Beacon’s O’Connell says U.S. West Coast port surge over rivals might be lengthy

West Coast ports, particularly Los Angeles and Long Beach but also Oakland, Seattle-Tacoma, and Vancouver, are expected to benefit from a surge of import and export business related to accessibility problems at the Panama and Suez Canals that could last months or longer according to Beacon Economics International Trade Advisor Jock O’Connell.

In fact, the U.S. West Coast ports posted a 6% market share increase in November 2023, according to the Pacific Merchant Shipping Association’s (PMSA) West Coast Trade Report: “Looking at coastal shares of the inbound trade, 45.6% of November’s crop of 2,003,771 inbound loads were discharged at U.S. West Coast ports … a considerable bump from their 39.3% share a year earlier. U.S. East Coast ports meanwhile worked 47.0% of the nation’s inbound loads in November, down from a 51.6% share the previous November. Our two U.S. Gulf Coast ports held a 7.4% share of all inbound loads in November, down from their 9.2% share a year earlier but up from a 6.3% share of November 2019’s inbound loads.”

In an exclusive interview with AJOT, O’Connell, an international trade specialist who also focuses on the California economy, noted:

• U.S. West Coast ports will experience a surge in import volumes diverted from East and Gulf Coast ports in 2024.
• The Ports of Los Angeles and Long Beach will be beneficiaries, but the Ports of Oakland, Seattle-Tacoma and Vancouver will also benefit.
• The two railroads which service the West Coast ports, the Union Pacific (UP) and the Burlington Northern Santa Fe (BNSF) are expected to adjust their rail capacity to handle the import surge and minimize disruptions moving container loads from West Coast ports to Chicago and other Midwest destinations.
• West Coast agricultural exporters are not diverting shipments to East and Gulf Coast ports as had been predicted.
• Trucking costs in California are expected to rise as a result of regulatory demands from the California Air Resources Board (CARB) to replace diesel powered trucks with electric powered trucks.
• There is a global wine glut that is particularly impacting lower end U.S. wines including those produced in California’s San Joaquin Valley.
• In 2024, the California economy is “in good shape,” but will experience a slowdown from 2023 levels.

Import Surge to West Coast Ports

O’Connell told AJOT: “There will be a substantial bump in import trade as a result of … the water shortages needed to operate the locks at the Panama Canal.” At the same time, there is likely to be prolonged reductions in vessel transits at the Suez Canal,” because of the danger of shipping through the Red Sea … So, I … think we're going to see a shift back to utilization (of) U.S. West Coast ports … and Vancouver (Canada) to satisfy the import needs of North America.

He said both canals are likely to experience prolonged reductions of sailings: “I don't think either one of those is going to go away soon unless suddenly there are torrential rains … in Central America. The … Panamanians have a plan to expand water capacity that will take several years to work through. And at the same time, … the situation in the Red Sea is extraordinarily volatile.”

As a reflection of this trend, Port of Los Angeles Executive Director Eugene Seroka reported in his ‘State of the Port of Los Angeles’ address on January 10th that the Ports of Los Angeles and Long Beach increased their national market share by 3% in 2023: “We were pleased to see a 3% bump in our West Coast market share compared to East and Gulf Coast ports. Working together with our partners at the Port of Long Beach, we have made San Pedro Bay the country's biggest gateway – nearly double the size of the next largest port complex.”

Projections for Growth at Port of Oakland

O’Connell says that the City of Oakland’s attempt to build a baseball park and condominiums at the Port of Oakland’s Howard Terminal site was a disruptive factor on the Port and on Port customers. With the decision by the Oakland A’s to abandon Oakland in favor of a Las Vegas ballpark, the Port of Oakland has an opportunity for a resurgence.

The surge in import volumes on the West Coast will benefit the Ports of Los Angeles and Long Beach but will also benefit Oakland, Seattle-Tacoma, and the Canadian port of Vancouver, he says.

The Port of Oakland should benefit because the projected surge in imports could open up the possibility for carriers and shippers to seek Oakland as an alternative [to] possible congestion at the Port of Los Angeles and Long Beach: “It seems to me the Port (Oakland) is in a position with … the likelihood of a … surge of cargoes coming in from around the world, moving through the U.S. West Coast ports … [to] now … move ahead and maybe actually capture some first call service as more and more vessels turn up along the West Coast.”

The result is “Oakland [now] stands … a chance to sort of step up and say, …’We can take cargo … We have rail connections to the interior of the United States. We have a large population base. We have a large and wealthy population based in Northern California’. …They've got … a saleable commodity there to present to … the shipping lines. And now that they're past the whole issue of the ballpark, they've got a window of opportunity here to really turn the Port around.”

UP & BNSF Surge Capabilities

O’Connell expects the two railroads which service the West Coast ports, the Union Pacific and the Burlington Northern Santa Fe, to adjust their rail capacity to handle the import surge so as to minimize disruptions moving container loads from West Coast ports to Chicago and other Midwest destinations: “It's not as though the railroads are necessarily in a position to respond with alacrity to a new surge in demand for space … on their trains coming out of the West Coast ports. So … there's always the potential for dislocation … that will take a few months to work through … anticipating that there'll be … increasing volumes of container traffic coming into West Coast ports over the next year … I am confident that the railroads are looking at the current world situation and will adjust accordingly.”

California Regulatory Demand for Electric Trucks Will Increase Trucking Costs

O’Connell says the big obstacle for California: “…is really regulatory and has to do with the … aggressive moves on the part of the California Air Resources Board (CARB) and the South Coast Air Quality Management District (SCAQMD) to drive technological solutions when the technology is not available. There's a lot of … talk about moving toward electric vehicles … to move containers around ports and replace diesel driven trucks with electric…, battery driven vehicles. And it is a mindset in … among the regulators … that … they continue to hold the transportation companies and the ports to task that … the technology will be developed and that at some point there'll be this grand conversion where we'll all move to electric vehicles on … a certain date. Then you read the reality … that as much as CARB would like to see everybody driving an electric car … and every trucker driving an electric semi … it's pretty far off.”

O’Connell predicts: “There's going to be a shortfall in capacity … Well, when you have less capacity … you're going to bid up the cost of … providing the service by those who have the capacity. That … will drive up the cost of moving goods around the State.”

The Californian Economy

O’Connell stated: “The California economy will grow at a slower pace in 2024 than it had last year (even though) there is no sign of recession… So, things look pretty good … employment numbers are good. Generally speaking, the economy as a whole is in good shape.”

O’Connell notes that the threatened moves of some agricultural exporters to shift containerloads away from West Coast ports and over to East and Gulf Coast ports has not materialized: “It's not turning up in the official U.S. trade statistics… I've been monitoring that for the Pacific Merchant Shipping Association [PMSA is a trade group] … we're just not seeing substantial diversions of cargoes … it's not really showing up in the numbers.”

O’Connell said he recently attended the 2024 Unified Wine & Grape Symposium that took place In Sacramento, California: “And there they were rather downbeat about prospects of growth in wine exports because while … the premium wines coming out of Napa … are being shipped abroad in bottles … a large segment of the trade is in bulk wines … that are now facing a worldwide glut of wine. There is way too much wine being produced out there. And so … the low-cost growers particularly those in [California’s] San Joaquin Valley from Lodi … all the way down past Fresno … are seeing less demand for the product that they are producing … These are … wines … that normally would travel in large bladders holding up to 25,000 liters. You … put those in a container and … send them off to various locations.”