Date: Thursday, April 27, 2023
Source: Sourcing Journal
U.S. importers continue to look East as lengthy port contract negotiations cast a shadow out West.
Nearly two-thirds, or 64 percent, of import shipments arriving in the U.S. between April 1-11 entered the country via East Coast ports, compared to just 36 percent going through the West Coast, according to data from supply chain visibility platform provider FourKites.
This represents a marked flip-flop from April 2022, when 57 percent of shipments flowed through the East Coast versus 44 percent handled out West. That number further dwindled to 42 percent in the second half of 2022. The split is even more drastic when going back to September 2021, when East Coast ports took in 54 percent of the cargo while West Coast gateways oversaw the remaining 46 percent.
In the biggest example of the East Coast’s recent influx of shipments, The Port of New York and New Jersey took over in February as the busiest port in the U.S. The hubs processed 571,177 20-foot equivalent units (TEUs) of cargo that month, outpacing the Port of Los Angeles by approximately 83,000 TEUs and the Port of Long Beach by roughly 27,000 TEUs. The Port of New York and New Jersey was the busiest container port in the U.S. for four straight months from August through November 2022.
Glenn Koepke, general manager of network collaboration at FourKites, told Sourcing Journal that a distinct geographic divide is brewing across the U.S and determining where product enters the country.
“Companies that are still delivering to the West Coast in the U.S. still are using West Coast ports. Companies that are delivering to the Midwest or the East Coast are starting to diversify and go to the East Coast,” Koepke said. “They have had to for protection of their customers, their production, their costs and so on. Yes, there is a potential longer transit when you go through the Panama Canal, but given all the other bottlenecks and unknowns, going to the East Coast is a safer bet right now.”
Koepke said East Coast port infrastructure investments will benefit trade there in the long run, particularly in southern cities such as Savannah, Ga. and Charleston, S.C. The Georgia Ports Authority (GPA) is channeling $4.5 billion into infrastructure projects at the Port of Savannah, with its primary terminal expansion expected to add 1.5 million TEUs of annual berth capacity when it’s set to be completed in July.
“We will see more investment dollars in infrastructure, and more businesses going to the southeast in the U.S., shifting away from the West Coast, so it will help the labor and job markets,” Koepke said.
But while the shift has leaned East, overall national container volume is down significantly from 2022—suggesting that importers are diversifying where their cargo goes so they can mitigate risks amid decreasing demand. According to the Global Port Tracker from the National Retail Federation (NRF) and Hackett Associates, total TEU at major U.S. ports will shrinks 18 percent year over year in April to 1.86 million.
Koepke doesn’t expect West Coast ports to be down for long, pointing to the third quarter as when volume is likely to rebound. From there, he expects volumes will steadily rise and balance out with the East Coast in mid-Q3 when retailers and importers gear up for the holiday season.
He referred to the West Coast ports an “artery” supporting Midwest businesses, particularly as demand increases as the year goes on, meaning that the East Coast isn’t likely to dominate for much longer. But in the long run, the competition will help achieve longer-term stability and reliability across U.S. ports.
“Will we see a shift where the East Coast is 75 percent of the import volume and the West Coast and 25 percent? No,” Koepke said. “I think they’re going to be neck and neck—jostling based on different trends that are going on—for the next five years. And that’s good. We want diversity and a little bit of resilience. We’re fortunate to have a lot of options.”
Dwell times see consistent yearlong descent
As overall container volumes have declined, so too have import dwell times across both East and West Coast ports.
At the West Coast ports, dwell times—which pushed various major ports on the brink of implementing fines on top of detention and demurrage fines—have begun to stabilize since the beginning of 2023 and are now at a 28-day average dwell time of 4.8 days as of April 11. Meanwhile, East Coast imports are seeing a 3.3 28-day average dwell time. Dwell times factor the number of days that containers sit on docks waiting to be moved.
“We don’t really see dwell and detention and demurrage as problems for companies, and that makes sense based on volume,” Koepke noted. “The times it happens is because you’re trying to push too much through a pipe or there’s some sort of disruption, whether it’s labor or potentially Covid on the China side, or some sort of political event that may go on. Think of it as a pipe. If too many vessels come in at the same time to unload at the same pipe, yeah, there’s a bottleneck, but with lower demand things are more stable.”
Koepke also said that the declining container demand and overall volume will also lead to more blank sailings in 2023. This will only get worse, he said, largely as ocean carriers seek to mimic the pandemic-driven profitability that they drove throughout 2021 and 2022.
“Rather than ship a vessel at 30 percent capacity, the carrier will cancel the shipment entirely, and that will create disruption. It may not necessarily impact dwell and detention, but you’re going see shippers all of a sudden realize they can’t get the product they ordered,” Koepke said. “They’ll need some level of buffer if they originally were informed a ship would get there in 35 or 40 days. Unfortunately, they would have to assume a longer time like 60 days, because something is going to go on with that vessel that’s not supposed to happen, and that will happen more and more as the volume stays low.”