Global News West Coast labor deal finally reached, but the damage is done

The tentative agreement reached Wednesday between maritime employers and dockworkers on the US West Coast may lure back some of the cargo lost during 13 months of contentious negotiations, but changing trade patterns and increased competition from ports along the East and Gulf coasts could spell the end of the West Coast’s dominance.

The increased reach of East and Gulf coast ports into the Midwest, such as Virginia and Savannah driving cargo to Chicago and Memphis, respectively, and a shift of sourcing away from China make Suez Canal routings appealing. Drawn-out contract negotiations marked by disruptions have consistently helped drive cargo away from the West Coast for the last 20 years, with the 2002 lockout sparking a shift that’s accelerated in the last year.

“We are seeing a de-leveraging of trade between the US and China,” Jeremy Nixon, chief executive of Ocean Network Express, told the recent Capital Link Singapore Maritime Forum, touching on a topic rarely discussed by container line CEOs. “Many companies in the US are looking to reduce ... the amount of imports they have ... coming from China.”

The West Coast’s share of US imports from Asia has dropped from 71% in 2013 to 56% in the first five months of 2023, while the East and Gulf coast’s combined share of Asia imports has grown from 29% to 44% during that same period, according to PIERS, a sister product of the Journal of Commerce within S&P Global.

“Inevitably we get a question which is, ‘How much of your cargo is going back to the West Coast?’” Georgia Ports Authority Executive Director Griff Lynch told the Georgia Foreign Trade Conference (GFTC) this week. “It totally deflates us, and we still love you if you ask that question, but that is not the right question. The right question is why did the East Coast and the Gulf gain market share, and is it sustainable?”

A recent CNBC interview of Port of Los Angeles Executive Director Gene Seroka answered that very question.

“There are three things that importers and exporters tell me every day,” Seroka said in the interview. “You’re too expensive, you have very unique labor issues, and you are over-regulated.

“What’s happened is you have seen big-time investment [on the East and Gulf coasts], they’ve hired switched-on leadership, and they have been nipping at our heels for the better part of 20 years, and this is the result you see,” he added.

Sourcing shift risk for West Coast Further placing the West Coast’s cargo at risk is the growing diversion of production from China to Southeast Asia and the Indian Subcontinent, where cargo typically moves to the US via the Suez Canal, landing on the East Coast.

China, including Hong Kong, still dominates the sourcing landscape, supplying 40.7% of US imports last year, down from 42.4% in 2021, according to data from PIERS.

Georgia’s numbers reflect this trend, Lynch said, showing that Savannah’s percent of imports from China dropped from 49% in 2018 to 41% in 2022, while India’s share grew from 5.4% to 6.3% and Vietnam’s share from 3.7% to 9.8% over the same period.

US East and Gulf coast ports can enjoy the geographical advantage of the sourcing shift to India and Vietnam. That’s particularly true for India, which Lynch notes is attracting more manufacturing as port infrastructure improves. The share of US imports from India inched up to 3.9% last year from 3.8% in 2021, driven by increases in apparel and iron and steel components, according to PIERS.

“Combine a five-day ocean transit [compared to a West Coast routing] with all the land-side advantages we have in the East Coast and Gulf, and I think there's a case made that the West Coast has got some serious concerns, because we're going to continue to grow if this shift happens,” Lynch told a roomful of shippers at the GFTC. Shippers as customers Helping to fuel the shift, the alignment of local industry and community and cities and states has helped the likes of the ports of Savannah, Virginia and Charleston keep improving through investment and support of infrastructure projects.

“Who we are aligned with, this is not just Georgia, it’s the East Coast and the Gulf,” Lynch said. “Gov. Kemp in our case and the legislature here in Georgia, they’re supporting us, they believe in the ports, they believe in transportation and logistics.”

Unlike in constrained Southern California, and to a lesser degree, Seattle and Oakland, East and Gulf coast ports generally have more space to expand. State operating ports, such as Virginia, also enjoy a level of control that eludes landlord ports.

Executive Director Stephen Edwards, in a recent interview with the Journal of Commerce, pointed out how with the Port of Virginia's model, the port authority can deliver a level of service through unique control that landlord ports simply can’t. In the so-called Virginia Model, the port operates its marine terminals, runs its own chassis pool, and controls its technology and cargo handling assets, including over 100 automated stacking cranes that keep cargo moving between the quay and the gate.

A slide shown at Virginia’s State of the Port event on April 26 displayed logos of multiple beneficial cargo owner (BCO) companies, including Amazon, Lowe’s, Lego and Tractor Supply. That underscored not only the port’s growing footprint but that the shippers backed the port enough to allow the authority to trumpet them.

Although Edwards’ presentation didn’t make the point directly, the message was clear: Shippers are customers and their business is valued, unlike on the West Coast where shippers are not customers in the traditional sense, but helpless bystanders.