East Coast ports have been getting fat off of the business that West Coast complexes lost following nine months of worsening congestion along the Pacific, but it seems that boom period may be slowly coming to an end, or at least a temporary halt.
Historic congestion issues hit ports along the West Coast in late 2014, and through the first few months of 2015, due to a number of factors including labor negotiations between the Pacific Maritime Association (PMA) and the International Longshore and Warehouse Union (ILWU). The delays at these ports caused a number of shippers to reroute their cargo to the East Coast. Though the distance their goods had to travel was longer, at least they knew when the product would arrive at its destination and that they wouldn’t have to deal with the sort of congestion that had become the norm in places such as Los Angeles and Long Beach. However, it seems that the switch to the East Coast had its limits, and, at least for now, some shipping lines are heading back west.
Shift from the west to the east may not be as permanent as it seemed
West Coast ports still have yet to recover from the record levels of congestion they’d seen through the PMA-ILWU negotiations. For example, the Port of Los Angeles’ inbound container volume dropped 3.5 percent year-over-year in July, according to the Wall Street Journal.
Due, at least partially, to the slow recovery on the West Coast, a July report from the news outlet noted that at least some shipping lines made the decision to move east permanently. Marc Bourdon, head of the U.S. division for French shipping line CMA CGM SA, told the news outlet that shippers are “creatures of habit.” Once they find something they like and find reliable – i.e. less congested East Coast ports – they find it hard to give up.
Well, just one month later, it seems that other shipping lines are bit less set on the East Coast than Bourdon’s.
“I think some people got carried away on how much volume was permanently shifting away from the West Coast,” Walter Kemmsies, chief economist at Moffatt & Nichol, a maritime infrastructure advisory, recently told the Wall Street Journal. “Very little of what shifted away is going to stay permanently on the East Coast.”
East Coast container growth slowing in recent months
Growth at a number of East Coast ports appears to be tapering off. For example, year-over-year increases in shipping container volumes at the Port of Savannah were less significant in July than in June, at 10.3 percent and 23.2 percent, respectively, the Wall Street Journal reported. Meanwhile, the total number of twenty-foot equivalent units at the port fell 2 percent, or 324,242 TEUs, from June to July due to a drop-off in exports. Imports at the Savannah complex also fell. In terms of imports, through the first six months of the year, loaded container volume growth averaged 33.9 percent. Meanwhile in July, import container volume rose slightly less than half of that, at 16.4 percent. The Savannah complex isn’t alone in watching its boom period fade, though. The Port of Virginia has experienced a similar slowdown. Year-over-year, TEU volume increases there were also lower in July than in June, at 8.8 percent and 14.5 percent, respectively.
Kemmsies projected the East Coast port volume growth will slow somewhere between 5 percent and 8 percent, based on his overall forecast of economic expansion, according to the Wall Street Journal.
“Anything that comes above that rate is not really driven by the economy, it’s driven by costs savings efforts or other issues,” he told the news outlet.
Panama Canal expansion could send traffic right back east
However, this slowdown isn’t necessarily the bust to the East Coast’s recent boom. The newly expanded Panama Canal could prove a boon to East Coast container volumes. The Boston Consulting Group and C.H. Robinson found that the broadened Central American canal could boost growth at American port complexes along the East Coast. Joint research conducted by the two organizations found that “as much as 10 percent of container traffic between East Asia and the U.S. could shift from West Coast ports to East Coast ports by the year 2020.”
Though 10 percent may seem like a relatively small number, it actually represents substantial container volume on the busy route between East Asia and the U.S. In fact, it represents 40 percent of the containers that move into the U.S., making such a shift “equivalent to building a new port roughly double the size of the ports in Savannah and Charleston.”
The East Coast’s acquisition of traffic from the West Coast appears to be slowing, but the Panama Canal could reverse this trend over the next five years, sending shippers right back to complexes such as Savannah and Virginia.