If you want to know where the economy is headed, ask a longshoreman.
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Although few stevedores have graduate degrees in economics, these guys know the score.
Dockworkers don’t have to read the Wall Street Journal or Business Week. They carry the economy on their backs, literally.
The adjacent port complex of Los Angeles and Long Beach is the busiest in the nation. During the boom of 2006, the two ports handled nearly 16 million cargo containers valued at approximately $250 billion, bound for destinations throughout the U.S.
But That Was Then
As the primary gateway for goods manufactured in China, Japan, Taiwan and Korea, the ports of Los Angeles and Long Beach are an economic bellwether. While the inbound volumes have long exceeded the outbound traffic, this Southern California sea complex is also the nation’s largest export terminus.
The effect of the recession can be seen in the impact it has had on the supply chain.
Dock jobs in 2006 were so plentiful that longshoremen could count on working multiple shifts. Even part-time casual dockworkers were working nearly full-time hours. Warehouses in the nation's fastest-growing cargo distribution network had tenants before their construction was complete.
Today, full-time longshoremen have days without work. Towering container cranes that previously operated 24/7 stand idle, collecting more rust than cargo. Cavernous warehouses that were once overflowing with goods stand virtually empty. Many others are looking for tenants.
Import activity at the Port of Los Angeles is down 17 percent while overall traffic is off about 16 percent. The Long Beach numbers are even more harrowing. Imports are off 19 percent and overall cargo traffic is down 27 percent.
The economic ripple effect throughout the region has been dramatic. Not only has it put the squeeze on longshoreman, but the downturn has resulted in massive lay-offs at rail, trucking and other distribution-related industries.
While port managers have tried to remain upbeat, the forecast remains grim.
A recent report prepared by consultants for the Port of Los Angeles advised that the fallout from this recession is far more complicated than the economic downturns that resulted from the dot-com bust or the 9/11 terrorist attacks.
Following those events, pent-up consumer demand allowed the ports to return relatively quickly to their prior level. Because the destruction of wealth in this recession has been so deep, the consultants were unable to project a rapid rebound in consumer demand to buoy the ports’ short-range prospects. They concluded it may take until at least 2013 before the port complex returns to its 2006 levels.
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The Southern California ports are not alone in woes. The projections for the other major West Coast ports in Oakland and Seattle are equally dismal.
At this time of year, the ports would normally start scheduling additional shifts and preparing for overtime to handle heightened Christmas imports. This year, veteran dockworkers will be lucky to snag a full 40-hour week.
The Better Place to Be
Ironically, some East Coast ports may be better positioned to recover more rapidly than their West Coast counterparts.
Unlike Los Angeles or Long Beach, ports like the complex in South Boston may see a faster recovery because their businesses are geared more towards exports to Europe and Japan.
During the first half of the year, South Boston was battered by the steep drop in export demand. Port traffic fell off by more than 20 percent. With the projected economic recovery in Japan and to a lesser extent in the Euro Trade Zone, the Port at South Boston has started to see a slight resurgence in export traffic.
In contrast, recuperation on the opposite coast will be more sluggish.
The absence of easy credit will likely continue to slow the recovery of international trade throughout the West Coast ports. Importers have seen their bank credit lines cut while credit card companies have clamped down on consumer spending.
Back-to-school shoppers usually help retailers to boost late summer sales and imports. Up to this point, consumers still appear to be holding back.
Major retailers like Wal-Mart and K-Mart have trotted out Christmas layaway plans in the hope that they might ignite early holiday shoppers. This strategy may lift fourth quarter sales and help retailers to thin their inventory. Most analysts, however, believe that this approach will do little in the short run to augment port traffic.
Despite the downturn in activity, the two ports are still expanding their facilities in anticipation of the recovery. The installation of longer wharfs and extended dockside rail access is still underway.
One bright spot according to the port consultants may be the increase in traffic generated by the massive stimulus programs in U.S., Japan and China.
Either way, recovery at the two West Coast ports is more likely to look like a check mark than a “V.”
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
