Downturns and Turndowns

In an unusually informative article in the Seattle Times, Drew DeSilver tells us that the Puget Sound ports in Seattle and Tacoma make up “the third-largest container center in North America, and the second-largest on the West Coast” but added that “the activity is deceiving. The two ports face both immediate and longer-term threats to their plum positions in West Coast shipping – and to the thousands of well-paying jobs each port directly and indirectly supports. The near-term issue is the sputtering U.S. economy, which has slashed demand for Asian imports. Container traffic at both Seattle and Tacoma this year is down from 2007, which was down from 2006, which was down or flat compared with 2005 …

“Over the years”, he said, “Seattle and Tacoma have established themselves as the main alternatives to the Southern California ports, largely because they’re at least one day sailing closer to Asia. In 2005, when L.A. and Long beach were bedeviled by bottlenecks and operational glitches, shippers shifted their cargoes north; that year, container traffic at both ports topped 2 million TEUs each.

“Since then, though, traffic at both ports has fallen off. Last year it was down 6.9 percent at Tacoma, 0.7 percent at Seattle; so far this year, Seattle is off more than 10 percent and Tacoma is down 1.7 percent.”

In the same article, Mr. DeSilver cited a conflicting report from a New England-based economic research firm forecasting that “U.S. container traffic will grow just 2 percent this year, versus 4.5 percent growth last year, as falling import volumes overwhelm an export boom.”

How can forecasters speak optimistically about “growth” when the real issue is a “sputtering U.S. economy” and reduced TEU volumes caused by joblessness and declining buying power?

APL’s Greater China president, Mr. Dan Ryan, stated at a conference in China last week that the situation in the Asia-Europe trade was “precipitous”, because the speed of the world’s economic downturn had caught the industry off guard. Mr. Ryan stressed that action had to be taken by carriers to reduce capacity; return excess vessels to the charter market; suspend services, if necessary; moderate growth aspirations; and resolve to pass along high fuel charges to customers.

Mr. Ryan also pointed out that the economic downturn had even hampered the demand for China’s products in major consuming markets such as the US and Europe, and as a result, slowed China’s industrial output growth.

Another respected authority, Mr. Pascal Lamy, director-general of the World Trade Organization, observed that, “In a financial crisis and at a time of economic distress … what impoverished consumers desperately need is to see their purchasing power enhanced and not reduced.”

[Mr. Lamy had in mind, no doubt, the container fees about to be imposed at the ports of LA and Long Beach, and the costs that would be passed on to “impoverished consumers”.]