Will the West Coast Pivot to New Growth or Maintain Old Erosion in 2019?
By Mike Jacob, Vice President, Pacific Merchant Shipping Association
As expected, 2017 and 2018 saw West Coast container volumes finally grow past their pre-recession peaks of 2006 in California and 2005 in the Puget Sound. After a decade of an effective rate of growth of a cumulative 0%, we finally turned a corner these past two years.
The exclamation point was the growth across all trade lanes in 2018. Conventional wisdom has it that these 2018 developments, including trans-Pacific peak season volumes and rate recovery, is the pre-Trumpian Trade War yang to a possible 2019 slow-down and supply chain hangover yin.
This growth is something to be celebrated to be sure, since trans-Pacific demand has finally recovered beyond our no-growth baseline. Also to be celebrated: these increased volumes are moving with significantly reduced emissions when compared to 2006. CARB projects that by 2021 Diesel Particulate Matter (DPM) from ships at berth in California will be 96% cleaner while recent Port inventories show truck DPM emissions were down by 98% in 2017.
Regaining our growth footing is a critical first step to recovering our market share; success breeds success in the virtuous cycle, and reinvestment cannot occur without profitable and sustainable growth. However, what narrow window of opportunity is truly presented in 2019 is an unknown in large part because our own growth has not yet translated to any recapture of our 2006 peak market share.
In fact, while our volumes were down to flat, our market share erosion has been palpable. At just over 30% of total North American containers, California’s seaports in 2015-2017 had a lower market share than every year going back to 1997. The Puget Sound numbers are just as discouraging.
The market share tautology is easy to understand: while we failed to grow for 10 years, over that same period of time our competitors were not standing still, they were reinvesting in capturing our intermodal share. And, given the same global industry demography that drove our 2018 growth, that trend did not dissipate in 2018 elsewhere either. The Port of Savannah, for instance, showed an 8% increase in TEUs for the first quarter of FY18-19.
In the meantime, it’s no secret that we still do not have an integrated approach to reinvestment in our freight infrastructure from the federal or state governments – and that will not be changing, as absolutely no one expects significant improvement on these fronts in the short term. In California, we just created new freight funding revenue streams, but have no planning priorities clearly laid out for our corridors (to the contrary, the state has adopted policies which actively discourage new investment in our marine terminals). In the State of Washington, we have a well-run freight planning board, but not the dedicated revenues. At the federal level, even the most aggressive of infrastructure conversations lag woefully behind on shoring up our freight supply chains. And, worse still, such federal funds are actually utilized to aid our competitors in draining our market share when they do exist. In short, not much has changed on this front, and the West Coast supply chain cannot afford to wait for public sector largesse to solve its woes or make investments on its behalf.
Still, as 2019 approaches, it seems as though we have – for the first time in a long time – an honest opening to improvements. The opportunity to begin to meaningfully reinvest local profits in infrastructure, recapture supply chain value, and begin to claw back market share to the U.S. West Coast remains the goal. To paraphrase the old adage, taking the first step of growing our volumes back towards full recovery is the hardest. Now the question is, do we have the financial capacity, business wherewithal, and political backbone to tackle the second step: growing faster than our competitors.