Following a few years of outsized cargo loads and an uncertain labor situation, the Port of Los Angeles and Port of Long Beach look to get back to the way things should be.
Monthly import numbers, which unsurprisingly fell after an outlier period that saw a logjam of shippers waiting offshore for their turn to unload, have spent a lot of the year climbing to manageable levels. And after a year, negotiators at the table have finally hammered out a tentative agreement between the longshore workers and shipping companies.
The big question moving forward now is, how will the two mainstay ports seek to remain competitive with their peers elsewhere in the United States?
The two South Bay ports are eager for a normal year.
After nearly two years of exceptionally high monthly import cargo numbers, the Port of Los Angeles and Port of Long Beach each settled into a bit of a lull late last year. They’ve spent this year slowly building that number back up to a comfortable load, but have also been waiting for labor negotiations to produce a new contract for longshoremen and defuse any risk for work disruption. A tentative agreement was reached last month, and the unions will vote soon on ratifying it.
“With the announcement of the tentative agreement with the labor negotiations, that’s going to bring comfort to the American shipper that all is good in the West Coast,” said Mario Cordero, executive director of the Port of Long Beach, in a recent interview. “There should be no concern about bottlenecking and labor disruption.”
The two facilities now aim to solidify their reputation as the nation’s top ports, a position that has been challenged in recent years by counterparts on the East and Gulf coasts. Analysts speculate that the labor negotiations and the costs of doing business in the San Pedro Bay Port Complex are the main factors for this competition, though there are differences of opinion to what degree they influence shippers’ decisions.
Regardless, port operators understand the importance to the local economy of continuing to haul in the majority of trans-Pacific maritime trade.
“We’ve got to be on offense and not playing defense anymore,” Port of Los Angeles Executive Director Gene Seroka said during his monthly media briefing in June. “We’ve got to go out and earn this cargo and we’ve got to give that import-export community the reasons to come back here to Los Angeles.”
Looking at the numbers
In terms of raw numbers, both ports have been in a steady ascent of imports for most of 2023.
Since February, imports to Long Beach have climbed from 268,228 TEUs — twenty-foot equivalent units, the standard, if inexact, measurement of a single cargo container — that month to 361,661 TEUs in May, the most recent available monthly data. Los Angeles, similarly, has climbed from 249,407 TEUs in February to 409,150 in May.
How those numbers rank is a matter of perspective.
Recency bias may have you comparing them to 2022 and 2021, during which both ports were importing well above 400,000 TEUs monthly from January through May — the Port of L.A. hit 535,714 import TEUs in May 2021. That time period coincided with an infamous logjam of ships anchored off the coast for days or weeks as they awaited their turn to unload cargo containers. At one point, more than 100 ships were floating off of the bay, thanks largely to a surge of demand for products from Asia-Pacific manufacturers during the height of the Covid-19 pandemic.
However, looking back to 2019 and 2018, import numbers this year are at least comparable to, and in many cases exceed, monthly figures from the immediate pre-pandemic era. Put another way, while they are not matching the import numbers of the outlier months of the past two years, the ports have largely returned to the steady ascent pattern of imports they were in before the world’s economy was upended.
“There was no expectation coming into 2023 that we were going to have a double-digit percentage growth as we had in 2021 and the first half of 2022,” Cordero said. “For a few months, I’ve been saying that we’re back to normality in terms of fluidity and in volume that we’ve had at the complex.”
During his media briefing on June 12, Seroka noted there were 11 ships in berth with one anchored 40 nautical miles away awaiting assignment — about as typical as it has been for the year. However, there were 58 ships en route to the San Pedro Bay, a substantial increase from the prior months. This uptick, he said, along with the three months of increased imports, made him confident the ports were “poised for a stronger back half of the year.”
“That tells me that we’re looking pretty good when it comes to that cadence of calendar events for seasonal products,” he said, referencing the usual surge of imports in preparation for the winter holidays shopping season.
Still, while the raw numbers remain comparable to pre-pandemic levels, overall imports to the nation have risen. This means the import numbers here represent a smaller slice of the pie from before.
Seroka noted in June that the Port of L.A. was at around 70% capacity. Of the open, or latent, capacity, he estimated around 15% was composed of shippers who had elected to traverse the Panama Canal to ports along the Atlantic Coast.
“Importers, exporters and business associations have told me they’re very concerned about any type of disruption, whether it be from the service provider side or labor, and they try to hedge and move their cargo away to a more certain environment,” Seroka said. “This is also not new. Over the last 20 years, we have seen market-share declines that have been widely reported. Back in 2002, 80% of the trans-Pacific trade moved via West Coast ports. Today, it is a 56% share.”
At the time, the tentative labor agreement had not been reached.
Labor agreement
Analysts generally see that agreement, which is now awaiting final approval by union members, as a win for the port, even if it took 12 months to get there.
“I think it bodes well for the future. Things look positive in terms of the agreement. It’s going to take some time to get it ratified,” said David Smith, a labor economist and professor of economics at Pepperdine University’s Graziadio Business School. “Of course, it costs more to ship items to other ports, so I think if they can settle this with an agreement in place, they can have less uncertainty in the environment about work stoppage and work disruption. It’s pretty important to the L.A. economy, so I think this agreement does bode well.”
After talks between the International Longshore and Warehouse Union and the Pacific Maritime Association, which represents the shippers and port terminal operators, broke down, a sufficient number of ILWU members engaged in a one-day strike on June 1 that port operations largely shut down that day. There also was speculation that the local union, which services 29 ports on the West Coast, would be emboldened by the Canadian chapter of the ILWU voting for strike authorization in June.
The labor contract expired last July, and workers have been asking for wage increases and other compensation they say is commensurate to their performances during the Covid-19 pandemic and container ship logjam.
Acting U.S. Labor Secretary Julie Su, who previously was California’s labor secretary, served as a mediator during negotiations and spent significant time at the table with the two parties in San Francisco. Seroka said this signaled that the labor agreement was a “top priority” of the Biden-Harris administration — no great surprise, given that at one point L.A.-Long Beach accounted for around 40% of the nation’s imports.
“L.A-Long Beach remains the most efficient for shippers,” said Sean Jasso, a practitioner of economics at Pepperdine Graziadio. “It’s less efficient to go from the Pacific to any other port. The reason I think we’ve seen shippers avoid L.A., other than pandemic reasons, one of the main variables of this has been the labor contract.”
There are differing points of view of how large a role the 12 months of labor negotiations and the reputation of the ILWU have played in the attrition of the ports’ share of imports.
Jock O’Connell, an international trade adviser with Fairfax-based Beacon Economics, said it wasn’t so much the labor situation, but that the political environment in California has not risen to the occasion.
“There’s this negative attitude toward the ports, so there’s almost a reluctance on the part of the people in the state government to promote the ports as a creator of jobs and state revenue,” he said, claiming that politicians often see the ports as “a nuisance” for the state. “There’s a vast difference in political attitude to the role of the ports. “On the East Coast, state and local governments and federal representatives are much more eager to go to bat for the ports. Out here, they’re routinely stigmatized by political leaders.”
At the turn of the century, O’Connell said, the West Coast ports benefitted from the “decided advantage” of being the first stop of choice for Chinese manufacturers. However, a confluence of developments since then — the widening of the Panama Canal, significant investment in East and Gulf coast ports and regulations on West Coast ports that O’Connell said makes them pricier — have complicated the equation. American manufacturing being centered on the East Coast — again, borne of business-friendly politics, he said — also incentivizes shippers to dock there.
“They’ve (the West Coast ports) been losing market share for ages. To some extent, it’s been a function of the revision and rejiggering of the nation’s maritime infrastructure. If you were to go back from scratch and you had people and industry but no seaports, where would you put your seaports?” O’Connell posed. “Over time, the ports on the East and Gulf coasts would go for an increasing share of the trans-Pacific trade. More importantly, governments and federal representatives of the ports in D.C. devoted a lot of energy — and ultimately a lot of taxpayer resource — to expanding the infrastructure of the ports on the Gulf and East coasts.”
Updates to local ports
Well, what about all of the improvements at the ports here?
Both L.A. and Long Beach have taken steps to reduce or eliminate sources of emissions at their docks and warehouses.
Work is underway to improve the rail lines out of the port. The Long Beach International Gateway was completed in 2020, replacing the aging Gerald Desmond Bridge that guided trucks with cargo outside of the port. At least 18% of the equipment at the Port of Long Beach is already zero-emission.
“The pandemic really raised consciousness of supply chains, and that translated into political will. We’re certainly very appreciative of that,” Cordero said. “For the Port of Long Beach, we finished that state-of-the-art bridge. The great news about having done that at that time is we had no bottlenecks of trucks going over that bridge. We’re now moving forward with the state-of-the-art rail project,” which will eventually connect with an enhanced rail gateway in Barstow.
At the Port of L.A., diesel particulate matter emissions have fallen 85% since the adoption of the Clean Air Action Plan in 2017, according to officials. They also plan to have a zero-emissions terminal up and running by 2030.
Meanwhile, technology for electrification and hydrogen-powered equipment is still in its nascent stages, but the ports are paying attention.
“You’re starting to see early deployments, which it good, but the technology is still developing and advancing,” said Chris Cannon, chief sustainability officer at the Port of L.A.
Right now, Cannon observed, picking whether to commit to battery or hydrogen technology is a bit like choosing between VHS and Betamax in the early days. Batteries are more advanced, but have power-generation limits, while hydrogen is a generally easier transition but still expensive.
Automation represents another question mark for the ports. It’s not yet clear whether the labor agreement addresses automation, but those sorts of advancements have helped ports in the East Coast and Europe become more efficient, experts say. The potential short-term downside, others say, is that automation means fewer jobs for union workers.
Smith, the Pepperdine economist, said he thinks automation at the ports would be a “net positive for the L.A. economy” but may be slow to come.
Green efforts
Still, Cordero did feel that a segment of political leadership in California did not appreciate the scale to which the ports here have electrified and greenified.
“For me it’s interesting that that pressure is being placed on the San Pedro Bay ports. These are ports known domestically and internationally as world leaders in sustainable development and emissions reduction,” he said. “It’s difficult to understand the level of regulation on a port that’s known as the green port and with the resumé that we have of accomplishments and commitments to reducing air emissions.”
Cordero said it was “concerning” to think that onerous regulations, which would require investments by the port and its operators that likely would be passed off on shippers, could “handcuff” one of the world’s largest economies. While the prediction long ago that shippers would diversify their destinations didn’t pan out, he said now might be different.
“The ports of Houston, Atlanta, Charleston, they’ve invested heavily in their ports, so they are in a better position to offer benefits to cargo shippers,” Cordero said. “In today’s world, they do have other options, so I think the state of California needs to think about that.”
This diagnosis largely aligns with O’Connell, who felt that money would be better spent to speed up port operations rather than forcing changes such as pivoting to electric vehicles. The 18-wheeler trucks that haulers use are also subject to increasingly strict emissions standards, which presents as an expensive supply-and-demand situation for the drivers who seek to comply with that.
“If the West Coast ports wanted to do something to match that and remain competitive, one thing they might do is get better support from political leadership on the West Coast, particularly in California, and argue for more funding to port and harbor development,” O’Connell said. “More important than that is the development of freight highway and road systems that can move containers in and out of the ports efficiently.”
One advantage competing ports have, O’Connell added, is the relative availability of space to expand into.
“L.A.-Long Beach and Oakland are pretty much constrained, physically. They really can’t take over the next neighborhood,” he said. “Those are ports that need to grow up or grow more efficient. East and Gulf coast ports often have great latitude in developing new territory.”
At the end of the day, the ports seem to be settling back into a rhythm of imports. And with the hurdle of labor negotiations hopefully behind them, officials and operators can start concentrating more on other projects.
“The stars are aligning with regard to what we’re doing here to focus on cargo velocity as opposed to cargo volatility,” Cordero said. “We’re very optimistic that the rail structure we’re investing in will further give confidence to the American shipper.”
