If the past few years have reinforced any ideas about the ups and downs of the port industry, one axiom still rings true: Expect the unexpected.
That’s because the unexpected is what usually causes disruption in the supply chain: it might be the COVID-19 pandemic. Or the violent incidents at the Red Sea or the drought at the Panama Canal. Most recently, the Baltimore Key Bridge collapse was yet another painful, tragic reminder of what can ― and will ― happen.
These incidents underscored the importance of resiliency in the supply chain. It’s hard to pinpoint the exact effects and just “how many ships were rerouted after the incident in Baltimore, for instance,” said Noel Hacegaba, chief operating officer for the Port of Long Beach.
But many were rerouted and Baltimore’s channel has reopened. Still, “there is a domino effect,” said Hacegaba, “especially since their shipping schedules are made up weeks and months in advance.”
However the goods are, generally speaking, still flowing.
‘Better Place’
That’s because today the supply chain “is in a much better place,” said Paul Bingham, director, global intelligence and analytics, transportation consulting for S&P Global Market Intelligence, Los Angeles, Calif.
Bingham offered a macroeconomic perspective on the market. “One thing ports do well is enable imports,” he said, “but that represents an odd juxtaposition in the common Gross Domestic Product measure of the overall economy, because that doesn’t count toward building GDP; instead, it detracts from it.”
That’s important, because the U.S. GDP only counts net export sales. “We’ve imported more goods than we’ve exported,” said Bingham, “but that can be a positive for consumers and businesses wanting product choice and lower prices. The service sector of our economy is bigger than the product side and the U.S. runs a surplus in exports of services. The net in GDP is in total of goods and services trade, but we run at a deficit due to our large goods imports.”
Still, that balance is key to economic development.
“That’s because we can see how our economy is underperforming serving export markets and where we can do better,” he said. “The more efficient the ports are, the more we can export competitively and reliably.”
Another way for the U.S. to improve its competitive advantage would be to further enhance its modal transportation system. “The more productive it is, the more it can offset what often can be higher domestic production costs for our exports,” said Bingham, “though exporters would have to recognize and take advantage of this, too. That goes both ways.”
That approach also makes gateway ports like Long Beach, Los Angeles, New Jersey and New York “even more important, because they all serve substantial inland markets across the country.”
Also of significant note, said Bingham, is the market’s recovery from the decline in trade experienced in 2023 due to the remedied supply chain issues that were brought on by the pandemic.
“It took an enormous amount of time to catch up, with companies building new distribution centers that were served by new ships and new trucks when they were finally available,” he said, also noting “concerted efforts to hire new workers in the railroad industry.”
Shifting Demand
Expressing similar thoughts regarding the supply chain was Hacegaba, who also pointed to the “much healthier supply chain, with shippers having rightsized their inventory levels, greatly improving product flow.”
He said the stress on the supply chain “was caused by record amounts of cargo that gummed up the system when the American consumer shifted from services to goods during the pandemic,” which “has cleared. All of that additional cargo initially overwhelmed the supply chain that was already impacted by warehouse worker and truck driver shortages.”
In response to the crisis, shippers shifted their supply chain strategy from “just in time” to “just in case,” said Hacegaba. “However, that ballooned their inventory levels and further contributed to congestion across the freight transportation system. Today, shippers have right-sized their inventory levels” and some of them have shifted back to “just in time,” which optimizes inventory levels and lowers costs.
That observation is borne out by the recent numbers at Long Beach.
“Compared to the first quarter of last year, container volumes at the Port of Long Beach were 16.4 percent higher this year for the same period, reaching two million 20-foot equivalent units,” Hacegaba said, hinting that recent turmoil could be part of the reason why.
“It’s hard to quantify exactly how much of our growth was triggered by specific disruptions, such as the bridge collapse in Baltimore,” he said, noting that March marked the seventh consecutive month of year-over-year growth. “That means there are other factors at play,” perhaps including the capacity constraints at the Panama Canal caused by the drought and the threat to ships at the Red Sea.
Through it all, what has “been surprising is the resiliency of the U.S. consumer,” he said. “Consumers continue to buy more products and at higher prices” caused by inflation.
“The American consumer is what is propelling our cargo growth in Long Beach and propelling the U.S. economy,” said Hacegaba. “Historically, ports have been pretty good barometers of the overall economy and our cargo activity is a good sign for the national economy. Like I like to say, ‘Goods movement is the economy in motion.’”
The numbers from Wall Street support that outlook. For instance, according to the New York Federal Reserve Bank, personal consumption expenditures rose 0.8 percent in March. “That may not seem like much, but it’s the strongest in more than a year,” he said. “Consumers continue to buy and are drawing down their savings or using credit cards to cover inflation.”
Also according to the Reserve Bank, total credit card debt eclipsed the $1 trillion mark for the first time in history and currently stands at $1.13 trillion. “Consumers have enough confidence in the U.S. economy,” said Hacegaba, “that they continue to buy more goods at higher prices.”
The other big trend is the transition to zero emissions. “Here in Long Beach, we have $2.2 billion planned in infrastructure improvements during the next decade,” he said. “We’re going to invest in our infrastructure to be able to handle more cargo more efficiently and more sustainably by transitioning port operations to zero emissions.”
Key to that effort is enhancing its rail capacity. “Only 20 percent of our shipments currently leave the port on a truck,” said Hacegaba, and it’s working towards “35 percent or greater. Moving containers out of the port on a train is faster and more efficient and sustainable. As ships have gotten bigger, we need new ways to move containers out of our ports faster,” hence the investment.
Further north on U.S. Route 101, the West Coast “continues to face competitive challenges when it comes to accommodating products to the U.S that come from anywhere in Asia,” said Thomas Jelenic, vice president of the Pacific Merchant Shipping Association, Oakland, Calif., citing the usual issues.
For instance, “When the COVID-19 shutdown occurred, the industry had to deal with the surge of cargo that came in after consumer demand shifted from services to goods. Much of that demand has dissipated and is shifting back to services,” said Jelenic, with the Red Sea and Panama Canal problems having “complicated and restricted access, often to the East Coast.
“We usually get shipments from Asia directly across the Pacific,” he said, “but those issues have also led to more shipments to Pacific ports, from which point those ports use rail to connect to the rest of the country,” especially from Los Angeles and Long Beach, and Northern California’s Alameda Corridor, which connects the Southern Cal ports to the national rail network.
So challenges remain. “The basic questions concern how the industry solves problems,” Jelenic, like Hacegaba, said, which usually involve “using the rail system to distribute, with the last mile being trucking to the warehouses, then on to fulfillment centers.”
As Bingham said, the supply chain has smoothed out. However, on that note ports still have to address “what’s called dwell time, which concerns how long containers sit on the terminal before they get shipped,” he said. “They’ve returned to normal levels from the pandemic. On average, it’s down to less than three days; during the pandemic it could reach more than seven days.”
As for other trends, Jelenic said the industry is spending billions of dollars on decarbonization.
“It’s requiring an incredible shift in technology, notably to methanol-fueled ships that have been getting delivered since last September by many different companies. There are other methods companies are using to go green, such as liquefied natural gas and potentially green ammonia.”
Steady Growth
Like Jelenic, David Briceno, director of cargo sales for the U.S. Southeast for the Port of Jacksonville (Fla.), discussed the industry’s overall reduction in trades and the shift in transport of goods.
“While the cargo volume for the trade shipments coming from Asia to North America has normalized after a period of high volumes,” said Briceno, “things might be settling back to pre-pandemic levels. But that’s not necessarily a decrease.”
He attributed the change to “the economic focus of the country shifting from the vast amount of goods purchased during the height of COVID-19 to a pre-pandemic period.” However, the Port of Jacksonville has still added five container services during the last three years and moved nearly 1.3 million containers in 2023.
One growth area the Port of Jax has experienced is a result of the drive to clean energy. “We’re receiving more aggregates like cement, rock,” etc., he said. “We expect the construction market to continue to boom, so much that ample amounts are still in storage.” That’s “anything that involves building gigawatt centers, like solar panels, and all components including batteries, racks and converters.”
But what’s really gradually occurred, said Briceno, is “the return to pre-pandemic levels, which indicate a more balanced economic environment. That’s good, because that will activate our job market in various sectors. That should also result in a reduction in inflation.”
Locally, the Port is “continuing to see steady growth in all commodity sectors, particularly in retail and tourism,” he said. “We’re also getting great results in the aerospace technology sector. The Southeast are becoming a hub for that market, so we’re getting more raw goods as imports and exporting related products.”
Another trend might seem surprising. “At a recent solar conference, we met exporters that are buying imported, finished solar panels (that are no longer in service), taking them apart,” he said, “and exporting the parts individually.”
Demand around the Port has also proven a boon to the region’s industrial real estate market, which has led “to an increase in the area’s leasing footprint due to new vessel services and upgraded container services,” said Briceno, “in addition to population growth.”
Safe, Secure?
While most of the economic indicators look to be pointing up, the question of security always looms over the market, said Capt. Jim Staples of Boston-based Ocean River LLC. He voiced particular concerns about the Transportation Worker Identification Credential that started under the 2004 Maritime Security Act by President George W. Bush.
It was created “to give all U.S. workers identification to allow entry into a port,” said Staples. “It’s chipped [like] a credit card [that can] be placed into a reader for authenticity ― but 90 percent of ports still don’t have the readers.
“The TWIC only had a picture and an expiration date, and forgeries have been an issue. Today, however, they also have a hologram,” he said. “Every port should have a card reader so you’re not relying on port security to just look at it. Therefore, the holder at least needs a PIN number so the information on the chip can be verified.”
Visitors “also need to be on a list to get in, so there’s no gap in the system where we do have (and receive) the TWIC readers,” said Staples. “This is a government program that still needs to be setup two decades later by the Transportation Security Administrations” especially since there are still “TSA agents at airports don’t know what a TWIC card is.”
It’s still easy for a potential imposter to get into a port with a false TWIC card. “That’s a major threat to the ports in the United States,” he said, noting that people initially wondered if the Key Bridge collapse resulted from a security threat or even an attack. This is a hole in the fence.”
Staples pointed out that Delaware “had a major situation three years ago concerning a drug bust. That’s another aspect of this issue, because the bust happened on board a ship and the transient crew was part of it. So we know that there is still plenty of nefarious stuff happening in the ports,” he said.
As for Baltimore, as noted, ships have had to unload at other locations. While there are larger ports, “some of them are not as large as one might think,” he said, “because some of their land has been developed, as is the case in Boston. But others have expanded, like Long Beach and L.A.”
As for Baltimore, “I thought it would reopen in a month and it did,” he said. Going forward, “The opening of the channel will be broadened and the new structure may well be a suspension bridge to accommodate today’s bigger ships.”
‘Solid Place’
While today’s port industry landscape may not be perfect, it’s certainly improved.
“Within the coming year, I think barring another disruption or major change in trade policy, I think we’ll be about where we are today,” said Jelenic. “Freight rates for the container ships are probably softer than they should be, but we’re in a solid place.”
Fortunately, the industry is already a long way from where it was two years ago, when a dealer would tell a customer who wanted to buy a new truck, “Sure. It’ll be here in nine months,” said Bingham.
“So those pandemic issues have finally receded,” he said Bingham. “We’re back to where imports and exports can grow again in an improving overall trade economy. But oddly enough, we never hear about that very much” in the media or the trade press.
But “that’s good,” he said, “because the port market is performing well. We’re back to talking about the issues we discussed before the pandemic, like the green movement and energy transition.”
Odenton, Maryland-based Mark R. Smith joined Expansion Solutions after having written about site selection among the vast number of topics he has covered in the 
business universe. That part of his career began in 1993 when he joined The Daily Record, a Baltimore business and legal publication, where he delved into the worlds of economic development and commercial real estate, among numerous other industries; in 2003, he was named editor-in-chief of The Business Monthly, another Maryland publication that covers the scene in the Baltimore-Washington Corridor counties.
Concurrently, he’s written at length about the film and video industry for a variety of publications, and about his other loves, including music, sports and leisure.
