LA Port Chief: Trade Policies Could Cost US 15% of Imports

Date: Monday, May 18, 2020
Source: Sourcing Journal

In the midst of the global coronavirus pandemic, as lives have been lost and businesses shut down, the world’s ports and shipping hubs have remained active. 

But that’s not to say activity has been normal, with large container ships sailing empty, crews unable to be changed because they are in quarantine, or routes cancelled due to lack of commerce.

In fact, it has been what the Ports World Congress webinar held Wednesday called “Business as Unusual: Adapting Port Business Models to Survive and Thrive in the Post-COVID-19 Era.”

“It’s been quite challenging,” Gene Seroka, executive director of the Port of Los Angeles, said. “This is much more devastating than anything we’ve witnesses in our lifetimes, Here, in the largest economy in the world, we have found no way to stop this illness.”

Seroka, who runs the largest port complex in North America, said the port has suffered “two horrible shocks to the supply chain.” One was what he called “the ill-advised trade policies out of Washington,” referring to the Trump administration’s trade war with China, and the second is the COVID-19 crises.

“The knock-on effects of both will be felt for the rest of this year and into 2021,” he said. “We simply don’t have the demand in our economy today to supplant any notion of recovery for our industry in the United States and its major markets.”

Seroka noted that 70 percent of the economy is driven by consumer sales, products and consumption and that is not happening today.

“But what it gives us is the opportunity to reinvent ourselves–how we go to market, the fact that we will overinvest in our export segment of the business to help this re-emerging economy,” Seroka said. “We will help American companies get back to the markets overseas that they once enjoyed…and maybe through all of this, if we have a better balance of trade coming the Los Angeles gateway, we may have an opportunity to reduce our cost to serve and be more attractive to people who want to participate in the supply chain through Southern California.”

“To accomplish this, it will take collaborative action among a wide range of stakeholders, some “bold actions,” a “tremendous amount of investment,” and new look at business, Seroka said. The port has proven it can conduct business through telecommuting, he added, with about half of the staff working from home with videoconference meetings almost hourly.

At the same time, the complex has more than $360 million worth of projects and 3,000 construction members on port property every day building visitor-serving and industrial sites “to make sure as this economy does re-emerge that we will have the opportunity to meet that challenge head on,” he said.

Theo Notteboom, a professor at Shanghai Maritime University, Ghent University and the University of Antwerp, said global container volume is down about 8 percent to 10 percent, and exports out of Asia are down 25 percent to 20 percent, particularly to North America. On the other hand, exports to Asia are “doing quite well.”

“Of course, we’ve seen a lot of blank sailings, about 20 percent of container shippinglines are now inactive and we have a lot of idle ships–2.5 to 3 million TEU capacity,” Notteboom said.

Despite an “avalanche of events,” the ports are still working well and there have not been many disruptions, he said. For example, few ports have reported any shortages of dock workers or truck drivers.

Notteboom said he has been seeing “a lot of optimism of people wanting to get on with business and pick up where they left off” with health and safety measures built in.

‘We learned from the 2009-2009 financial crisis that we have to be resilient,” he said. “What’s different from then is that we have digital tools to help us. And that’s important because for the next few months or years we will have to use and develop different ways to communicate with each other.”

Notteboom said he expect few if no bankruptcies in the shipping industry because most of the companies “are too big to fail,” but there could be a shifting of services and alliances.

Jan Hoffmann, chief of the trade logistics branch of the United Nations Conference on Trade and Development (UNCTAD), said global trade is expected to be down 27 percent in the second quarter.

The post-COVID environment for the seaport sector, he said, is one of getting back the supply that is the engine of the industry. Due to the crisis, there’s a push to invest in modernization, digitization and other reforms that began before the crisis hit, “which in the long run are good for the trade and the seaports,” Hoffmann added.

For Seroka, the sector and the supply chain must maintain efficient operations now so that when there is a return to a sense of a normalcy in the future, the system is already up and running. In addition, during that re-emergence there will be a focus on exports such as agriculture, heavy machinery and automobiles that brings people back to work.

“I also believe the new economy is going to look very different,” he said. “Here in California, there will be an emergence of green machinery in our port and in our trucks and automobiles, and we’re going to have to get skilled people around that industry. That means we need to upskill and reskill our workforce.”

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