America's ports are a key source of congestion contributing to supply chain disruptions rippling through the economy. Things have gotten a little better, but very slowly. And the disruptions are expected to continue for quite some time. To understand more about what's going on, we spoke with Gene Seroka, the Executive Director of the Port of Los Angeles, to understand how bad the problems are, and how they will eventually be fixed. Transcripts have been lightly edited for clarity.
Joe Weisenthal:
Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.
Tracy Alloway:
And I'm Tracy Alloway.
Joe:
Tracy, I think we're actually getting to the point where we've covered a lot of the supply chain.
Tracy:
No, that's impossible. There's always more.
Joe:
Always more, but I feel like, you know, the big things were starting to like, you know, if you were to have some manufactured good from those manufactured in China and consumed in the U.S. you would know a lot about it by now. If you listen to all of that,
Tracy:
We’ve certainly provided a public service in supply chain education. That's true.
Joe:
So, yeah. Okay. So we've talked about ships and the containers at least three times, I think actually. Two on
freight, one on
dry bulk, talked about
trucking. We recently did a
warehouse episode, although unfortunately you had to miss that one, but of course, you know, okay. There's the ports and we've talked about congestion at the ports, but we really haven't dived deep into what's going there.
Tracy:
Yeah. Well, we've sort of talked about the ports from the perspective of the shipping industry, and there's a bit of, I guess there's sort of blame being laid on both sides for the transportation gridlock, right? So a lot of the container shipping companies will say, well, yes, there's a shortage of containers and there are some issues in shipping, but the ports aren't handling stuff well, or they haven't made enough infrastructure investment. And so there's a lot of gridlock on that side. And, so you're sort of getting two different, well, two different versions of what's going on.
Joe:
Yeah, exactly right. Like we know that there's numerous ships that are waiting to be unloaded. We know some at the ports and people have pointed this out several times that there are several days or that there are ships that are waiting there for their turn to get out loaded. We know all kinds of things are going on. It is a source of bottleneck, as far as I know, and we're going to learn more about it shortly. It has yet to ease really. But I think it's time we really figured out what is happening when the ship gets to the port, when it needs to get have the containers unloaded, put onto trucks and so forth. And really drill down into that, specific points along the supply chain.
Tracy:
Yeah, absolutely. So it's going to be a really interesting discussion. My only knowledge about ports comes from that one season of The Wire. So I'm quite keen to learn more about how they work and what's going on right now.
Joe:
Right. Well, we have the best possible guest for this episode. We are going to be speaking to Gene Seroka. He is the executive director at the Port of Los Angeles. He's been in that role for a little bit over seven years. Gene thank you so much for joining us.
Gene Seroka:
Thanks, Joe and Tracy. Pleasure to be here today.
Joe:
Why don't you just start us off big picture? We know that there is a lot of congestion at the ports. How bad is it right now? What are the numbers like versus historical comparisons and what are the prospects for things easing? Give us the state of the Port of Los Angeles right now?
Gene:
Yeah, Joe, the story really goes back over three years ago, to the introduction of trade tariffs and a pretty unique take on the trade policy by the previous administration of Washington. It created a lot of choppiness in the industry. Folks were importing big numbers to get inside of tariff milestone dates and taxes that American companies were paying on those imported goods. Similarly, and at the same time, we started to see retaliatory tariffs put in place, specifically by China, which have impacted our farmers, manufacturers and our automotive sector broadly. Flash forward to the end of 2019, we went off a cliff because of those trade policies that were in place. Our business dropped by about 16% and most folks were looking for a pretty mundane year 2020. As we got into that area of around lunar new year in January of 2020, the bottom really fell out completely with the advent of the Covid-19 virus.
The Chinese economy shut down, manufacturing sector was shuttered. And then soon thereafter, we went into safer-at-home orders and our volume dropped another 19% up through May. Then suddenly the American consumer found that they could buy a lot more online. They could make a family outing to a big box retailer or a home improvement store. And our retail goods started going through the roof. And since then we've averaged about 900,000 container units a month, every month. That used to be a good single month in our traditional peak season. So where we stand today is that berth productivity, our vessels, are up 50% compared to pre-Covid times. We're welcoming in about 15 vessels a day compared to 10 before Covid and this buying surge started, but all parts of the supply chain have been kind of stacked up. The warehouses are full. And remember, we've got about 2 billion square feet of warehousing from the shores of the Pacific out to the Mojave desert here in Southern California. They're overflowing.
If those warehouses are overflowing — about a third of our cargo goes to them directly — so those containers sit as warehouses on wheels. Our marine terminals of which we operate today, seven for container business out of the 27 here at the nation's largest port in Los Angeles, those terminals are operating at about 95% of land usage. Physical design full capacity is 80% utilization, right? So the next ship that comes in can only unload so much cargo because there's no room to put it. The ship after that winds up sitting outside our breakwater at anchor. And today we've got 26 container vessels that anchor outside that breakwater destined for both the ports of long beach and Los Angeles, the twin ports of San Pedro bay. The average stay out there is five days. It's about half of what it was at its worst point back in February, but compared to what we normally like to see — zero ships at anchor, high levels of fluidity of cargo — this pandemic-induced buying surge is something the likes of which we've never seen before.
Tracy:
So let me ask you the obvious question based off of that, but what in your opinion is driving some of the gridlock that we've seen people can complain about. So we have, you know, lots of ships anchored off the port waiting for a berth, although, as you said, it's not as bad as it once was, but plenty of people out there are talking about rising shipping costs. Longer waiting times, shortages of various goods. What's contributing to the gridlock? Is it just the surge in activity that you described?
Gene:
Yeah, primarily and as I stated, the choppiness of imports, the paucity of exports, the lack of a balance of trade, which has been exacerbated by these ill-advised trade policies have really moved us out of kilter. And Tracy, what you've seen is basically, and I think Dan Maffei, the chairman of the Federal Maritime Commission put it best. It's like putting 10 lanes of traffic into five. We've been breaking records every month. We surpassed 1 million container units in a month, which was a first for any port in the Western hemisphere. We surpassed 10 million container units in a fiscal year, first time ever in the Western hemisphere. So we're pushing through a lot of cargo. We just have much more coming at us than ever before. And when these nodes of the transportation system start getting clogged up, they back up all the way to the water.
Tracy:
So, Gene, you mentioned just then this idea of trade being out of balance, and this is something we've heard consistently from our guests, this idea that you have a one-way flow of trade from China to the U.S., which means you have all these full containers going to America, and then you have an issue of the container is actually getting back to Asia so that they can complete the roundtrip and be sent again. And I think
Ryan Peterson from Flexport gave us a stat that before the pandemic, something like 60% of containers leaving U.S. were empty and it since jumped to something like 80%, can you give us some color around that issue? Why is that a problem and how many empty containers are you seeing as a proportion right now?
Gene:
Well, to start off with the major solve-for in the industry is that most of our imports go to metropolitan areas and many of our exports emanate from rural America. So as an example, we bring in a ton of product into Chicago, and then we still, as an industry, have to cater to the American farmer and the Red River Valley in North Dakota. So how do you get that empty container chassis, rail service and align it with ship service from Chicago up to someplace outside of Fargo where a farmer wants to load a bunch of containers. That's the number one difficulty. Number two, is that with all these imports coming in now, there has been a look by the liner shipping companies that they need to get empties evacuated back to the manufacturing location to pre-position those containers to catch the next round of lucrative imports faster than ever. So there's been a commercial decision made.
And then thirdly, the strength of the U.S. dollar is also continuing to impact us. And while it's so important and so good for our economy in many, many ways, it's not good from a competitiveness standpoint because we're going up against other trading nations that have better exchange rates and are beating us to the punch. So we know Ryan likes to comment on a lot of things in the industry. I can tell you what goes on here and through the nation's largest gateway. We're right now sending back about 300,000 empty container units per month to every 100,000 export units. We're about five-to-one imports to exports. And in more normal times, Tracy, that's about two and a half imports to every one export.
Joe:
You know, let me back up for a moment and something I realized, I don't know, what is the corporate structure of the port of Los Angeles? I mean, we think of it as this sort of important public infrastructure, but is it owned? Is it private? Is it for profit? What's the nature of it?
Gene:
Joe, the port of Los Angeles is a municipal agency of the city. I report to Los Angeles Mayor Eric Garcetti directly. He has appointed a five member Harbor commission that works with me on all policy issues and helps drive business. We are a nonprofit agency, where all monies and revenue sources from our customers coming in, are reinvested in our ports infrastructure, our community with respect to public access, and our environmental strategy. We hold these 7,500 acres of property in trust for the people of California, based on the state's tidelands trust regulation, that was an unintended consequence of the state joining the union.
Tracy:
Can you talk about when a ship actually comes to a port like yours, what are the economics or the process of unloading and loading the ships? How does that work and how do you decide who to prioritize?
Gene:
Probably two questions there. One being operations and two being economics. One as a landlord port — defined by the U.S. Army Corps of Engineers — we manage the property and we lease it out to private sector companies who manage the transportation business. So those would be primarily marine terminal operators who welcome in the liner shipping companies to work their vessels and move cargo throughout the nation’s 435 congressional districts, with product moving in and out of Los Angeles.
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Transcript: Gene Seroka on the Logistical Logjam at the Port of LA - Bloomberg
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