Hello, the 5th annual Pulse of the Ports forecast was this Wednesday and I finally allotted some time to discuss all the information that was presented. This year, the whole event was videotaped, but I have not seen it on their website yet http://www.polb.com/ so keep a lookout for that.
There is a lot of material here, so I will be breaking it into 2 parts.
Here are my notes and commentary about the event.
James Hankla, President of the Long Beach Board of Commissioners, started off by setting the tone of the event. There was an 11% decline in port volume last year, the sharpest decline in 20 years. With the decline in port volume, so goes jobs & businesses and Southern California needs an economic rebound and they need it quick.
I was actually pretty surprised that he came right out and said it. I was expecting him to pussyfoot around, talking up the ports green initiatives in order to deflect the economic question. I respect the man who can put business before politics.
Richard Steinke, the executive director of the Port of Long Beach, gave a brief history as to why this event was held in the first place. In 2004 cargo piled up suddenly and there was not enough workers or equipment to unload the vessels. Ships were waiting a week and this one event has tainted the port with the belief that it was congested. To combat these perceptions, they began offering these public meetings so nobody is caught off guard again.
The first speaker was Dr. Joseph Magaddino, Department Chair of Economic, Cal State Long Beach.
First we started with an overview of the recession, which started in December of 2007. What we are seeing is a global contraction of wealth, with the developed world in recession and the developing world seeing a much slower rate of growth. Global GDP is estimated to be down 0.5%, and marks the first time the entire world was in contraction since 1945. Already the situation we are in is a the longest recession in history.
Consumer confidence is the lowerst it has even been. 11 trillion in wealth was destroyed in this affair as home values and stock values have plummeted. Consumers are retrenching and consumption is down.
Part of the problem is that 1/2 of the goods consumed in the United States are imported. As American consumers cut back, we are essentially exporting the recession to our trading partners who came to depend on our high levels of consumption.
This global weakness has caused everyone to want to hold American dollars, since that is seen as the safest asset. Since oil is priced in dollars, the price of oil has plummeted as the dollar gained in strength.
The problem he sees is with the Federal Reserve creating liquidity to combat the credit crunch. At some point in time they are going to have to pull that money out of the system, otherwise we will have massive inflation once the economy rebounds.
He predicts that the worst part of the recession is now, the part we are currently in. Already we have lost around 4.3 million jobs and we can expect 3 million more before things turn around. Employment lags activity, and we have not seen an increase in economic activity yet.
He expects that port activity in December of 2009 to be higher than it was in 2008, the first sign of a possible recovery.
One of the reoccurring themes that all the speakers closed with was the need to improve infrastructure during the downturn so we are geared up and ready to go once the economy recovers.
The second speaker was Dean Tracy, Lowes Director of Import Logistics.
This guy was great. After his speech he had me seriously considering taking a career in logistics.
First, some of the facts about Lowes. It is the 7th largest importer in the country. They import about 103,000 FEU's (or 206,000 TEU's). They have 1650 stores and are planning on opening up 60-70 this year. This is about 1/2 as many stores as they did in previous years.
Lowes has 15 regional DC's and 3 transload facilities. They import about 30,000 40ft containers through LA/LB. Their DC in the Inland Empire services 126 stores and their transload facility here handles 500 stores.
Lowes handles most of their own distribution, only 25% of their merchandise comes from 3rd party providers.
He had nothing but good things to say about our IE industrial buildings and cross-dock facilities. The best in the country.
He did not expect a peak season this year. With 484 shipping vessels idle there is massive excess capacity at the ports now, and we are not at the bottom.
50% of the cargo that comes through the port is discretionary (it can go anywhere in the country). Most of the cargo that comes into the IE is discretionary, and when they raise the requirements and fees at the port, it is the IE that suffers the most.
In addition to the fees that the ports have (port security fee, Pier Pass, clean truck fee, infrastructure fee, Alameda Corridor charge and container fees) there is an added administrative effort that companies need to have in order to manage and pay all these fees (the fee payment fee).
To remain competitive, POLB needs to limit their fees and make it more attractive for shippers to work here. Otherwise they will ship things elsewhere.
George Adams - Institute of Scrap Recycling
Little preface, this is the owner of a large scrap metal recycling company which has 40 locations and handles 3 million tons annually.
Since Southern California has no steel mills, we have to export our scrap. Scrap metal is used first before it will be mined, because it is cheaper to scrap it then to mine it.
Scrap metal covers 40% of the worlds metal needs. The U.S. is the largest exporter of scrap in what is a $5 billion a year industry.
His scrap business is down 30% since last year.
At its peak, scrap was trading at $750 a ton. Then it crashed to about $200 a ton. It happened very very quickly, almost it mid shipment across the Pacific. When his scrap arrived to China there was nobody to pay for it. The contraction has led to unforeseen issues, such as him expanding his operations during the good times only to cut back in the bad.
The upside is that once all this infrastructure spending takes off again in the U.S. and China, the world will need metal again. He sees more scrap being sent by containers in the future rather than by bulk.
Peter Keller - President of NYK Line, (maritime shipper).
Things are getting back to the basics. 11% of the fleets are idle. Loading in Asia is down. This is not the bottom.
The good news is that inventories are being depleted. This will cause retailers to order more goods eventually rather than working off the limited supplies they have here.
His main point was that the bust hurt his company very badly and that current shipping rates are not sustainable. The margins are too low and all members of the supply chain are feeling it. The demand for the global supply chain services is at an all time low and firms need to get productive and cut costs otherwise they will die in these leaner times.
Customers are getting champagne at beer prices, and it cannot last in the long run.
All members of the supply chain are basically each others customers, and since prices have dropped, customer service between firms is something that can be improved. For shippers, they are not in the business of building bridges, laying tracks or building warehouses. These are all issues that are individually faced my other members of the supply chain. However, these factors will influence shippers in their capacity to move cargo.
And if the ports of Long Beach and LA cannot help coordinate these efforts to improve the goods movement industry, the shippers will go someplace else.
One analogy that I appreciated was that cargo is like water, it will go through the path of least resistance to its final destination.
Next Week: Part II
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