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Los Angeles Port Bottlenecks Don’t Have Any Short-term Fixes

There is no question that the LA port is one of the biggest economic bottlenecks facing the United States.  The success of the port is undeniably tied to the success of the global economy.  The Los Angeles port has experienced 49% growth since 2020, the biggest increase in nine years based on data compiled by Bloomberg.  Long Beach shipping expanded 29% during the same period, such that the two ports now account for 37% of the US market since the pandemic, more than double the share of the Port of New York and New Jersey, the closest competitor.  This makes the LA Port a particularly vulnerable factor in global supply chains.  In addition, my discussions with individuals close to ports are stating that unions are also leveraging the pressure at the ports to request rate increases, and demanding overtime pay that is higher than in the past.  Truck drivers are also rejecting more loads, especially at night, and are picking those loads that are favorable to them.  There is no immediate forecast on when this issue will diminish, although there are projections that the truck driver shortages may be relieved in the next year.

It seems to have come up now, and politicians, the media, and the public is suddenly aware that there is something called a “supply chain bottleneck”, and the biggest one is the port of LA.  This was the subject of a call I was on last Friday, with the White House Council of Economic Advisors, and a number of other leading experts including Hau Lee, Jason Miller, Keeley Croxton, Jinhua Zhao, and others.

Labor shortages in the general economy are also spilling over into the transportation realm, specifically in ports, rail yards, and truck drivers.  It has become increasingly obvious to recognize that the Los Angeles port is significantly overloaded in terms of its capacity.  West Coast ports were barely keeping up with the growth in freight before the pandemic and had no ability to absorb disruption.  Without enough trucks to carry them off, containers piled up on docks, and more kept coming — each new ship brings in 10,000 to 21,000 containers. The two major ports of Los Angeles and Long Beach were unable to handle the growing number of ships, so vessels were spending about as much time waiting to anchor and unload — about two weeks, the time to cross the Pacific ocean from China.

There are operational issues that are also hindering operations.  Although the Biden administration has opened up the 3AM – 6 AM time window for drivers to enter the port, this is not going to address the logjam of ships that are lining up outside the port.  The issues aren’t easily resolvable. Expanding these hours at the Port of Los Angeles was a step in the right direction, but a small one aimed at just one part of the supply chain.  Unions can’t ramp up the number of workers, and truck drivers don’t want to work at night. Some piers only receive empty containers at night and can’t pick up full containers unless the driver has the correct size chassis.  Drivers also don’t want to pick up containers at night, as the warehouses nearby are typically closed, and there is nowhere for them to drop off their load.  They are reluctant to begin their 14 hour shift knowing that there is excess wait time when they are not being paid.  The labor and infrastructure of the port render it operationally impossible to operate on a 24/7 basis.  As a result, berth productivity rates at Long Beach hover around 74, compared to levels between 120-135 in China.[1]  Achieving these higher rates will require investments in improved technology, , including the use of taller cranes, optical character readers and global positioning tracking and a computerized terminal operating system.

Several of the academics on the call noted the need for improved digitization of the ports.  The LA port productivity is lagging because of the lack of integration between land and sea transportation.  This is not about American workers vs. Asian or European workers – it is primarily about the need to digitize port and transportation operations to drive efficiency.  This will take years to complete, and is not a short term fix.  Railroad and truck operators need to be part of the solution, and because of the critical nature of the port, the federal government needs to set standards and requirements for improvement.

An example of this “disconnectedness” is shown in how railroad operations have been disrupted due to receivers not picking up containers at inland terminals, combined with railroads efforts to continually reduce headcounts as part of precision schedule railroading. This shows up in lower intermodal loadings over the past several months despite the strong demand. Not only was there an extreme disruption due the February 2021 polar vortex; intermodal loadings per day were down 11.6% in February 2021 relative to January 2021.

Jason Miller from Michigan State University notes that the COVID-19 pandemic heavily affected the mixture of freight and, in particular, has resulted in more consumer-oriented freight but less industrial freight. This has posed major challenges for trucking companies seeking to build balanced freight networks. The graph below decomposes ton-miles into shipments made by the manufacturing or mining sectors (industrial) and those made by the wholesale, electronic shopping & mail order houses, and warehousing (trade).

One of the major reasons for continued pressure on prices is the consistent surge in consumer demand. We have seen persistent, record demand for durable goods, with spending since June 2020 averaging 24.5% more than 2019 levels based on the Bureau of Economic Analysis’ real durable goods less motor vehicle and parts expenditures data. This, in turn, has spurred record demand for imports; USA Trade Online reports that the metric tons of containerized waterborne imported product for the first 8 months of 2021 is up 16.9% over the first 8 months of 2019. Los Angeles and Long Beach have been particularly affected and have processed 20% more TEUs of imports for the first nine months of 2021 relative to 2019. At some point, this strain begins to disrupt the system.

[1] Berth Productivity is defined as the number of total container moves (on-load, off-load, and re-positioning) divided by the number of hours during which the vessel is at berth (time between berth arrival, or “lines down” and berth departure, or “lines up”), without adjustments for equipment and labor down time. The productivity metrics contained in these rankings are the average berth productivity for all validated and standardized vessel calls in the database for each port or terminal during calendar year 2012.