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GLOBAL ECONOMY

Changing trade patterns threaten ports' relevance

November 28, 2008|Ronald D. White | White is a Times staff writer.

The slowdown in international trade has left the docks at the nation's biggest seaport complex quieter than they've been in years.

Some workers, particularly non-union "casuals," at the Los Angeles and Long Beach ports wait for shifts that never come. Automobiles and other merchandise pile up as consumers dig in for a long economic winter.

But the problems at the twin ports, along with smaller West Coast harbors, extend beyond the nation's economic woes, maritime experts say, and changes on the horizon could leave the seaports struggling to keep customers.

That's the assessment of a recent report by London-based Drewry Supply Chain Consultants, a maritime industry research firm that has about 3,000 clients in more than 100 countries. West Coast ports will see increased competition from the Panama Canal, which is undergoing a bigger-than-expected expansion due to be completed in 2014, Drewry said. In addition, rising Chinese labor costs will push some manufacturing back to Mexico and South America.

Even if global trade returns to its formerly robust pace, Drewry said, "any new trade will probably pass the West Coast by. Volumes are unlikely to decline, but the days of strong growth on the Pacific Coast are behind us."

The implications are potentially enormous.

The ports of Los Angeles and Long Beach are directly or indirectly responsible for 886,000 jobs in California, according to a 2007 study by the Alameda Corridor Transportation Authority. The $256 billion in U.S. trade that moved through the ports that year, including $62.5 billion in California cargo, was also responsible for $6.7 billion in state and local tax revenues, the study said.

But times change, Drewry and other maritime experts say, and future economic conditions will shine a more favorable light on the all-water routes to East Coast and Gulf Coast ports by way of the Panama and Suez canals.

Some of that trend can be seen already.

A.P. Moller Maersk, the world's biggest shipping line, this year reduced its business from Asia to the U.S. West Coast in favor of stronger Asia-to-Europe trade. This month, the Denmark-based giant announced more changes.

Maersk said it would join with the world's third-largest shipping line, France's CMA CGM, and cut back its Asia-to-U.S. business by an additional 8% with new routes through the Panama and Suez canals.

The new business partnerships come at a time when the maritime industry is reeling from the global economic slowdown and credit crisis, delaying delivery of new vessels and killing deals considered too much of a revenue risk. Those pressures, Drewry says, will result in changes that will be difficult to unravel even as global trade eventually recovers.

Officials at West Coast ports say that they are doing what they can to remain competitive. But Drewry and other authorities say the ports suffer from a number of problems, including a lack of land for expansion and rail capacity that is significantly lower than in the past, despite billions of dollars in investments.

The two largest ports -- Los Angeles and Long Beach -- also face steep and costly environmental hurdles to expansion projects that had slowed to a crawl until this year. Some of those plans face serious legal challenges from trucking and trade groups.

In the meantime, the Panama Canal expansion project has come a long way from something that generated amused smirks from the maritime community when it was first announced in 2006.

As a sign of the new esteem with which the project is now regarded, Panama Canal Authority Administrator and Chief Executive Alberto Aleman Zubieta was honored Monday with an excellence award at the Asia-Pacific Economic Cooperation Summit in Lima, Peru, for "successfully moving the canal from a profit-neutral utility to a business-oriented enterprise."

Now, Drewry says, West Coast market share is about to take a serious hit, "possibly forever," from a "rejuvenated, aggressive and soon-to-be widened Panama Canal" that will have locks capable of handling cargo ships carrying as many as 13,000 containers -- much larger than the 8,000-container ships it was originally expected to accommodate.

Drewry isn't the only one who thinks so.

"With the ability to handle most of the world's largest ships, the Panama Canal will begin to enjoy better economies of scale than its primary competitor, which is the transpacific intermodal route from Asia to the West Coast and to the rest of the U.S. by rail," said Asaf Ashar, head of the Washington office of the University of New Orleans' National Ports and Waterways Institute.

"It's cheaper to move cargo by ship than it is to transfer it to rail and go overland," Ashar said. "The logical conclusion is that market share will be lost."

Meanwhile, East Coast ports are frantically working to be prepared once the Panama Canal expansion is complete.

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