Despite slowdown, L.A./Long Beach ports still reign
When the global economy improves, will congestion in the two San Pedro Bay ports return, or will shippers and carriers be wary of replicating the conditions that led to congestion in the early part of the decade?
With the global financial crisis pushing international trade to the lowest levels we've seen in a decade, the congestion that plagued the U.S. West Coast ports of Los Angeles (L.A.) and Long Beach in 2004 may seem like a distant memory. Each month in 2008, year-over-year import volumes were below those for the same periods in 2007, and import levels for 2009 are shaping up to be even lower. According to IHS Global Insight's Port Tracker report, there is no threat of congestion at either Los Angeles or Long Beach. In fact, the extremely weak traffic has eliminated any capacity pressures.
Still, it is worth asking the question: When the global economy improves, will congestion in the two San Pedro Bay ports return, or will shippers and carriers be wary of replicating the conditions that led to congestion in the early part of the decade? Are the ports of Los Angeles and Long Beach threatened now that shippers and carriers are under even more pressure to find cost savings, or is there something exceptional about those ports that can protect them from a loss of market share?
Article Figures
[Figure 1] Containerized imports by U.S. port and distance to ultimate destinationEnlarge this image
[Figure 2] Ultimate destination of containerized imports entering at Los Angeles/Long BeachEnlarge this image
Local demand attracts carriers
To answer these questions, it is instructive to look at the import patterns for the San Pedro Bay area before the slump took hold. In 2007, nearly 25 percent of the 54.5 million tons of containerized imports coming into Los Angeles and Long Beach remained within 100 miles of the port, according to IHS Global Insight's U.S. Inland Trade Monitor. That same year, fully one-third of the containerized cargo entering the United States through those ports never traveled more than 500 miles away.
As shown in Figure 1, no other U.S. West Coast port boasts such high freight demand in its immediate vicinity as does the L.A./Long Beach complex. Roughly one out of every five containers imported through West Coast ports is destined for this region, making it more economical for both shippers and carriers to serve Southern California markets through Los Angeles or Long Beach. Local demand in Southern California acts as an anchor, keeping the shipping lines locked into the two ports.
What about the two-thirds of the traffic passing through Los Angeles and Long Beach that ventures beyond 500 miles? This segment represents the "discretionary cargo"—shipments that may be diverted to other ports. Much of that traffic passes through the enormous distribution centers (DCs) in California's Inland Empire region in San Bernardino and Riverside counties. These facilities form a sort of feedback loop with the ports. The DCs were built in that region because so many imports flowed through Los Angeles and Long Beach; now shipping lines call on those ports because they are close to the retailers' giant distribution centers.
During the boom times of strong economic growth, the Inland Empire was close to reaching its distribution capacity. But according to the Los Angeles Times, industrial vacancy in that region doubled in the last year, from 6.2 percent in the fourth quarter of 2007 to 12.4 percent at the end of 2008. The potentially good news in those statistics: The decline in international trade has freed up commercial space for the distribution centers, leaving room for expansion when trade picks up again.
However, the increase in available commercial property has a negative side. Those facilities represent entities that are no longer operating in the region, and there is no guarantee that they will come back. Large retailers have developed multi-port strategies, and it's conceivable that the Inland Empire's mammoth distribution centers will become a thing of the past as shippers limit their dependence on certain ports.
Diversion scenarios
There are three possible diversion scenarios for the discretionary container imports into Los Angeles and Long Beach: diversion to other U.S. West Coast ports; diversion to ports in Canada and Mexico; and allwater diversion through the Panama or Suez canals.
All-water options have always been available, but they are price-sensitive and are only suitable for certain market segments. All-water is unlikely to pose a significant threat, as only a small percentage of imports that leave the San Pedro Bay for inland destinations are bound for the U.S. East and Gulf coasts. (See Figure 2.) The cargo best suited for the Panama Canal is already moving through there, and piracy concerns make the Suez an even less attractive option.
The pre-crash volumes at L.A./Long Beach were so high compared to the other U.S. West Coast container ports that none of those other harbors has the capacity individually to make a major dent in San Pedro Bay's market share. L.A./Long Beach may lose market share to its neighbors as a group, but these ports are relatively mature and no game-changing expansions are expected in the near term.
In Canada, the Port of Vancouver handles some imports that are destined for the United States. It is a fairly mature port, and few changes that would make it more attractive to importers and carriers are scheduled. Indeed, Vancouver is the same distance from Shanghai, China, as the ports of Seattle and Tacoma (in the state of Washington, USA), and thus does not offer significant time savings. An intriguing potential competitor is the Port of Prince Rupert near the British Columbia/Alaska border. It is roughly 1,000 miles closer to Shanghai than Los Angeles and Long Beach and offers single-carrier intermodal service to Chicago via the Canadian National Railway. Competitive rates and transit times to the U.S. Midwest could divert some of the 25 percent of L.A./Long Beach traffic that is bound for the U.S. East North Central region.
While the Port of Lázaro Cárdenas in Michoacán, Mexico, is eight days further away from China by sea than Prince Rupert, it has the advantage of being able to serve Mexico City and Mexico's populous Central Valley as well as Texas and Louisiana via the Kansas City Southern rail line. Another potential competitor in Mexico would be Punta Colonet, which is to be built roughly 150 miles south of San Diego. Financing for the port complex has fallen through, however, and development is on hold.
This analysis assumes that Asian trade with the United States will rebound to its peak levels. IHS Global Insight predicts that trade growth will gradually recover. We expect a steep decline in 2009 followed by an upswing in 2010. There should be noticeable growth in 2011 and then slower long-term growth rates from that point onward. We expect the San Pedro Bay area to recover its 2006 freight volumes around 2012. However, the market shares of Los Angeles and Long Beach will likely decline slightly, as importers will diversify their port choices and all-water service will gain a greater (but still limited) share.
Despite the current decline in freight volumes and the potential diversion of some cargoes to other ports, their natural advantages will ensure that Los Angeles and Long Beach remain the premier entry points to the United States for the foreseeable future.
The U.S., U.K., and Australia will strengthen supply chain resiliency by sharing data and taking joint actions under the terms of a pact signed last week, the three nations said.
The agreement creates a “Supply Chain Resilience Cooperation Group” designed to build resilience in priority supply chains and to enhance the members’ mutual ability to identify and address risks, threats, and disruptions, according to the U.K.’s Department for Business and Trade.
One of the top priorities for the new group is developing an early warning pilot focused on the telecommunications supply chain, which is essential for the three countries’ global, digitized economies, they said. By identifying and monitoring disruption risks to the telecommunications supply chain, this pilot will enhance all three countries’ knowledge of relevant vulnerabilities, criticality, and residual risks. It will also develop procedures for sharing this information and responding cooperatively to disruptions.
According to the U.S. Department of Homeland Security (DHS), the group chose that sector because telecommunications infrastructure is vital to the distribution of public safety information, emergency services, and the day to day lives of many citizens. For example, undersea fiberoptic cables carry over 95% of transoceanic data traffic without which smartphones, financial networks, and communications systems would cease to function reliably.
“The resilience of our critical supply chains is a homeland security and economic security imperative,” Secretary of Homeland Security Alejandro N. Mayorkas said in a release. “Collaboration with international partners allows us to anticipate and mitigate disruptions before they occur. Our new U.S.-U.K.-Australia Supply Chain Resilience Cooperation Group will help ensure that our communities continue to have the essential goods and services they need, when they need them.”
Artificial intelligence (AI) tools can help users build “smart and responsive supply chains” by increasing workforce productivity, expanding visibility, accelerating processes, and prioritizing the next best action to drive results, according to business software vendor Oracle.
To help reach that goal, the Texas company last week released software upgrades including user experience (UX) enhancements to its Oracle Fusion Cloud Supply Chain & Manufacturing (SCM) suite.
“Organizations are under pressure to create efficient and resilient supply chains that can quickly adapt to economic conditions, control costs, and protect margins,” Chris Leone, executive vice president, Applications Development, Oracle, said in a release. “The latest enhancements to Oracle Cloud SCM help customers create a smarter, more responsive supply chain by enabling them to optimize planning and execution and improve the speed and accuracy of processes.”
According to Oracle, specific upgrades feature changes to its:
Production Supervisor Workbench, which helps organizations improve manufacturing performance by providing real-time insight into work orders and generative AI-powered shift reporting.
Maintenance Supervisor Workbench, which helps organizations increase productivity and reduce asset downtime by resolving maintenance issues faster.
Order Management Enhancements, which help organizations increase operational performance by enabling users to quickly create and find orders, take actions, and engage customers.
Product Lifecycle Management (PLM) Enhancements, which help organizations accelerate product development and go-to-market by enabling users to quickly find items and configure critical objects and navigation paths to meet business-critical priorities.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
Businesses were preparing to deal with the effects of the latest major storm of the 2024 hurricane season as Francine barreled toward the Gulf Coast Wednesday.
Louisiana was experiencing heavy rain and wind gusts at midday as the storm moved northeast through the Gulf and was expected to pick up speed. The state will bear the brunt of Francine’s wind, rain, and storm damage, according to forecasters at weather service provider AccuWeather.
“AccuWeather meteorologists are projecting a storm surge of 6-10 feet along much of the Louisiana coast with a pocket of 10-15 feet on some of the inland bays in south-central Louisiana,” the company reported in an afternoon update Wednesday.
Businesses and supply chains were prepping for delays and disruptions from the storm earlier this week. Supply chain mapping and monitoring firm Resilinc said the storm will have a “significant impact” on a wide range of industries along the Gulf Coast, including aerospace, life sciences, manufacturing, oil and gas, and high-tech, among others. In a statement, Resilinc said energy companies had evacuated personnel and suspended operations on oil platforms as of Tuesday. In addition, the firm said its proprietary data showed the storm could affect nearly 11,000 manufacturing, warehousing, distribution, fabrication, and testing sites across the region, putting at risk more than 57,000 parts used in everyday items and the manufacture of more than 4,000 products.
Francine, which was expected to make landfall as a category 2 hurricane, according to AccuWeather, follows the devastating effects of two storms earlier this summer: Hurricane Beryl, which hit the Texas coast in July, and Hurricane Debby, which caused $28 billion in damage and economic loss after hitting the Southeast on August 5.