Pulse of The Port 2010 Forecast

The Port of Long Beach does an annual forecast. You can view the entire piece here.

Some takeaways that I thought interesting.

Don Magaddino does a magnificent job each year and this year was no exception. He teaches the Masters of Global Logistics at Long Beach.

The US in 2009 lost around 7 million total jobs. California lost 460,000 and around 50,000 of those jobs were logistics jobs.

Inventory replenishment was responsible for the current growth we are seeing in GDP. He believes the recession is over with growth for the US in 2011. Modest economic growth of around 2-3%. He sees employment lagging employment growth and to a lessor extent.

Consumption is down but he believes 2012+ will take us to the pre-recession highs. There are a number of factors weighing on consumption, being unemployment, decline in income growth, loss of housing and equity wealth, increased risk perception and a tight credit market.

In 2009, there was a spike in durable goods consumption, notably the cash-for-clunkers program, which basically displaced consumption. He sees more being spent on non-durable goods in the future as consumers who have postponed their retail purchases during the worst of the recession begin to make these purchases again. Services should also have a strong showing.

As far as port activity, he sees loaded outbound increasing 7.7% in 2010, to around the same level as in 2007. For loaded inbound, he sees a 8,9% increase, around the same level as in 2008.

The next speaker was Jeff Sieward, from Home Depot. Last year the speaker was from Lowe's. Both companies are major importers of goods, with Home Depot being the 3rd largest importer in the U.S. with 10% of their stores here in California. They have a distribution center in Mira Loma and are currently building a 667.000 SF rapid deployment center in Ontario. They have some big things in the work, the fact that they are building a center rather than buying a cheaper, already existing one signals to me at least that they run a very tight logistics ship and Jeff seemed like a very sharp guy.

For 2010, he sees sales increasing 2.5% over 2009. (This is a low-ball estimate and should be pretty easy to beat.)

He works a lot with shippers, and the extra ocean capacity has shippers reducing supply in order to drive up rates to profitable levels. Home Depot is diverting more of its NEW cargo to alternate ports while keeping its EXISTING levels of So. Cal cargo the same. So growth from the 3rd largest importer to So. Cal ports is capped. The reason?

Port diversification, more discretionary cargo going directly to those markets, being diverted to other ports to lower the overall price. He summed up the competition the So. Cal ports are facing, with East Coast ports offering huge incentives for him to move there. These other ports were calling themselves the 7-up of ports, the Un-California. (Because 7-up is the un-cola, took me awhile to get the humor).

He hinted at why the new center in Ontario will be special. The rapid-deployment center will have different channels of distribution depending on what is ordered and used more and can be delivered at a quicker pace, thus reducing shipping cost by moving all high velocity goods together while slower moving supplies will travel together.

The next speaker was perhaps the most honest out of all of them. It was Wolfgang Freese of Hapag-Lloyd. This is a shipper that makes 140 ports of call at Long Beach (he didn't want to say how many times he goes next door to Los Angeles).

Shippers were among the worst hit in the recession and this guy did not pull any punches. He in many ways is a customer of the Ports of Los Angeles and Long Beach, and he has not been a very happy customer.

Basically, in 2008 he delivered 8% less than in 2007 and in 2009 he delivered 19% less than in 2007. But, wait, there is more.

In 2009, his West-Coast trips were down 25% over 2007, while his East-Coast trips were down 11% relative to 2007. He is favoring East-Coast ports because they are cheaper and the infrastructure on those ports is getting better. He complained about the inconsistent fees and an uncertain cost horizon at the West Coast Ports and stressed that doing business in Canada & Mexico is far cheaper than the Southern California ports.

He said that now is the worst business climate for the shipping industry, ever. Carriers lost 22 billion in 2009, profitability is down and intermodal traffic is down 20%.

He mentioned a statistic that was really chilling: Retail sales were up only 1% in 2010, yet port traffic was up 15% in an inventory restocking scheme that is unsustainable.

His company is working on faster ships, (meaning smaller ships) that will be more flexible. Part of the problem was that large ships were built that could only dock at a very limited number of spaces (LA & LB being one of them). In the future, he sees the supply chain as more flexible, with more ships going to more places rather than larger & fewer ships going to major port hubs.

Translation: LA & LB will lose market share and can really only count on captive cargo, the discretionary cargo will find the lowest cost once these barriers are removed.

Peter Payton for the ILWU spoke, mainly talking about how in the economic crisis, everyone fell back to protect their own individual interests at the expense of the whole.

Next was Frank Capo, a terminal operator. He was lamenting the fact that in 2006 everyone thought that the ports would be at max capacity and would need to build a port the size of Oakland every year to handle the flood of cargo.

The next speaker was Fred Malesa from BNSF. His company manages 300 trains a week to the ports. BNSF is spending 30 billion in the next 12 years, a lot of it in Memphis for an intermodal hub. He said that gains were being made in grain, steel and chemicals, and expected intermodal to be up in 2010 over 2009.

The last speaker was Matt Schrap from the California Trucking Association. He sees a 70% increase in tonnage in 2010 over 2009, a huge increase. This will be done with fewer employees however, since most companies are still laying off drivers.

California has the greenest fleet in the world and trucking creates jobs. 1 truck creates 80 support jobs. He sees an increase in trains due to pricing pressures, with each train being able to handle 280 - 330 trucks. The on-dock railroad at the port handles 270,000 containers a year, which means reducing a significant amount of truck trips.

He said truckers will still haul a majority of goods, since goods will still have to be transloaded by truck, the last 30 miles of any good will almost always involve a truck. Just-in-time inventory strategies require the flexibility only a truck. He is worried about gas prices and fuel taxes. Generally, it is politically easier to tax diesel than gasoline, since voters are less sensitive to passed on fuel costs than direct gas charges. Cap & Trade is also a tax on truckers and is against the current cap & trade policy of charging truckers without giving them adequate permits.
He said that consistent regulation is required, the Green Ports trucking program was a nuisance for the people he represents but it was implemented in a consistent manner so the negative impact is reduced.

So that my friends is the 2010 Pulse of the Ports Peak Forecast in a nutshell.

Special tip of the hat to the Port of Long Beach for putting this event on year after year. It has sparked my continued interest in the supply chain and is a great information resource.

Wag of the finger goes to the Port of Los Angeles for not putting something of this magnitude on, or if they do not advertising it to the extent that Long Beach does.