West Coast Vs. East Coast Port Competition Hard to Predict

WASHINGTON, DC-Contrasting factors make it increasingly difficult to forecast future growth trends at US ports. For the past several years, retailers’ and distributors’ efforts to diversify cargo import sites in order to ensure a smooth flow in the supply chain have fostered expansion of Gulf Coast and East Coast ports at the expense of the combined ports of Los Angeles and Long Beach, the nation’s number one shipping site.

But the recent drop in the value of the dollar and increase in the price of fuel may reverse the shift. If the price of oil continues to rise, some analysts say West Coast ports would gain business because the 10 to 12-days sailing time from Asia to US Pacific Coast ports is one half to two thirds the time of bringing goods to the East Coast through the Panama Canal. According to the DC-based World Shipping Council, it now costs nearly $4 million to fuel a 5,000-container cargo ship for a trip from Shanghai to Los Angeles but anywhere from $1.5 million to nearly $4 million more to transport it to ports on the Gulf or East coasts.

Of course, goods destined for more easterly markets must be transported cross-country even if they arrive in Southern California, but the Association of American Railroads estimates it costs significantly less to cart containers by rail than by sea, especially when the cost of passing through the Panama Canal is factored in. In addition, as the DC-based rail organization points out, most goods arriving at East and Gulf ports also require transport out of the city of entry, tacking on additional costs.

Curtis Spencer, president of Houston-based Foreign Trade Zone and supply chain consultant IMS Worldwide Inc., disagrees with AAR’s claims. “There’s a certain point on the map, from say Harrisburg to Atlanta and Mobile, where shipping by water is cheaper than shipping by truck or rail,” he says. “East of that line, it’s cheaper and more effective to go by all water. West of that line, it’s cheaper to use rail from Los Angeles.”

Regardless of future costs, at this point a dramatic reversal in favor of the West Coast has not occurred. A report from financial and strategic consulting firm Merge Global Inc. of Arlington, VA shows the average volume of 20-foot-equivalent units (TEUs) for all US ports increased 11.5% in Q1, compared to 8% in Q4 and 8.6% for all of last year. However, TEUs for Q1 were down between 5% and 10% at both Los Angeles and Long Beach. By contrast, they were up almost 20% in Savannah and 11.4% in Charleston, the number one and two ports for growth in the quarter.

In the short term, almost all US ports may take something of a hit due to a drop in overall imports due to declining consumer demand. The most recent monthly Port Tracker report from the National Retail Federation and Global Insight shows a US total of 1.34 million TEUs for June, down 7.8% from a year ago. The report forecasts a 3.1% drop for July compared to last year, along with projected drops in August and September. However, a 1.7% year-over-year rise is forecast for October, the first positive change since July 2007 when a 2.8% rise was recorded.

Furthermore, a report from the Toronto office CIBC World Markets notes that a rise in the price of oil to $200 a barrel would be equivalent to imposing a 15% tariff on goods from Asia, prompting many US manufacturers to consider bringing more production back to North America. While that would no doubt be good news for the domestic labor market, it could prove problematic for US ports, many of which are spending hundreds of millions of dollars on expansion projects to meet a further explosion of imports that conceivably might never arise.