Are Shippers Finding a New Groove?

Jock O’Connell

As the year 2023 gets underway, a leading candidate for January’s word-of-the-month could be “elasticity”. It’s an easily understood if frequently misused term. In this case, it would not be surprising to see it pop up in conversations about how much of America’s containerized import trade will revert back to U.S. West Coast (USWC) ports once a new longshore labor contract is in place. Whether or not it finds its way into the maritime trade lexicon, we are going to be hearing a torrent of speculation over how much of the nation’s box trade will have found new, permanent grooves for moving goods to market.

Fears of labor-related disruptions at USWC ports – like those in the fall and winter of 2014-15 – have prompted shippers to divert container traffic to East and Gulf Coast ports. As one prominent maritime industry journalist observed in a January 12 article: “Cargo diversions began in early 2022, ahead of contract talks that began in May”.

Unfortunately, that timeframe is being widely used as the reference point for explaining the gains in market share being reported by East and Gulf Coast ports.

Am I alone in thinking that’s a remarkably myopic view? Certainly, such concerns as the impact of California’s penchant for regulatory excess have played a role in driving up the cost of shipping through the state’s ports and thus driving away container traffic. After all, the USWC share of America’s transpacific containerized import trade has been ebbing for decades. Twenty years ago, in 2003, the Big Five USWC ports (Los Angeles, Long Beach, Oakland, Seattle, and Tacoma) handled 73.9% of all containerized import tonnage shipped from East Asia through mainland U.S. ports. Last year, their collective share was 52.0%. A decline of that magnitude is hard to pin solely on an occasionally obstreperous trade union, but there are those who will evidently try.

Obsessing about the latest twists in contract negotiations may provide grist for news articles and editorials, but it occludes a broader, more accurate interpretation of shifts in maritime trade, one that places much more emphasis on the physical infrastructure linking ports to markets than on the quality of labor relations.

It might be conceptually helpful to reverse the conventional diversion equation by asking why so much of America’s containerized imports from East Asia had long been routed through ports along the Pacific Coast when, both in terms of population and industrial output, most of the U.S. economy lies a continent away, often only a relatively short distance from ports in coastal states from Maine to Texas.

The answer involves a long story, one that can be traced back to the day in February 1784 when the propitiously named Empress of China sailed out of New York harbor bound for Canton (now Guangzhou). It was the first American vessel to make the voyage, and among the goods it brought back fourteen months later was a fine set of porcelain tableware snapped up by George Washington.

Today, we tend to think of the China trade as something recent, dating back perhaps to Deng Xiaoping’s economic reforms or the establishment of diplomatic relations with the United States in 1979 or the country’s accession to the World Trade Organization in 2001. But the fact is that Americans have long been fascinated with the promise of fortunes to be made there and with the challenges of getting there and back as quickly as possible and with minimal loss of cargo. The race to China spawned the era of the fast clipper ships that sacrificed space for speed, but for a few Americans that mode of transport was not good enough.

The names Thomas Hart Benton and Asa Whitney are seldom, if ever, mentioned these days in conversations about America’s maritime infrastructure. That’s a shame because of the foundational role both played during the first half of the 19th century in fostering a national consensus in favor of a transcontinental railroad that would facilitate trade with Asia. The system of seaports and railroads we now have for transporting goods between the Pacific Rim and the major markets of North America is a legacy of their early work in persuading a nation with deep European cultural and commercial roots to look not just westward across the continent but westward across the Pacific, in the process embracing what was, certainly for that time, a truly audacious ambition.

Benton represented Missouri in the U.S. Senate from 1821 through 1851. As one of his biographers has written: “His long political career was rooted in a vision of American empire extending to the Pacific Coast and powered by Asian commerce.” He presciently began espousing his notion of a pathway to the Pacific in a series of editorials in the St. Louis Enquirer in the fall of 1819, six years before the first steam-driven railway was opened in England. He remained an outspoken and influential advocate for expanding America’s trade with the Orient.

Whitney, a Connecticut Yankee who had made his fortune trading in Canton in the early 1840s, was likewise determined to facilitate business with China through a new route across the still unformed nation. In 1848,

Whitney devised a novel map of the world (a copy of which is housed at Stanford University’s library) which placed the United States at its center, a position from which it could serve as the key link in a trading system spanning the globe from Asia to Europe. Whitney was a tireless promoter of a plan to construct a railroad from the shores of Lake Michigan to the mouth of the Columbia River. With Benton pushing his own vision in the Senate, and with Manifest Destiny the byword of the age, the result was the creation of a broad political and popular consensus that ultimately made it possible for others to construct the railroads. Witness the very similar language in the 1856 electoral platforms of both the Democratic and Republican Parties:

Resolved: That the Democratic party recognizes the great importance…of a safe and speedy communication, by military and postal roads…between the Atlantic and Pacific coasts of this Union, and that it is the duty of the Federal Government to exercise promptly all its constitutional power to the attainment of that object, thereby…opening to the rich commerce of Asia an overland transit from the Pacific to the Mississippi River, and the great lakes of the North. 

Meanwhile, the Republican platform resolved: That a railroad to the Pacific Ocean by the most central and practicable route is imperatively demanded by the interests of the whole country, and that the Federal Government ought to render immediate and efficient aid in its construction. 

I’ll reserve the story of how the railroads eventually found their way to the shores of Puget Sound and into Northern and Southern California for another time.

For now, though, the point of this diversion into history is to remind everyone how the investments made in developing the nation’s transportation infrastructure in the 19th century gave the ports of California, Oregon, and Washington a strategic advantage in serving the transpacific trade, an advantage that is now being steadily eroded by 21st century investments in America’s maritime infrastructure as well as in that bigger set of locks through Panama.

Too often, the existing layout of the supply chain can be seen as immutable, leading many observers to believe it is almost divinely-ordained that USWC ports should be the default gateways for America’s container trade with East Asia. It was not that long ago that serious analysts scoffed at the notion that East and Gulf Coast ports could compete for sizable shares of the transpacific trade. 

Consider a 2009 analysis of the competitive position of the San Pedro Bay ports in a Supply Chain Quarterly article. Extrapolating from data compiled by what was then known as the IHS Global Insight’s U.S. Inland Trade Monitor, the article concluded that the Ports of Los Angeles and Long Beach had little to worry about diversion because: “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…and the cargo best suited for the Panama Canal is already moving through there.” [Emphasis added.]

Similarly, a 2007 container forecast for the San Pedro Bay ports downplayed the potential for diversion to East and Gulf Coast ports: “The Panama Canal is becoming congested, more expensive, and less reliable, and will have limited reserve capacity even when new locks are built.” Clearly, these conclusions no more deterred East and Gulf Coast port authorities, not to mention the proprietors of the Panama Canal, than the daunting realities of building transcontinental railroads silenced people like Benton and Whitney.

The shift in container trade away from USWC ports in the past decade was not entirely unforeseen. A 2012 study by the Army Corps of Engineers anticipated that the expansion of the Panama Canal “could provide a significant competitive opportunity for U.S. Gulf and South Atlantic ports and for U.S. inland waterways – if we are prepared”. And Congress hardly stinted on funding the needed preparations, etching new grooves in the global trading system by ensuring that East and Gulf Coast ports would be able to handle increasingly larger numbers of containers borne on increasingly larger vessels.

Disclaimer: The views expressed in Jock’s commentaries are his own and may not reflect the positions of the Pacific Merchant Shipping Association.