Despite a drop in cargo volumes coming through the Port of Los Angeles (POLA) in the first quarter, Michael Keenan, the port’s director of planning and strategy, said the outlook for the remainder of the year is positive.
Michael Keenan, director of planning and strategy for the Port of Los Angeles, said that his positive projections for modest growth in cargo volumes moving through the port this year are based upon the strength of the overall economy. (Photograph by the Business Journal’s Samantha Mehlinger)
“The first quarter is always a little odd just because of the impact of the Lunar New Year,” Keenan said, referring to a celebration observed in some Asian countries in March. In February, the Port of Los Angeles experienced a record surge in cargo, which Keenan speculated was due to shippers sending out goods before Lunar New Year festivities.
Phillip Sanfield, director of media relations for the port, pointed out that POLA is coming off of two years of record cargo growth. “Whenever you have a record year, you’re up against much tougher numbers to face the following year,” he said.
“We’re seeing continued cargo growth across the United States. Trade continues to be a very important part of the national economy and national discussion,” Keenan said. “We have a very positive outlook for the year. . . . We’re in a pattern of kind of sustained, single-digit growth in line with the growth of the overall U.S. economy. Trade typically grows at about double that rate, at least historically.”
Last year, the four major alliances between shipping companies consolidated into three groups, causing some concern over how operations at the port could be impacted and whether the port could lose some business to its neighbor in Long Beach. “We have seen throughout this whole period of alliance adjustments a lot more volatility between L.A. and Long Beach, where for example last year we picked up some additional market share in the first quarter because you’d see more vessels calling here than there,” Keenan said. “But that switches back. It’s essentially a pendulum.”
He continued, “I think there have been some services that switched over to Long Beach as well, and with the new alliance structures, we just expect to see a lot more of that because the alliances don’t look at L.A. and Long Beach as separate ports.”
The consolidation of Japan’s three major shipping lines into one company, a move made in early April to help shore up costs, has not impacted the Port of Los Angeles, according to Keenan. “The vessels involved in the shipping alliance called at both ports before and they continue to do so now. Their volumes are spread pretty similarly even with the adjustment.”
Shipping lines, which have been contending with low rates for their services due to an overcapacity of ships, seem to be faring better this year, Keenan observed. “They recently saw some positive profitability in their quarterly numbers, so they are not doing as poorly as they were before,” he said. “They continued to work on essentially enforcing more rate discipline and trying to balance how much capacity they add to the system.” He added, “Some of the larger players have gotten larger, and that’s added a little bit more to their competitive discipline, shored up their rates a bit and helped them get more profitability. Is the industry destined for more consolidation in the future? Maybe so. It really depends on how alliances work for them versus more serious consolidation.”
What impact tariffs imposed on Chinese imports and on U.S. exports to China will have on the port is unclear, according to Keenan. “Certainly, tariffs on exports would have a large impact on the producers – you know, farmers, manufacturers,” he said. Because transpacific trade is primarily dominated by imports and because the containers those imports arrive in ultimately have to be returned to Asia, “the volume of containers may be relatively the same on the export side,” he said.
Chinese tariffs and penalties imposed on U.S. goods, such as agricultural exports, may cause exporters to seek out other Asian markets, Keenan speculated. “Just because there are tariffs on goods to China doesn’t necessarily mean that the goods don’t get exported,” he said. Similarly, he expected that, if tariffs were to be levied on imported Chinese-made goods, suppliers in other Asian markets might be sought out, he explained.
“Tariffs on trade with China doesn’t necessarily mean the end of trade through the Port of Los Angeles,” Keenan said. “Although, of course, our preference is always to not have increasing tariffs and increasing barriers to trade because of the huge benefits that trade brings to both sides in any trading relationship.”
In maintaining the Port of Los Angeles’ market share, Keenan said the main priority is to emphasize its competitive advantage. “Obviously our proximity to Asia is a natural benefit we have. [Another] benefit is the proximity to the huge Southern California market,” he said. “If you want to get your goods into this market of 22 million people, depending on how far you extend our catchment area, these ports are the best way to do that.”
Shipping goods from Asia via the Panama Canal to East Coast ports adds another two weeks in transit time before those goods are delivered, Keenan explained. Southern California is also home to an efficient, large goods distribution network, he noted.
“The other thing we can do to hold on to that competitive advantage and expand on it is the work we’ve been doing on supply chain efficiency, because the biggest enemy for us would be anything that increases congestion and reduces the reliability of the port,” Keenan pointed out. “The biggest weapon we have is what we are doing on the technology front to speed up the processing of cargo, its pickup, its handling, its delivery.”
Last year, APM Terminal at the Port of Los Angeles participated in a pilot program to use GE Transportation’s Port Optimizer, technology that enables the terminal and different supply chain participants to see where cargo is moving, and when, in advance. That pilot program is expanding to all the port’s terminals this year, as well as to three at the Port of Long Beach.
POLA has also continued to invest in its infrastructure. The expansion of the TraPac Container Terminal and improvements to the Yusen Container Terminal were completed in 2017, allowing for bigger ships to call at those terminals, as well as improving rail and wharf infrastructure. Improvements to allow the Everport Terminal to service larger vessels are currently in the design phase, and upgrades to the Yusen Terminal are undergoing the environmental review process.
Community investments are also taking shape in roadway improvements along Harbor Boulevard in San Pedro, the precursor to the redevelopment of the San Pedro Public Market, Sanfield noted. “We’re completing the roadway improvements in May/June. After that, the port’s contribution to the whole redevelopment down there is the roadways, and then we are also building a town square and promenade,” he said. Once that infrastructure is built out, Sanfield expects construction of the market to begin in 2019.