Analysis: US Container Port Dynamics


US East Coast (USEC) and US West Coast (USWC) ports handle significant amounts of cargo each year, which is dependent on factors that are wide-ranging, such as the number of ships that each port can effectively turn around or by how efficient each port’s operations are at any particular time. On top of this are the recent congestion issues, which were intensified by the labour disputes at the beginning of 2015. The on-going Panama Canal expansion, which is due to be complete in early 2016, is also anticipated to have an impact on US trade. Collectively, this has impacted on the completion of US port dynamics, raising the question on whether we will soon witness a shift from USWC dominance to East Coast, or simply a levelling out.

According to import-export analysts Zepol, West Coast ports such as Los Angeles and Long Beach handled more than 4.1 million and 3.4 million TEU, respectively, from June 2014 to May 2015. Although a respectable achievement on the surface, a closer analysis suggests that its performance has been on the rocks over the last five months.

The Port of Los Angeles – the West Coast’s busiest port – reached a peak in September, 2014, as TEU volumes passed the 400,000 TEU mark, however, volumes took a sharp dip over the months of January and February, 2015, plummeting to lows of 254,000 TEU in January, a factor which could be attributed to the recent strikes that took place at a number of USWC ports, as well as mounting congestion.

The drop was even harsher for the Port of Long Beach, where TEU imports reached lows of 216,000 in January, 2015. Since this period, volumes have climbed significantly for Los Angeles in March, 2015 to heights of 396,000, but took another dip over April and May, suggesting that the second round of strikes had near-equal implications on containerised trade for both ports.

Although nowhere near as high as the USWC’s total volumes, the USEC has experienced significant growth in its container volumes for the year-to-date, compared to the same period in 2014, with TEU volumes rising by more than 200,000 from China, which is the equivalent of a 20% increase. So how much of this can be attributed to USWC congestion issues?

“There is currently a marked shift in US import volumes towards the East Coast at the expense of the West Coast ports”, says Neil Davidson, Senior Analyst for Ports and Terminals at Drewry, “I think that last year's congestion problems are the main cause for this, although the problems on the West Coast weren't just due to congestion – it was a complicated cocktail of pressure due to bigger ships, labour disputes, the whole chassis story, lack of truck drivers and intermodal rail capacity issues. 

“All of this has combined to make shippers change the routeing of some of their cargo to the East Coast. The key question is that now that the labour side is calmer, and efforts are being made to address the chassis issue, will volumes revert to their previous split? The additional complication of course is that next year the expanded Panama Canal will open which should make the all-water Asia-USEC route more competitive.”

As was the case recently, congestion issues were a driving factor in the shift in cargo transits towards the USEC, with many shipping lines opting for the Asia-USEC route via the Suez Canal as an alternative to using the Panama Canal.

However, the Panama Canal could be the chief driver for increased competition along the Asia-USEC route, with recent claims that as much as 10% of traffic passing through the canal could be stolen by the USEC, after the Panama Canal is completed in early 2016. But how much trade will be shifted to the East Coast as a result of the Panama Canal expansion and how permanent is this shift in cargo?

(Source: ACP)

Andy Lane of CTI Consultancy said: “Cargo which today goes through the USWC ports does so for good reasons. 50% of this is for the Pacific states, so it is largely captive. 50% is then for the Midwest, which takes a long and expensive train journey to the nearest rail ramp for last mile delivery. Diverting this through Panama and to the East Coast does not reduce significantly the rail costs, but it does add 3-4 weeks of transit time.

“As is supported by statistics, there has been a (minor) shift in volumes from USWC to USEC (from East Asia) directly as a result of the issues the USWC ports have suffered in Q4, 2014 and Q1, 2015. Much of this, however, might be viewed as temporary, since the sea-freight cost is higher and transit times longer – mid to long term this will drive shipper routings now that the dust is settling on the West Coast.”

Mr. Lane’s predictions could prove to be perceptive, as many carriers have recently announced that they will be deploying newbuilds along the Asia-USEC route, as well as ships in their current fleet, which is happening in preparation for the opening of the expanded Panama Canal.

This comes amid Moody’s prediction that a permanent shift in trade from the USWC to the USEC as a result of the Panama Canal’s expansion is unlikely, with Myra Shankin of Moody’s stating that shipments from Asia to USWC ports are much faster at getting to their inland destinations as opposed to using East Coast through the Panama Canal.

In summary, the previous shifts in cargo from USWC to the USEC have occurred as a result of a combination of problems, most notably congestion, and was aggravated by the wave of labour issues at the start of 2015.

As the Asia-USEC route provides more cargo capacity, it is unlikely that it will be a long-term solution for diverting cargo, since shipments from Asia-USWC are faster and more economical.

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