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The Real Cost Of The West Coast Port Strike Pt. 1

Posted by Elementum News Desk | April 10, 2015


Two months after the end of the catastrophic West Coast port dispute, carriers on the West Coast are still struggling with the lingering effects of the shutdown, and economists are tallying up its final price tag. Meanwhile ports on the East Coast are adjusting to the massive influx of cargo that has been redirected from the West Coast—some finding it easier to handle than others. This article is part one of two in a series covering the ways the West Coast port strike has disrupted the state of freight shipping in the United States.

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Reports from the Port of Long Beach say between 9 to 13 vessels were still waiting for dock space at the end of March. That’s down from a peak of 31 inbound freighters berthed at the dock during at the height of the crisis, but still enough to continue giving carriers headaches. As of the beginning of April, the average time for a freighter to fare in and out of the port was over one week. The port is doing all it can to reduce the backlog of ships waiting to be unloaded, but shutdown-related delays are expected to persist at least into early May.

Perishables Hardest Hit By Port Strike Delays

Now economists and industry experts are beginning to sift through the rubble and preliminary figures are starting to emerge on how much the port shutdown has affected the US economy. All told, according to Kevin O'Marah, SCM World Head of Research, the labor standoff cost the US economy $2 billion per day during the 10 days of complete shutdown and intermittently closed 29 seaports from San Diego to Seattle. Here’s a snapshot of the current damage report accross some of the hardest hit industries:

  • 20% of the US’s 2015 fresh fruit and vegetable crop exports to Asia have been delayed 3-4 weeks; rice crops are delayed 8 weeks

  • Over the course of 2015, residual effects of the port strike delays will cost retailers $7 billion
    The USDA reported that January beef exports declined 2%

  • The North American meat industry lost $85 million every week that its cuts of meat and poultry sat in freezers outside of West Coast ports

  • In January, the US economy posted a 15% drop off in year-over-year exports

  • 20% year-over-year drop for 2015 so far in freight traffic at the Port of Long Beach, while volumes at Los Angeles declined by 19%

The labor lockout and subsequent fleeing of carriers to other US ports may have only expedited an inevitable shift away from the West Coast. The share of all US container imports going through West Coast ports has been steadily declining since its 2000 peak of 50% and was down to 43.5% in 2013. It doesn’t look like that trend is likely to be bucked any time soon. Of 138 shipping companies polled by the Journal of Commerce in January, 65% planned to have less cargo activity through the West Coast in 2015.  

Desperate Carriers Avoiding West Coast Ports Will Cost Supply Chains

As congestion persists, carrier alliances in the Trans-Pacific are already introducing new service routes from Asia to the East Coast through the Panama Canal to avoid lingering issues at West Coast ports. These services use much smaller ships with cost-per-container rates 47-60%higher than the larger, more efficient ships that call at Los Angeles or Oakland—the only ports in the US that can handle ships of this size. The demand that inspired the addition of these less efficient, more expensive routes demonstrates the lengths carriers are willing to go to avoid congestions. The expansion of the Panama Canal scheduled to be completed in early 2016 will allow ships that previously were too large to fit through the outdated canal to make it to the East Coast from Asia, and encourage even more companies to move away from the West Coast. Yet, even with the expansion of the Panama Canal, the world’s largest ships will still be unable to pass through it, forcing some carriers to continue to go use West Coast ports.

Unfortunately, carriers moving away from the West Coast are likely to cost supply chains in the long run. The unexpected diversion of freight traffic has exposed deficiencies in the rest of the country’s port infrastructure and is already causing unprecedented delays and congestion. Kurt Salmon retail supply chain strategist Frank Layo said congestion coupled with rate increases from import growth could cost retailers $36.9 Billion more in 2016 than 2014's baseline costs. Supply chains should anticipate this shift in carrier landscapes as they start to weigh the benefits of dealing with higher costs and potentially more congestion on the East Coast.

 

Read on to Pt. 2: East Coast Delays Drive Truckers to Social Media



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