LA & Long Beach Hurt due to import focus

The white paper that I wrote has been picked up by the LA Times.

Basically, the gist is that imports suffered more than exports, so those ports that were more import focused had a much harder time during the recession than those that were more balanced.

Seems reasonable enough, but I was able to show it with math.

La / Long Beach cannot really be faulted, they have dealt with a rising tide of imports and the market changed and caught everyone with their pants down.
It is really easy to say they put all their eggs in one basket, but it was not really a conscious decision. Imports were what the market was demanding and the competitive advantage of LA & LB was imports.

The info that I have goes back to 1995. At that time 41% of loaded containers were exports, 58% were imports.

At the height (2004), 76% was imports and 24% were exports.

Currently, 66% is imports and 33% is exports.

Do you wait for imports to return or do you focus more on exports, even though imports are your competitive advantage?

New Port Numbers & Notes

The Feb trade numbers were just released. Imports up 33.8% over 2008, exports up 32.7%. Bottom has been reached, worst is over in terms of the single largest driver for industrial real estate demand here in Southern California.

Exports, again with the exports. You are going to be hearing me beating this drum for the next year or so. Careers have been made of worse stuff.

Exports currently account for 29% of all port activity, if it breaks 30% next month, like I think it will, this will be the first time since 1997 that exports were this high.

From 1998 - 2009 the greatest export at LA / LB has been ....

Empty Containers!

Yes, that is right, we shipped more empty containers back to Asia than actual job producing things. In the 4th quarter of last year, the 12 month moving average shifted in favor of actual exports over empties.

To put this 29% export number into context:
Houston has 57% exports
Savannah has 48% exports
Norfolk has 49% exports

These are also the ports that have been gaining market share, no small coincidence.

Here is the Oakland Podcast

Here is the Podcast.

In case you were wondering what my voice sounds like, wonder no more. Benj Becker has been putting these podcast on the Northern California economy together for the Appraisal Institute and he has been doing a very good job.

I wanted to express my gratitude for giving me the chance to talk about my white paper.

Notes on the Port of Oakland

I recorded a pod-cast today for the North California Appraisal Institute. I will link to it as it becomes available. I am always nervous when I talk to people, especially when my voice is being recorded. I am much more comfortable giving written statements, since I have spell check, and the long pauses and the base utterances of human speak (uuuuummmmm, aaaaaaa) I find especially annoying.

I suppose some work on public speaking should be in order.

Anyway, here are my notes on the Port of Oakland:

The port of Oakland is a leading container cargo port, handling a little over 2 million containers in 2009, an 8 percent decline from 2008 and a 14% decrease from its peak. Oakland is ranked in the top 4 in the country and in the top 20 in the world in term of annual container traffic.

The Port of Oakland has been able to handle the economic crisis better than most other West Coast ports, notably the Ports of Los Angeles and Long Beach, which saw container traffic plummet almost 40% since its peak. The effects for Los Angeles/ Long Beach have been severe, since those ports combined are around 6 times the size of the port of Oakland and the decreases in imports has left thousands of local employees without jobs.

Most suppliers, major companies, importers, etc. will ship goods to LA / Long Beach and also Oakland, they operate at both ports, in order to diversify their risk. Many remember the work stoppages at the ports of LA / Long Beach in 2002 when traffic was tied up at the ports, many suppliers realized that they had put all their eggs in one basket. The following year, 2003, Oakland had a sharp rise in traffic almost 13%, and has grown steadily every year until 2006 when the shadow of the recession first began to emerge.

One of the reasons Oakland has been able to hold market share has been the infrastructure improvement Oakland has done, since 2000 the port has invested around 1 billion to add storage yards, extend rail lines, and improve cargo handling capacity. Rail capacity is especially important, since a lot of what the US exports is bulk agricultural goods, goods that are expensive to ship via truck.

Oakland’s proximity to Napa and Sonoma counties and the Central Valley farming communities have been a benefit. Oakland have been very responsive to meeting the needs of these exporters and the smaller size of Oakland has forced it to be more business friendly and also more nimble in accommodating the demands of businesses.

The shipping landscape is starting to change, with a greater emphasis being placed on exporters. The weaker US dollar is making US goods more attractive to foreign buyers, but the problem now is getting these goods out of the country.

Over the last 2 decades, booming imports into the US have geared our supply chain to be set up to handle the import of goods, with warehouses locally set up to break down shipments and then send them to the rest of the country. Now we are having a problem of retooling this system to move goods the other way, and in many cases the system we built was more or less one way only.

The US government has the goal of doubling exports in the next 5 years, a goal that will benefit the port of Oakland, as the rules have changed. Oakland was for a large part pushed to the sidelines in the import game. Los Angeles and Long Beach were the winners in that game, but in this new export game the cards have just been dealt and nobody is out of the running just yet.

Bottlenecks are beginning to form at US ports. Shippers have cut back on their service routes to the US as the recession made many of those routes infeasible. The downside is that there are fewer ships available to move goods out of the country, and US exports are scrambling to send their goods overseas. If Oakland can position itself to take market share away from LA / Long Beach, it will be able to ride out this export wave and create local jobs and boost the local economy. Oakland has a greater chance of doing in, because of its smaller size and the expansion plans that have been made in the last several years that can allow it to compete better against other US ports.

C'mon guys, time to retool the system

From the WSJ

Basically, the whole supply chain was set up to handle imports, not exports. Now we are having a tough time moving things outside of the country due to these bottlenecks.

The Los Angeles Harbor Grain Terminal, which occupies a crowded corner near the Port of Los Angeles, lacks enough space to handle the volume of exports arriving from inland.

"We've always been the ugly stepchild when it comes to trade," said Dwight Robinson, vice president of the terminal. He said the grain terminal had to move off its waterfront property in the mid-1980s to make way for an area to unload imports.

Recently, nearly 100 rail cars stuffed with animal feed, grain and soybeans from the Midwest packed the lone railroad track leading into the export center. There are plenty of containers, just not enough space on the railroad tracks, said Mr. Robinson.

There is always a lag between when something is produced and when it is needed. You would think that with all the advancement in logistics, we would have figured it out already.

Seaport Paper released & Upcoming ULI Event

I wrote a white paper on industrial real estate, port markets and foreign trade. It has hit the PR newswires today. We were trying to get it into the Wall Street Journal. But my guess is that they are still working on it.

Other events of interest, I am moderating a ULI panel on social media at the Dorthy Chandler Pavilion on March 18th. I am really lucky to have the help of an actual social media expert, Kelly Borgen of the Roxburgh Agency. Compare her website to the one you are currently reading and you can call me nothing less than a fraud on the social media front.

How the new game is played:

People much richer and smarter than myself are gaming the commercial real estate system.


Here is an article from the NY Times.


So Andrew Farkas (who founded Insignia before selling to CBRE) buys a special servicer for $100 million, plus assuming $180 in debt. In return, he gets to service $110 Billion of real estate debt, not only racking up huge fees for disposing of these assets, but also able to decide who gets what and for how much.


Warren Buffet and and Leucadia National Corportation bought Capmark Financial Group, looking to do the same thing. The new company is called Berkadia and services $236 Billion.

Behold, the Robber Barons of this new distressed age!

Recessions & World Trade

Here is an article in the Economist.

The CPB reckons that volumes shrank by a staggering 13.2% during 2009. They have fallen in only two other years since 1961, when comprehensive data begin. But those declines—by 1.9% in 1975 and 0.9% in 1982—pale in comparison with last year’s huge drop.

One pillar of economic faith is that "Trade Creates Wealth", an idea first expressed by Adam Smith in "On the Wealth of Nations". In my economics classes, this was demonstrated by giving each student a bag of random stuff (pencils, candy, etc.) and then having them assign a monetary value to these things.

The next step was to allow every student to trade with other students. The value of their possessions was then reevaluated. Each student then assigned a monetary value to what their trinkets. Much to their surprise, those that traded ended up with bag which they valued higher.

The reason this was so is because students would not knowingly trade to make themselves worse off, the only trade that occurred was mutually beneficial trade.

Now, the other two times world trade contracted was in 1975 and 1982, both recession years if you will recall. The 1974-1975 recession was due to an oil supply shock, leading to higher inflation, leading to a tighter monetary policy, which decreased investment, which decreased employment. The 1982 recession was at the beginning of Reagan's term when the Fed raised the interest rate to combat inflation.

Now, a 13% decrease is a hell of a lot more than the 1.9 & 0.9% decreases in world trade that occur ed in 1975 & 1982. Even when you consider that exports & imports play a greater role in today's economy, the 13% drop is not justified. Lets take a look at foreign trade in terms of the overall levels of the U.S. economy.

In 1975, (Exports + Imports)/ GDP = 10% of the U.S. Economy
In 1982, (Exports + Imports)/GDP = 11.5% of the U.S. Economy
In 2008 (Exports + Imports)/GDP = 28% of the U.S. Economy
In 2009 (Exports + Imports)/GDP = 25% of the U.S. Economy
*Note: In the income accounts, these two effects, exports & imports cancel each other out. They were added to show the importance of all trade as a % of the U.S. economy.


There is a 9.9% drop in trade % from 2008 to 2009. You have to go back to the 1940's to get a drop greater than this. From 1941 to 1942, trade fell from 6.5% of the economy to 4.3%, a 32% drop due to the start of WWII. From 1945 to 1946 when the war ended, trade increased 44% from 4.7% to 6.8% and has more or less been steadily increasing (except for recessions) ever since then.

In 1976, when the recession ended trade jumped 6%, in 1984 it jumped 9%. Trade is highly elastic, it responds to demand sharply. We are waiting for the jump in 2010, or maybe 2011, or ...

So, my questions are:

If trade creates wealth, does a decrease in trade mean a decrease in wealth? Maybe wealth creates trade, since there is more to sell and buy.

Is the recent run up in world trade justified? Or is this recession just a regression towards the mean? What is a reasonable % for the U.S. economy to be devoted to world trade?

The Federal Reserve in a nut shell

In graduate school, I helped teach macroeconomics at UNLV for two years. This presentation by the Cleavland Fed does a much better job of explaining the role of the Federal Reserve than I ever could. In 9 minutes you can learn what took me about 2 weeks to demonstrate.



Picture a bunch of people with multiple doctorate degrees in economics hand drawing these slides. How can we connect with this Gen Y and make the Federal Reserve hip & cool while explaining to people why we all need to keep our jobs? I know, lets use the YouTube!

I guess the purpose is to counter all the flak they have been getting for their role in the bailout. There is a lot of disagreement at the Fed right now over the balancing act between expansion and contraction, between inflation and deflation. This may be a not so subtle jabs at politicians about their interference with fed policy.

Write to your congressman: Don't Pass AB 1598

Here is the bill:

This bill would prohibit the import, production, manufacture,
distribution, or sale of caffeinated malt beverages, as defined, at
retail locations within the state.

I believe the spirit of this bill is to prevent brewers and distillers from creating alcoholic drinks. If you take it to its logical conclusion, and I don't see any provisions to the contrary, it seems to me that making a vodka-Redbull or a rum and Coke is also creating an alcoholic drink that contains caffeine and would by law be outlawed.

You can write to California Assembly Member Jim Beall and let him know that you do not support this measure.