Lamenting the Erosion of Market Share

By Jock O’Connell

The California Assembly’s Select Committee on Ports and Goods Movement held a hearing on February 18, ostensibly to explore how the Legislature might be of greater service in promoting the competitiveness of the state’s troubled seaports. The hearing was held in tandem with the annual Port Day at the state Capitol in Sacramento the following day.

This hearing might have provided a focused opportunity for representatives of the state’s eleven commercial ports and other organizations associated with maritime trade to impress upon state lawmakers just how vital the ports are to the Golden State’s economy, as well as just how daunting the challenges the ports face are. The session might equally have offered legislators an opening to publicly signal their concerns about the welfare of the ports and all those hundreds of thousands of Californians whose livelihoods are directly tied to their successful operation.

Well…that might have been the case had more than two of the committee’s eleven members been present as the hearing began. And even that number was halved before too long, leaving Committee Chair Patrick O’Donnell, a certifiable friend of the state’s seaports, to listen – much in the manner of a choir master -- to a chorus of maritime industry voices. (Presumably, maritime industry officials did find other moments during their visits to the Capitol to plead their cases to lawmakers.) As for the televised hearing, the optics were, well, dispiriting.

Testimony came from a formidable array of industry witnesses. Mario Cordero, the Port of Long Beach’s Executive Director, was there to speak to the issues confronting his port and the neighboring Port of Los Angeles. Representing longshore labor was ILWU Local 13 President Ray Familathe. Voicing the interests of the state’s smaller ports were Kristin Decas, Executive Director of the Port of Hueneme, and Jeff Wingfield, Director of Environmental and Public Affairs from the Port of Stockton. Chris Shimoda of the California Trucking Association spoke on behalf of one of the two key landside transportation providers serving the ports. (Neither BNSF nor UP was represented.)

Mike Jacob of the Pacific Merchant Shipping Association led off the panel on the ports’ impact on California’s economy with a graphic display contrasting the rapid growth of container traffic through California’s ports from 1990 through the onset of the Great Recession, with the relatively parlous growth rates the ports have ever since experienced. The faster pace of growth at other North American ports has resulted in that loss of market share that has become the preoccupation of USWC port officials. One especially compelling aspect of Jacob’s presentation were the slides he showed revealing the extraordinary extent to which the container trade forecasts that have informed state and regional transportation planning and regulatory policies in recent years have consistently overshot the actual growth rates at California’s container ports.

One recurrent theme sounded throughout the hearing was that costly and often unreasonable regulatory requirements unique to California are a major reason for the ports’ loss of business. While no one from the California Air Resources Board was present to defend the agency, more than one witness strongly implied that an unrestrained CARB could be the death of California’s ports.

Legislative hearings are not the place to go into great detail about the plans the ports have been devising to pull themselves out of their recent malaise. But diagnosing the ports’ uninspiring growth rates in recent years and the resulting erosion of market share should be a topic of serious public discussion, starting with the question of why more was not done to forestall what has happened?

It’s not that we were not forewarned. We have been cautioned about this at least since the day in October 2006 when Panamanian voters approved a referendum to construct a new set of bigger locks through the isthmus. A U.S. Corps of Engineers report in 2008 warned: “One of its greatest impacts [of the new canal] will be felt in the fast-growing container trade where expansion will enable larger vessels to transit the canal. Vessel calls on the East and Gulf Coasts are also expected to increase significantly as cargo shifts away from the congested West Coast.” [Emphasis added.]

As the installation of the new locks neared conclusion, research conducted jointly by the Boston Consulting Group and C.H. Robinson in 2015 predicted that as much as 10% of container traffic between East Asia and the U.S. could shift from West Coast ports to East Coast ports by the year 2020. As the study observed: “This shift will have profound effects. The larger ports on the West Coast will experience lower growth rates, altering the competitive balance between West Coast ports and East Coast ports.” [As if any further emphasis were needed.]

The report went on to argue that, for shipping to many destinations, using West Coast ports “will still be the fastest option—but it won’t necessarily be the cheapest. For price-sensitive cargo that is relatively expensive to move, routing shipments through East Coast ports to inland destinations will become more cost competitive and increasingly attractive.”

The impending canal expansion did lead to the emergence of the “Beat the Canal” campaign in California. But that effort achieved virtually nothing of substance beyond the production of a remarkably inane video featuring several of the state’s leading public figures (including, improbably/ironically, CARB’s Chairwoman Mary Nichols) expressing their concern – pretty much in the manner of Susan Collins – about the future of the state’s ports.

Fortunately, the USWC ports have detailed many of the measures they intend to pursue to bolster the volume of trade moving over their docks. Unfortunately, these measures seem largely duplicative of what ports in other political jurisdictions in North America have been doing, which in part accounts for why those other ports have managed to snag growing numbers of containers from the transpacific trade.

What is not at all encouraging about the current belated response to the loss of business is the belief that USWC ports can find a way to recapture shares of the transpacific trade they believe was once theirs. For what that ignores is the mounting evidence that U.S. maritime trade with the economies of northeast Asia (Japan, South Korea, Taiwan, Hong Kong, and even China) will continue to slow and, in the case of some countries, even begin to contract.

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