Calif. Ports’ Dominance Wanes as Shippers Seek Alternatives

This story appears in the April 20 print edition of Transport Topics.

Rising costs for container fees, administrative expenses and environmental requirements in the midst of an economic downturn are causing shippers, importers and retailers to consider alternatives to the ports of Los Angeles and Long Beach for shipping their goods, according to trade association officials.

While the San Pedro Bay ports still dominate the containerized cargo business among West Coast ports, their overall market share has declined slightly in the past two years, slipping to 61.3% during the first two months of 2009 from 63.4% in 2007.

Trade association officials said there is increasing anecdotal evidence that the sharp decline in container traffic at the two Southern California ports — down 40% in Long Beach and 32% in Los Angeles in February from a year earlier — can’t all be blamed on the recession.

“Quite frankly, people have looked at the cumulative impact of pushing freight through L.A./Long Beach, and are looking at alternatives,” said Peter Gatti, executive vice president of the National Industrial Transportation League, a group that represents shippers, carriers, intermediaries and logistics companies. “That’s something that we have definitely seen.”

Since 2007, the ports of Vancouver, Oakland, and Tacoma all have increased their market share slightly. And, while its 2008 container numbers pale when compared with Los Angeles and Long Beach, Canada’s Prince Rupert port, in British Columbia, has been steadily growing and is gaining attention from shippers who transport theirgoods from Asia and want to quickly reach markets by rail in the Midwest.

“Obviously, L.A. and Long Beach are still going to be a significant gateway for goods that are coming into the Southern California region, but I don’t know if, intermodally, traffic will ever get back to the level that it was before the recession,” Gatti said.

Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation, said many of his trade group members regard the Los Angeles and Long Beach ports as “anti-business.”

“Folks aren’t as wedded to L.A./Long Beach,” Gold said. “It’s not the only option that is out there.”

As a result, retailers are looking for alternatives, including ports in Mexico, Canada and on the East Coast, Gold said. While many of those ports have much smaller container volumes, ports such as Savannah, Ga.; Norfolk, Va.; and Jacksonville, Fla., are expanding their capacity and could become very attractive after completion of the Panama Canal expansion in 2014, Gold said.

Robin Lanier, executive director of the Waterfront Coalition, a group representing importers, manufacturers and retailers, said cargo owners have in recent months become very frustrated with administration of the Los Angeles/Long Beach clean trucks cargo fees they must now pay. Some said they are hiring additional employees just to keep track of the new container identification requirements of the clean trucks plan.

“It’s an administrative nightmare, because there is no nexus between the terminal operators and the beneficial cargo owners,” Lanier said.

“As a result, Prince Rupert is getting a lot of the traffic from L.A./Long Beach,” Lanier said. “They’re small, but everybody who’s used Prince Rupert just raves about it.”

Prince Rupert, which measures its business in tons rather than 20-foot-equivalent unit containers, has not released any 2009 numbers. However, it said total port tonnage increased by 2.2% to 10.6 million metric tons in 2008. A spokesman for Prince Rupert did not return messages.

West Coast market share at Long Beach port has slipped to 25.6% the first two months of this year, down from 29.6% in 2007. However, Los Angeles’ share has actually increased to 35.7% from 33.8% during the same period.

Since October, the number of TEUs handled by Long Beach has fallen to 374,131 from 595,189 in March. At Los Angeles, TEU counts have declined to 526,487 in March from 706,308 in October.

Art Wong, a Port of Long Beach spokesman, said part of the market-share loss can be attributed to some Chinese oceangoing shippers using smaller vessels capable of docking at smaller ports.

“Here in Long Beach, it’s very clear that some cargo has been diverted,” Wong said. “We’re losing some of our market share because when the economy is weak like this, they don’t have to use the big ships.”

Lori Kelman, a Los Angeles port spokeswoman, said that although Los Angeles has not lost market share to any of its West Coast competitors, in recent months it has launched financial incentives to keep its customers during the recession.

Still, it wasn’t an encouraging sign last week when the mammoth AP Moeller-Maersk shipping lines said that next month it will move a line of 6,000 container ships from Southern California ports to Seattle, according to The Wall Street Journal.

Paul Bingham, an economist with IHS Global Insight, said it’s still tough to tell from the numbers if there is any significant diversion under way from L.A./Long Beach. While all the U.S. West Coast ports have experienced declining container volumes during the past few months, Long Beach had the highest drop of any in February.

“It could be that shippers are using smaller vessels because consumer demand is down and that the ships can go into other ports that don’t have the same size berths as L.A. and Long Beach,” Bingham said.