Like national politics, US ports are suffering from a sharp division between left and right. In this case the divide is between the west and east coasts
The cause is the increasing market share of east coast ports, particularly New York/New Jersey (PNYNJ), at the expense of their left coast competitors, mostly Los Angeles/Long Beach. So severe is the problem that more than 50 trading associations have sent a distress signal to the California state policy makers, in the form of an appeal for urgent action.
At the heart of the petition is the 19.4% fall (10 percentage points) in containerised cargo through the western seaboard (including Washington state) between 2006 and the end of 2019. In that time east coast ports’ share rose to 46.5%, compared with 37.7% for all west coast ports.
"The impacts of these factors resulted in approximately 5.6M fewer containers travelling through west coast ports versus competing gateways had west coast ports maintained their market share," says the petition.
The forces behind this are those that the Pacific Merchant Shipping Association has been warning about for years. "High costs, excessive regulation, labour issues, and lack of infrastructure investment," says the association. "Work slowdowns and labour disruptions surrounding contract negotiations have raised concerns that west coast ports are unreliable. The cost of doing business in California and Washington is higher than other states. In particular, aggressive policies by the California Air Resources Board have put Californian ports at a major competitive disadvantage against other jurisdictions that have taken little or no action. There has been relatively little in the way of state investment or policy measures facilitating international goods movement," says the association.
The appeal to California lawmakers suggests four remedies.
Covid-19 has hammered both coasts. Latest TEU statistics show that inbound loaded containers for the first five months to the end of May were down at least 10% for the country and outbound loaded containers down by about 7%.
Long Beach was the busiest container port in the country in May with total traffic amounting to 628,205 TEU. The Port of Los Angeles ran second with 581,665 TEU, while PNYNJ placed third with 537,412 TEU, according to the PMSA’s West Coast Trade Report, compiled by international trade economist Jock O’Connell.
New York/New Jersey handled 74,676 fewer TEU inbound in May loads than in May 2019. That drop of 21.9% was close to the norm for US east coast ports, according to the trade report.
In the first five months of the year, west coast inbound loads fell 12% to about 3.8M TEU while east coast totals slid 8% to just under 4M TEU. Individual port totals to end of May (all loads and empties) showed Los Angeles in the lead with 3,070,413 TEU, with PNYNJ (2,854,319 TEU) in second place followed by Long Beach with 2,830,855 TEU.
Figures on containerised imports arriving at US mainland ports from east Asia in May were not encouraging for the west coast. The Ports of Los Angeles and Long Beach saw their combined share of containerised import tonnage from east Asia decline to 42% from 44.4% a year earlier. At the same time, their collective share of containerised import value slipped to 50.1% from 51.6%.
But a different worry is confronting New York/New Jersey, the debt burden. The port is part of the wider Port Authority for the two regions, covering air, sea and road plus tunnels and bridges. The balance sheet has become loaded with borrowings to pay for construction projects in all areas.
Revenue has taken a plunge, which has led to ratings agency Fitch issuing ’AA-’ rating to the Port Authority of New York and New Jersey’s (PANYNJ), approximately US$1.0Bn in total series 221st and 222nd consolidated bonds, and placed a rating watch negative on other commercial paper and bonds.
Fitch says "PANYNJ’s sizeable fixed cost operating and debt service obligations have reduced its medium- to long-term financial flexibility over time.
"Recovery through the remainder of 2020 remains unpredictable, and further revenue and reserve pressures may emerge," says the agency. "The absence of improved activity levels over the near term, coupled with limitations to adjust operating costs and capital investments would likely continue to strain credit metrics on a sustained basis, resulting in a rating downgrade.
Fitch continues "Effective actions to adjust operating obligations and balance debt-funded capital investment with a meaningful level of pay-go that maintains significant financial flexibility will be important considerations in maintaining a ’AA’ category rating level."
Stacey Mawson, a lead analyst involved with compiling the rating report, says "The seaport is less of a risk factor than the airport."
In assessing the rating, for 2020 Fitch says the most likely scenario is a 37% decline in aviation revenue, a 17 % decline in tunnels and bridge revenue and a 15% decline in port volume. This results in a 28.6% decline in operating revenues.
The worst-case scenario is a 45% decline in aviation revenue, a 28% decline in tunnels and bridge traffic and 15% less in port volume. This would mean a 36% decline in operating revenues.
Fitch says North American ports in general have fairly strong financial defences against Covid-19’s economic effects. "Ports have numerous safeguards and a strong financial cushion on their side in being able to weather the sizeable ripple effect of the coronavirus pandemic.
"However, ports that primarily handle cargo are expected to fare better than those with substantial cruise operations, which are expected to have sizeable downside risk," says the agency.
For cargo, Fitch says its stress tests "assume drops in cargo volumes will exceed those seen during the global financial crisis, the SARS outbreak of the early 2000s and 11 September. For cruise ports, the stress tests assume a more severe impact from the suspension of cruises through July, and anticipates minimal activity for the remainder of the year."
Says Fitch senior director Emma Griffith, "North American ports have also demonstrated revenue resilience through economic downturns as severe as the global financial crisis, reflecting both the essentiality of global trade and the presence of strong contractual agreements at many ports."
The ratings agency adds "Also working in the sector’s favor is the fact that most cargo ports have been deemed essential services, making them exempt from government-mandated stay-at-home orders and ensuring continued operations (albeit at lower than normal volumes)."
Ms Griffith says "Terminal staff, longshoremen, truckers and warehouse handlers continue to service cargo ports, many with normal hours of operation."
The agency’s report says "Conversely, ports with a large portion of revenues derived from cruise operations (generally greater than 30% of the revenue mix) are experiencing more acute financial stress due to the coronavirus."
The erosion of west coast container marketshare extends to agricultural goods. Savannah has become the biggest agricultural exporter, most of it containerised.
At 15.8% (843,000 TEU) of total market share last year, the Georgia port edged out Los Angeles. Some observers point out that LA/Long Beach account for 25%, but this brings out another unsettling point for the west coast. Containerised agricultural exports are now almost equal between the east and west coasts and, assuming current trends, the east coast will become dominant.
The reasons for Savannah’s success are plain -- quick response to customer needs, shrewd infrastructure planning that takes the strain off unnecessary loadings at Savannah and Brunswick.
State authorities long ago realised the economic benefits of ports and all administrations have put maritime development as one of the pillars of growth. An emphasis on agriculture has paid off (60% of exports are agricultural products) and this has shown its full effect during the Covid-19 crisis.
The trade war with China has also had less serious effects than feared.
Georgia Ports Authority chief communications officer Robert Morris says in fiscal year 2020 (to the end of June) "despite the impact of the tariffs and Covid-19, total tonnes crossing all GPA docks reached a record 37.77M, up 0.6%, or 223,000 tonnes, compared to FY2019. Container tonnes grew 2% (560,440 tonnes) to reach 33.5M tonnes for the year, another record. We have seen a continued reduction in voided sailings, with vessels arriving via the Panama Canal carrying greater than average loads and exports holding up well."
Georgia has seen shippers adapting their supply chains rapidly over the past two years because of the trade war with China. Trade with other countries has shot up, increasing almost 70% for Vietnam , 35% for South Korea and lesser but still impressive increases for a host of European and other Asian countries.
The pandemic has also had less impact than expected on South Carolina ports, which moved 1.32M TEU in the fiscal year to the end of June, down 3.4% on the previous year. Tonnage at Charleston was 640,929 tonnes in the year, up 2.5% from the previous year.
From January to June, there were 58 blanked sailings to state ports, with 14 more announced for July onward.
The state ports authority is unhappy about the trade war with China. Says South Carolina Ports Authority president and chief executive Jim Newsome, "While the trade disputes stem from real issues that need to be addressed, the tariffs create uncertainty among businesses and spur risk mitigation in the supply chain. We believe in free trade and the movement of goods in a global marketplace."
Mr Newsome adds " Despite global trade uncertainty, the tariffs have not shifted strategy and growth plans."
The establishment of inland ports Greer and Dillon initially led to some criticism, but these have shown their worth. They are one of the reasons for Walmart setting up a distribution centre, which is expected to underpin TEU volumes.
For fiscal 2021 (to end of June 2021), South Carolina TEU are forecast to fall 7% to just over 1.2M. Financially, the ports are expected to suffer a 9% hit in operating revenues.