the trade imbalance that favors China—meaning the Asian country exports more to the U.S. than it receives—is certainly an issue that should be addressed but added that a trade war with tariffs only hurts American consumers and producers wanting to export their goods.
Normally, 60-70% of imports into the San Pedro Bay ports complex are from China, the port directors noted. But over the last two years, imports from China have decreased about 10%, Cordero said. Meanwhile, imports from other Asian countries have increased, he added, noting a 27% rise in goods from Vietnam.
The previous administration also had imposed tariffs on European goods, including steel and aluminum, but in a joint statement last month the European Union and United States agreed to suspend billions of dollars of tariffs related to a World Trade Organization (WTO) dispute for four months.
“The EU and the U.S. are committed to reach a comprehensive and durable negotiated solution,” the statement reads. “These steps signal the determination of both sides to embark on a fresh start in the relationship.”
Cordero said the positive traction between the EU and the U.S. is a sign that the Biden administration is reassessing Trump-era trade policies. While Cordero said he does not expect drastic action related to China immediately, he is hopeful similar talks are looming.
Seroka said he would like to see all tariffs eliminated and for the administration to engage with countries on rules-based trade agreements that hold all parties responsible for all areas of trade to ensure a level playing field.
Despite the radical disruption and uncertainty brought on by the trade war and pandemic, the San Pedro Bay ports moved nearly 17.4 million TEUs in 2020 with a forecast to handle more than 18 million this year. By 2030, cargo moving through the ports is projected to be as high as 43 million TEUs, Cordero said.
Already, cargo volumes have strained the ports. In February, around 40 vessels were anchored off the California coast waiting for their turn to be offloaded. As of mid-May, that number was down to about 18, Cordero added.
The ports also faced equipment shortages, from truck chassis to rail cars. Even containers are in short supply due to empties being shipped back in greater volumes due to the high demand of imports. It is more cost effective for Chinese shippers to quickly get empties back rather than wait for exports to be loaded, Cordero said.
Many ports around the world operate, or are capable of operating, 24 hours per day, which can prevent or alleviate congestion. However, no port in the U.S. offers 24-hour operations, Cordero said. Cordero added that he wants to see the San Pedro Bay ports become the first in the country to ramp up overnight operations.
“It’s not something that’s going to happen tomorrow but I would hope the next time there is a crisis … the next time there is a surge like we’ve been experiencing, we will have the ability to pivot to a 24-7 model,” Cordero said, adding that projected cargo volume increases would likely make the model necessary even without a crisis.
Like most initiatives at the port, Cordero said enacting 24-hour operations would be a long process, likely being enacted in phases over the course of up to a decade.
Combined, the ports already support around 166,000 local jobs, a number that would be greatly expanded with operations, Cordero said. While there are additional costs associated with a 24-hour model, Cordero said the alternative would be the continued loss of market share to other ports around the country.
“For us to remain competitive, we need to change the way we operate,” Cordero said.
The ports have billions of dollars worth of capital improvement projects underway or planned with the goal of improving efficiency and preparing for larger vessels carrying more containers, the directors said. Many projects are centered around expanding rail infrastructure as well as deepening wharf depths.
As for the rest of 2021, with businesses continuing to reopen at greater capacities in the coming months, Cordero said he expects Americans to begin shifting their spending from goods to services, vacations and other more experiential activities after being cooped up for over a year.
“That’s going to cut into the retail spending that we’ve seen at a very high level in the past year,” Cordero said, “but I think we’re going to have a very good year.”