Friday, April 1, 2011

Expert Predicts Positive West Coast Trade Growth in 2011, Slower Than 2010

Joining the Port of Long Beach "Pulse of the Ports" industry panel on Wednesday to offer an economic perspective of the port industry, transportation expert Dan Smith of the consulting firm Tioga Group, predicted continued trade growth through 2011, albeit at a smaller pace than in 2010. At the same time, Smith tackled several long held myths about the future impacts of the Panama Canal expansion, railroad pricing and a predicted capacity crunch at the Southern California ports of Long Beach and Los Angeles.

Smith began by pointing out that not only was 2010 a strong initial recovery for the port industry after a historically dismal 2009, but that "the recovery happened a lot quicker than we thought it would."

Container traffic at the West Coast ports swung from being down 14 percent in 2009 to being up more than 19 percent in 2010.

Smith said that while West Coast ports have regained some of the minor volumes that had shifted to the East Coast since 2006, the regular players on the West Coast also lost some cargo to alternative West Coast ports such as Prince Rupert, Manzanillo and Lazaro Cardenas – though the shift has been subtle.

"So just as trade has always shifted a little bit back and forth between the West Coast ports, it continues to shift," Smith said.

Smith acknowledged that the completion of the Panama Canal expansion in 2014 was a source of considerable discussion within the industry, but in his opinion, "the reality is probably a lot less dramatic than the trade journals and speakers might imply."

While the new Panama locks will allow some of the largest container vessels to pass through, Smith believes "the trade volumes to fill those vessels is still many years away."

Smith said that the canal authority is planning its own financial future on much more modest rates of growth – about 3 percent a year – and thus it is unlikely that there will be the volume needed for 12,000-TEU vessels to utilize the new locks before 2020.

The canal authority, Smith said, is looking first and foremost at growing the volumes of the services already using the canal and only then will they look to building the capacity to fill the larger vessels.

Smith also shot down the idea that the US railroads have been pricing themselves out of the market as a myth.

"The business the railroads have now is the business they want, and they will fight to keep it," Smith said.

He pointed out that the railroads have an "unbroken record of providing the capacity and performance to keep the traffic that they really want to keep."

Smith said any shift to the East or Gulf Coast is likely to be small and gradual, taking one or maybe two decades.

While some customers will shift to take advantage of new all-water opportunities as new non-West Coast port capacity comes on line, Smith does not predict it will be a stampede.

As for the long-term outlook for the Southern California ports or Long Beach and Los Angeles, which combined make up the busiest container port complex in the Western Hemisphere, Smith predicted slower post-recession growth than that seen in the initial 2010 recovery, which he credited primarily to large scale inventory replenishment.

Smith predicts 5 percent growth at the Southern California ports in the third quarter of 2011 and 14 percent growth in the fourth quarter.

Even further down the road, Smith does not see a future capacity crunch at the two ports once the ports complete development projects currently under way. He estimates that the two ports will still have no capacity issues well beyond 2030.

Smith predicted that growth rates surpassing the 2006-2007 peak years at the two ports are now expected to occur somewhere around 2015 and the two ports can expect to grow at about 4.5 to 5.2 percent a year from there on out.