While trade through the Port of Long Beach has been consistently breaking records through much of 2018, the forecast for cargo flow through the remainder of the year – and thus for the businesses and jobs dependent on it – remains somewhat hazy due to trade tensions and policies being advanced by the Trump administration, according to experts in the field.
Without those tensions, growth would be certain, according to those who submitted comments for the Business Journal’s mid-year outlook. But if what economist Robert Kleinhenz described to the LBBJ as a “trade scuffle” between China and the U.S. breaks out into a full-on trade war, that might not ultimately be the case. The majority of trade moving through the Port of Long Beach comes from and goes to China.
Under normal circumstances, to assess the economic outlook for the port as well as the logistics, exporting and warehousing industries it supports, one would look to the economic wellbeing of the Pacific Rim countries responsible for most of the cargo volume, according to Jock O’Connell, international trade advisor for Beacon Economics. “About over 80% of the trade that the port conducts involves economies in East Asia. The outlook there looks fairly positive. We expect some growth in trade,” he said.
Economic factors at home are factors in a positive forecast as well. “The U.S. economy is continuing to grow at a remarkable pace. [There is] very low unemployment. And that’s consistent with an increase in imports,” he explained.
But to ignore the uncertainty around escalating surcharges on Chinese tariffs and China’s retaliatory escalations on U.S. goods would be folly, according to O’Connell. “Fifty percent of U.S. maritime trade with China passes through the ports of L.A. and Long Beach. And 50% of the business those ports do involves China,” he said. “So anything that interacts, upsets or retards the growth in trade between the United States and China will have a disproportionate impact on operations at the ports of L.A. and Long Beach, and consequently will have a disproportionate impact on everybody in the supply chains and the logistical industries that work in conjunction with the ports.”
O’Connell explained that the Chinese government can retaliate against tariff surcharges implemented and proposed by the Trump administration in two ways: by implementing in-kind surcharges, and by putting political pressure on consumers and businesses who purchase U.S. goods. He explained that, while Chinese companies doing business in America have access to the U.S. legal system, American companies doing business in China might not be granted the same courtesy, due to the political powers that operate in that country.
O’Connell noted that truck drivers and individuals who work in warehousing and distribution centers – many of whom are in the South Bay and Inland Empire – would be particularly at risk of losing out on work if trade tensions escalate and the flow of goods slows. “It’s not like they are going to get a pink slip. It’s that they are simply not going to be called to work that day. And that can happen very quickly,” he explained.
“It’s a very fluid situation. There seems to be a lot of jockeying of positions within the [Trump] administration,” O’Connell said. “So any economic forecast based solely upon the usual series of economic, demographic and technological considerations can be invalidated instantly.”
George Boyle
President/CEO, Quik Pick Express, LLC
The ports of L.A. and Long Beach have seen tremendous growth over the past several years. The local ports are responsible for 1 in 9 jobs in Southern California. Based on our peak season forecast, which runs from July through the end of November, we expect the remainder of 2018 to see strong volume.
The ability of transportation providers and the carrier community to capture this volume is uncertain as several changes are impacting driver availability and port capacity. There is a critical shortage of drivers nationally, and this is certainly the case in Southern California. Senior drivers are retiring and the industry has had mixed success in recruiting replacements. This, coupled with a new Hours of Service limit on the number of hours a driver can work, and a new electronic logging requirement that insures accurate reporting, are dealing a one-two punch to the industry. The result has been a significant increase in driver pay which the carriers may not be able to pass on, hurting margins.
It is unclear what effect new tariffs will have on the import and export volume, but at this point we are seeing little impact. For example, the aluminum tariff of 10% does little to affect aluminum imports because the U.S. cannot produce enough on our own.
We believe that the overall volume in Q3 and Q4 will continue to grow in spite of these challenges.
Mario Cordero
Executive Director, Port of Long Beach
This year, international trade is stronger than ever and the Port of Long Beach is thriving. The Port, in fact, is on track for our best year, eclipsing the previous record set in 2017. Through May, we’re up nearly 15 percent in containerized cargo, and we expect the docks will continue to be active for the rest of 2018. We’ve entered the summer months, and soon we’ll see the start of busier times, as retailers everywhere move to stock up for the holiday shopping season.
International trade powers the U.S. economy and strengthens ties between nations. It generates jobs in the U.S. and links businesses and customers all over the world. Trade flowing through our port alone supports 1.4 million jobs across the country, including more than 300,000 in Southern California. About $4.9 billion a year in local, state and federal taxes is generated from Port-related business annually.
Today, we are cognizant of market uncertainty resulting from the high-profile dispute over trade and tariffs between the U.S. and China and other trading partners. China accounts for about 70 percent of our containerized trade at the Port of Long Beach. Using history as my guide, I believe that today’s trade issues between our nation and China will be worked out to the benefit of all parties. That is what we have seen in the past. Disagreements have been resolved, allowing for the growth – and the growing importance – of international trade.
John Cushing
President & CEO, PierPass Inc.
PierPass, the managing company for the West Coast MTO Agreement’s (WCMTOA) OffPeak program, and its container terminal members in the ports of Los Angeles and Long Beach, are already underway with exciting changes scheduled to commence in the latter part of 2018. The changes, often referred to as “PierPass 2.0,” are a result of extensive input from supply chain stakeholders, consultant studies, and requests from the drayage industry to optimize the supply chain.
Launched in 2005, the OffPeak program uses an incentive-based pricing model to reduce truck congestion on local streets and highways around the ports. Currently, PierPass charges a Traffic Mitigation Fee (TMF) on weekday daytime container moves to incentivize cargo owners to use the off-peak nights and Saturdays. Proceeds from the TMF help offset labor and other costs associated with operating the off-peak shifts. Later this year, the OffPeak program will be replaced with a flat fee on containers moving during both the day and night shifts. Truck traffic will be mitigated with appointment systems at the container terminals and throughput will be increased by reducing the unproductive time truck drivers spend between 3-6 p.m. waiting for shift changes. Appointment systems were not as prevalent when the OffPeak program was first introduced as they are today. Today’s appointment systems are more sophisticated and scalable to work with other applications and mitigate truck traffic throughout all shifts. The modified program is also expected to reduce truck queueing of those arriving early for the off-peak shift to avoid the TMF.
To date, more than 42 million trucks have been diverted away from busy daytime commuting hours with the PierPass OffPeak program.
Joseph Hower
Chairman, FuturePorts and Principal, Ramboll
The San Pedro Bay Ports and the Southern California supply chain continue to see robust trade coming through our region. One in nine jobs in our region is supported by the San Pedro Bay Port Complex. In fact, the Port of Long Beach posted its best-ever first quarter this year. Despite this, market forces such as consolidation of carriers and terminal operators exert pressure on the Ports to operate ever more efficiently and will change the face of the industry in the not-too-distant future. Southern California continues to compete intensely with ports elsewhere in the country for freight business and scarce federal funding for water-side and land-side development projects. Green regulations, too, continue to play a large factor in the overall growth capabilities of the logistics industry. The Ports are aggressively implementing the recently updated Clean Air Action Plan, and industry is facing new regulations from the California Air Resources Board and South Coast Air Quality Management District that could place restrictions on our region’s ability to stay competitive. FuturePorts continues to ensure our region does not lose the good-paying jobs provided by the supply chain by working with our members and regulators to find a path that allows the Ports to grow while also becoming more sustainable.
John McLaurin
President, Pacific Merchant Shipping Association
While container volume at the San Pedro Bay Ports of Long Beach and Los Angeles is up modestly in 2018 (3.7% through May), growth rates at many other ports in North America are higher, resulting in an overall decrease in market share for Long Beach and Los Angeles – a multiyear trend. The reasons for the disparity in growth and decline in market share are a combination of a number of factors ranging from an expanded Panama Canal, allowing cargo owners more options; concerted and coordinated marketing by port authorities in partnership with their respective states (something that California fails to do); to cargo owners simply diversifying their port gateways to minimize risk in case of terrorism, labor disputes or natural disasters. Coupled with California’s aggressive regulatory program focused on freight and logistics, the San Pedro Bay ports strengths and weaknesses will likely combine to deliver a year of growth, but one that continues to underperform compared to the East Coast.
The ports of Long Beach and Los Angeles are blessed with deep water, a large local population base, extensive rail connections and large amounts of waterfront land devoted to maritime industrial use. Those are advantageous factors that our local port authorities attempt to utilize and serve. Despite those benefits, our ports, and all ports in North America, will be impacted by an erratic Trump trade policy – one that provides as much detail as can be contained in a tweet, which changes based on the flow of a particular news cycle, and which threatens to harm both imports and exports – including, ironically, the very industries and workers that the President claims to be defending.
Tyler Reeb, Ph.D.
Director, Research and Workforce Development, Center for International Trade and Transportation at California State University, Long Beach
The near-term economic outlook for international trade remains strong. Barring some sudden exogenous destabilizing event, supply chain and logistics sectors will experience growth in the near term but not at the record heights of 2017. The World Trade Organization forecasts that global merchandise trade volumes will grow 4.4 percent in 2018 and slow to 4 percent growth in 2019.
Long-term economic outlooks are not so certain, with a range of potentially disruptive policy agendas and sociopolitical trends threatening the viability of global trade. Atop that list of concerns is the Trump Administration’s recently imposed tariffs on steel and aluminum imported from companies based in China, the European Union, Canada, and Mexico. There is widespread concern that those tariffs could trigger retaliatory measures from those trade partners and other nations – ushering in a new era of protectionist strategies that reduce global commerce. Similar concerns have been raised about the Trump Administration’s negotiations with Canada and Mexico over the North American Free Trade Agreement (NAFTA). Those domestic policy concerns paired with emerging nationalist political movements abroad are keeping more than a few international trade professionals awake at night.
In Southern California, supply chain and logistics businesses serving the ports of Long Beach and Los Angeles could experience diminished economic growth if trade with China and other major markets reduces in the future. Another concern for California port operators relates to striking the right balance between automated and human workforces to ensure competitiveness with competing ports vying for market share of their discretionary freight. In this way, Elon Musk’s fits and starts with automation with his Tesla workforce serves as a bellwether for striking that proper robot-human balance.