Around this time last year, observers were wondering when the pileup of container ships anchored off the San Pedro Bay would finally be resolved.
What a difference a year makes. That gridlock has long since cleared, so much so that cargo numbers are down. Now, the Port of Los Angeles and the Port of Long Beach are eyeing a different logjam – one outside the Panama Canal – and wondering if they can lure away some of that business.
“Some of that cargo will come to the West Coast. We could start seeing some additional volume coming our way in the coming weeks,” said Noel Hacegaba, chief operating officer of the Port of Long Beach.
“It takes time for the shippers and the shipping lines to realign their trade routes. The bottom line is that shippers don’t want to miss the (peak holiday) season, so they’ll do what it takes to get their product into the market on time.”
With the disruption of the Panama Canal expected to last at least another 10 months – and with last week’s ratification of a new labor contract – Hacegaba said it makes sense for the local ports to court shippers that would otherwise seek to berth along the Gulf or East coasts. And that’s exactly what they’re doing, he said.
“We’re reaching out to the shipping lines, to the shippers and other partners letting them know that the Port of Long Beach is ready to help them get their products to U.S. markets,” Hacegaba said. “The port has plenty of capacity and no congestion.”
Panama problems
To be clear, it is not a full-scale upheaval at the Panama Canal.
As a result of a drought in Central America – which officials are attributing to the El Niño weather pattern this year – canal operators are limited in how often they can fill and drain locks to allow ships to pass. Ship traversals went from about 36 a day to 32.
Because container ships have priority over others, their average wait times remain around one day, according to the publication Freight Waves. Ships moving commodities such as liquefied natural gas and other non-container vessels are waiting around 10 or 11 days, the publication reported.
So, for the time being at least, container ship patterns have not been significantly set back.
“We have yet to see a shift of cargo or services to the West Coast due to issues the Panama Canal is currently having,” said Phillip Sanfield, a representative for the Port of L.A. “While it may happen longer term, the Suez Canal may be the first to see an increase in volume. That would be cargo that prefers to stay on East Coast for now.”
But, Hacegaba said, that’s probably not going to last.
“Recent history has reminded us that disruption anywhere in the supply chain eventually reaches the rest of the supply chain,” he said. “When a trade route that facilitates 80% of global trade experiences disruption, the entire global supply chain will eventually feel it.”
On top of the traversal limitations, the canal is also now requiring vessels to be 40% lighter, which of course affects ships that were already at sea and will later limit the amount of stuff they can export to any given location. Unless they decide to berth elsewhere.
“At some point, shippers are going to have to reconsider the all-water service,” Hacegaba said, referring to strictly sea-based shipping. “This is a critical time, as shippers are in the process of restocking for the holidays.”
Customers needed
The disruption comes at a time when both the ports of L.A. and Long Beach are eager to boost imports here.
Although both ports approximately match the cargo numbers they hit in 2018 and 2019, they are significantly below the record 2021 and 2022 periods, which were illustrated by the flotilla of container ships waiting off the coastline. Port officials certainly don’t want to bring back that logjam, but they do believe they can handle more ships this year.
One of the reasons for officials’ confidence in their ability to process additional cargo are advancements completed at the ports in the past few years, but there remains a widely held perception that unresolved labor negotiations with the International Longshore and Warehouse Union that went on for a year pushed shippers to other coasts. The new 6-year contract was approved by 75% of union members on Thursday.
Port of L.A. Executive Director Gene Seroka recently expressed confidence in winning back some of that business. Seroka was unavailable for an interview.
Sean Jasso, who is what the school calls a practitioner of economics at the Pepperdine University Graziadio Business School, and who studies the ports, noted operations here have continued normally since the tentative agreement was reached with ratification, and added that that should continue.
“Knowing that the ink has dried will give incentive to those who have been having to ship through the canal to the East Coast to now return to the West Coast. I think it’s as simple as that,” he said. “The timing is always ironic, yet it is an opportunity for the West Coast – mainly L.A. and Long Beach – to regain momentum and volume.”
Hacegaba was ready with numbers as a pitch to shippers. A shipment from Shanghai destined for Chicago – a typical hub – stands to arrive as many as 11 days sooner if docked at L.A. or Long Beach than if it went through the Panama Canal to the East Coast, he said.
And the rail system that makes that possible is slated for a slice of the $2.2 billion in upgrades planned at Long Beach in the next decade.
“Even without the Panama Canal restrictions, it’s important to know our geographical advantage,” Hacebaga said.
Ulitimately, he added, shippers are going to have to adjust for the holidays, which prompts a routine uptick in imports as retailers stock up.
“This is the biggest season of the year,” he said. “If they miss the season, they can’t hold it in a warehouse for another year. It’s critical that they get the product to market in time for the holidays.”
