Shipping

First, happy new year to all!

I walked into the office this morning to a crystal clear view of the Pacific. What a beautiful start to the year!

In the distance, I could see a giant container ship which, these past few months, has not been an unusual sight, although it should be.

The Palos Verde peninsula separates Santa Monica Bay to the north with the bustling twin ports of Los Angeles/Long Beach to the south. The LA harbor handles nearly half of all container shipping into the US. But if I can see container ships waiting in Santa Monica Bay, that is, the “wrong” side of Palos Verde, there’s a problem at the harbor. A problem at the harbor is problem for the entire country, not just for the nearly half-a-trillion dollars of goods that pass through LA/Long Beach, but as symptomatic of a bigger, structural challenge for and across the nation.

The longshoreman’s union has been without a contract since July, and while negotiations are proceeding, there have been reports of work stoppages by the union up and down the West Coast, but especially in LA, where as many as 18 ships are left waiting to dock.

These ships are enormous, over 1,000 feet long, some holding more than 13,000 TEUs (tons equivalent units) of containers, 50% more than ships could carry even 5 years ago. Therein, lies the problem.

The OECD studied the efficiencies of world ports (http://www.oecd-ilibrary.org/urban-rural-and-regional-development/efficiency-of-world-ports-in-container-and-bulk-cargo-oil-coal-ores-and-grain_5k92vgw39zs2-en) and concluded that most ports operate around 70-80% of maximum efficiency, with the largest ports being most efficient. 13 of the 14 largest ports in the world operate at or near maximum efficiency, all but 2 found in Asia (Haifa and Rotterdam are in the top ranks).  But Los Angeles operates around 70% and Long Beach around 55% of peak efficiency (see graph below).

 

Part of the issue is that the ports built separate terminals for each shipping line, but shippers have have moved to working together, in the name of efficiency, so that no space on a ship is wasted. Thus, containers of multiple companies are now found on each ship. Not only does this often overwhelm the capacities of the individual terminals, it also requires the trucks and railroads more time to sort the containers when they arrive on the docks.

Efficiency gains will come partly from restructuring the terminals, but investing (large sums) in technology is really what is needed. Of course, this will impact the number of longshoreman jobs, and port operators have been reluctant to confront the union on this. But labor stoppages are not the real issue (even if they are causing real pain for everyone).

The latest and greatest whiz-bang innovations coming out of our garages and labs are rightfully lauded as engines of economic progress. But not everything streams over the Internet. Trucks and rails, airplanes and ships are (literally) the true engines of the global economy, and we neglect them at our peril.

We must invest in our infrastructure. We will make (and break) many new year’s resolutions. Let’s keep this one. Sailboats belong in Santa Monica Bay, not container ships.