While shopping last month at Trader Joe’s on Folsom Boulevard, a friend was unable to buy a jar of her favorite Dijon mustard. Querying the store manager, she learned the latest shipment from France was sitting in a shipping container stranded somewhere off the Port of Oakland, delayed by a controversial but widely misunderstood slowdown in port operations.
It was a classic learning moment. Normally, most shoppers give no thought to how the goods they purchase get onto store shelves. But, as instances like this should remind us, we stand not just in checkout lines but also at the end of intricate supply chains that often stretch halfway around the globe. Or, in my friend’s case, to a condiment producer in Burgundy.
Unfortunately, maritime supply chains, particularly those serving the West Coast have been severely strained of late, almost to the point of breaking, as one Southern California port director recently told me. Gridlock on the docks has become a normal condition, and exporters as well as importers have been struggling to ship their goods.
The economic impact is not inconsequential. California ports handle 60 percent of the nation’s imports from the Far East and more than 70 percent of California’s agricultural export trade. Yet with containers continuing to pile up at the ports and with ships at anchor awaiting berth space, California and the nation can anticipate lasting economic repercussions.
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So what’s the problem?
Most news reports have been focusing on the contract dispute between the International Longshore and Warehouse Union and the Pacific Maritime Association. The maritime association represents the steamship lines and the companies that operate the terminals. The ports themselves are little more than landlords who collect rent and provide basic infrastructure.
The longshore workers’ union has been working without a contract since July 1. Although its negotiations with the maritime association have been underway since May, no agreement has been reached as of this weekend. What were initially amicable talks started to break down in October, and both sides began taking the dispute to the docks by engaging in actions that only compounded the congestion problem.
As easy as it is for many to blame the labor dispute for the current woes, the roots of port congestion go much deeper.
To understand the predicament of vital maritime gateways such as the ports of Los Angeles and Long Beach as well as the Port of Oakland, a brief detour to sultry Panama would be instructive.
There, construction began in 2007 on huge new locks designed to handle ships whose dimensions could hardly be imagined when the Panama Canal opened in 1914. The new locks, scheduled to open next year, will take some cargo away from California ports. Of all the goods imported through the ports of Los Angeles and Long Beach, more than 70 percent are bound for markets outside of Southern California. By offering an expanded water route to metro areas east of the Mississippi, the new locks at the Panama Canal should capture a portion of those shipments.
So, while the route through Panama poses a serious threat to California’s ports, its experience in undertaking such a daunting, not to mention expensive, infrastructure expansion provides an important insight into why ports up and down the West Coast face severe congestion.
While touring the construction site in November as a guest of the Panama Canal Authority, I asked officials why they had decided to build the new locks to accommodate vessels capable of carrying upward of 13,000 TEUs, or Twenty-foot Equivalent Units, the maritime industry’s preferred metric for those rugged metal containers – a box nominally measuring 20 feet in length by 8 feet in height and width.
They told me that, during the planning and design stage, they had canvassed shipping industry experts and were advised that vessels carrying 10,000 containers would likely be as large as the canal could expect to see in the foreseeable future.
But even though the Panamanians prudently added a substantial margin, the foreseeable future quickly came and went as the major shipping companies opted for larger vessels in the quest for greater economies of scale. So today, eight years after construction began, ships carrying upward of 18,000 containers are in operation, with even larger ships to follow.
The rapid emergence of these megaships unhinged the ocean side of maritime supply chains from the land-side infrastructure. Just as the Panamanians saw their bid to accommodate the largest of ships was thwarted by the shift to even bigger ships, ports that had been built to efficiently handle vessels carrying 5,000 to 8,000 containers would be swamped by vessels that carried more containers, took up more berth space and necessitated larger cranes.
Compounding the impact of larger ships at California’s ports were other moves by the shipping lines. One involved how the containers were loaded onto ships at Asian ports. Before, containers were sorted by final destination and then stowed aboard ships. Now, loading has become more random, in effect shifting the responsibility for sorting containers to congested U.S. ports.
So while there is no question that the dispute between the International Longshore and Warehouse Union and the Pacific Maritime Association has seriously aggravated the problem of container gridlock, it was not the cause. Nor will a labor accord yield a swift end to port congestion.
Solving that problem will more than likely require major alterations in port infrastructure and to the transportation systems serving the ports. It will also necessitate an unprecedented level of cooperation between public and private stakeholders with varying agendas, conflicting interests and little history of harmonious relations.
What’s at stake?
A lot more than being deprived of a condiment to smear on a ham sandwich.
Ships calling from foreign markets not only deliver goods that wind up in department stores and groceries, they also feed manufacturers with components used to assemble finished products. Interruptions in taut supply chains can result in costly production slowdowns or in the temporary shutdown of manufacturing plants here.
Arguably the most severe consequences are being felt by smaller businesses that can least afford supply-chain disruptions and by the legions of transportation and warehouse workers whose jobs directly depend on the steady flow of trade through the ports.
Any developments that threaten the flow of goods through the state’s seaports in turn threaten these jobs. And those threats are numerous, not only from other West Coast ports or the Panama Canal, but from the reputation California’s ports are gaining as unreliable conduits for international commerce.
Jock O’Connell is a Sacramento-based international trade economist.