About the author: Christopher Tang is a distinguished professor at the UCLA Anderson School of Management.
The chaotic scene of 100 ships waiting to unload their containers at the twin Ports of Los Angeles and Long Beach in October 2021 is the forgotten past. At one point in March, only 15 vessels were at these two ports, 50% below the median in normal times before the pandemic.
In the first three months of 2023, the ports of Los Angeles and Long Beach handled 3.5 million twenty-foot equivalent unit containers (1.8 million containers for Los Angeles and 1.7 million containers for Long Beach), down 30% compared to the same period in 2022. This decline should be worrying for anyone hoping for a robust recovery from the Covid pandemic. The federal government must work with state government, business leaders, and port union workers to improve the competitiveness of these ports.
The twin ports of Los Angeles process about 40% of all containerized imports and 30% of all exports in the U.S. Their decline risks setting off a domino effect that could damage industries all along the supply chain, including logistics, warehousing, manufacturing, and retail. Sustaining economic growth will require an urgent effort to stimulate the trade flows through these ports.
What are the underlying causes of the decline at these two ports?
First, overall U.S. import demand has waned so far this year.
As we emerge from the Covid crisis, U.S. consumers are spending more on services ranging from dining to travel and less on consumer products. Retail sales fell 1% in March, dragged down by high inflation. And while demand is stagnant, retailers are facing bloated warehouse inventories that they ordered during the pandemic to cope with surging demand in 2021.
U.S. import volume has fallen as U.S. firms struggle to sell off their excessive inventories. The import cargo volume at the major U.S. container ports fell to a three-year low in February.
Second, geopolitics is nudging importers to ship their goods through East Coast ports.
The extra tariffs associated with the trade war between the U.S. and China that began in 2018 and the supply chain disruptions caused by the zero-Covid lockdowns have led U.S. firms to shift some of their offshore operations away from China. While some firms are importing more from Mexico by exploiting the provisions of the U.S.-Mexico-Canada Agreement, others are importing more from other low-cost Asian countries such as Vietnam.
Shipments from Vietnam to the U.S. normally come by ocean freight. There are two major sea routes. One route is through the Suez Canal, crossing the Gibraltar Strait, and then the Atlantic Ocean to unload the containers at various East Coast ports, including the Port of New York and New Jersey, Port of Charleston, and Port of Savannah. The second route is through the Philippines, across the Pacific Ocean, and then unloading at various West Coast ports.
Following the ugly round of port congestion on the West Coast, many U.S. importers prefer to ship Vietnam through various East Coast ports, triggering additional decline at the West Coast Ports.
Third, inefficiency and uncertainty are also deterring many U.S. importers from relying on West Coast Ports for imports. The Ports of Los Angeles and Long Beach are notoriously inefficient. Among 351 container ports around the globe, the World Bank ranked the Port of Los Angeles 328nd, and Long Beach 333rd.
Adopting automation and digital technology would improve port efficiency, but the port workers labor union is concerned that innovative technologies may affect their members’ job security. As such, modernizing West Coast ports is a sensitive subject as negotiations continue to replace a contract that expired in July 2022.
Negotiations with the International Longshore and Warehouse Union and the Pacific Maritime Association began in May 2022 but are dragging on. Terminal operations at the Ports of Los Angeles and Long Beach were closed for two shifts in early April.
Making U.S. ports efficient and reliable is essential if the U.S. is to expedite its economic recovery.
The ILWU has strong bargaining power. It can block these ports from adopting new technologies to become more competitive. But port workers risk winning a Pyrrhic victory, which could result in a lose-lose situation.
If these ports fail to compete, it will trigger an economic downturn in the Western U.S. that could hurt the wellbeing of these port workers and their families.
While U.S. importers have some flexibility to choose which port to import their goods, U.S. exporters have limited choice. Time is of the essence when exporting perishable agricultural products, for instance. These exporters need to ship their fruits and vegetables through the nearest ports so that their overseas customers can receive these products while they’re still fresh.
By allowing advanced robotics to do the heavy lifting, port workers can do more to improve port efficiency. They can follow the shining example of companies like Amazon in promoting human and robot collaboration. Digitizing port operations would also help to improve supply-chain efficiency by smoothing communication among stakeholders.
Port workers have understable concerns. The federal government should help to address them. It must work with business leaders to develop a workable contract that allows for technology adoption and protects workers’ jobs.
We all have a stake in revitalizing these ports. It’s time to work together to help the economy recover.
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