If you're not invested in the logistics industry, you'd be forgiven for thinking the only sources of congestion and angst are the twin ports of Los Angeles and Long Beach in Southern California. Stories, pictures and video have flooded the airwaves when, at the worst of things in February, dozens of ships were at anchorage in San Pedro Bay awaiting their turn to unload.
The images only begin to scratch the surface of the current market conditions plagued by chronic container scarcity, an increasing number of export containers leaving empty rather than filled with American exports and import rates that have roughly quadrupled or quintupled from March of last year.
"Get away from Southern California and the West Coast," is the rallying cry. "There are opportunities elsewhere," the logistics managers exhort.
Those opportunities are in the Gulf Coast and the Southeast — specifically Houston and Savannah. Both ports have seen incredible increases in containerized volumes that began before the pandemic and since the resurgence last summer have only continued to soar.
But what are the realistic opportunities? Are these two ports the balm for what ails the largest trade lane and biggest port complex in the United States?
It's a bit of yes and no.
Poised for Growth
Houston has become the sixth largest container port in the U.S. and was the fastest growing in 2019, according to IHS Markit. The relocation of a number of manufacturers to Texas and the creation of direct distribution channels to feed those businesses and consumers have contributed directly to that growth. No longer known solely for its prominence and leadership as an oil-gas-project port, Houston in March handled 297,397 TEU, the highest monthly figure in their history.
Despite the pandemic's impact in the early part of 2020, Houston managed to handle 2.99 million TEU for 2020, a little over 800 TEU shy of their previously held record for the full year of 2019.
Houston is also the first call for a new East Coast service from THE Alliance.
Meanwhile, Savannah is growing at an even faster pace. The investments in landside rail, dredging and berth-straightening led to an increase of 1.8% in 2020 in spite of pandemic-related conditions and in March of this year were up a whopping 48% year-on-year to nearly 500,00 TEU.
In the near-term Savannah plans to add 650,000 TEU of annual yard capacity at one terminal, straighten a bend to allow the simultaneous handling of four 16,000 TEU ships at another and by June, 2023, to be handling 7.5 million TEU annually.
While both of these ports are seemingly poised for success when you look at their overall volumes, there are some tough questions to ask about whether or not either can step up in the current pandemic conditions and what happens to the cargo when it arrives on their docks and how does it get to where it needs to go afterwards?
Two of Southern California's intrinsic benefits for shippers have been the discharge to on-dock rail for inland movement and a robust warehouse and trucking capacity for transload and domestic distribution of cargo moving eastward. The ability to be at an inland rail ramp five to seven days later eclipsed anything that a ship traveling through the Panama Canal could manage for time to market. For transloaded cargo, even days faster with team drivers for the most urgent of shipments.
But with rail delays in Southern California averaging in the double digits, congested ports, overloaded transload warehouses and scarce and expensive trucking being the default position for many shippers, Houston and Savannah should be flourishing, shouldn't they?
Some Limitations
From an ocean freight point of view, the belief that these two ports are safety valves may be more aspirational than actual. The largest number of the biggest ships with the highest frequency of calls continue to make Southern California home, both for capacity as well as for the ability to return to Asia most quickly. Despite the blanked sailings and utterly shattered schedules, Southern California still has more capacity overall than any alternate port in the U.S.
Looking at Houston, they have reached their volume capacity — there is no room for more ships or bigger ships at this point. The entirety of the capacity of these ships calling Houston is pre-booked by the largest retailers and what little space is left has skyrocketed in price for two primary reasons. First, while carriers may operate extra loaders between Asia and the USWC, they are not doing so into the Gulf or onwards. Second, the vessels calling Houston are limited by the size of the Panama Canal whose third passage, completed just five short years ago in 2016, can allow ships of up to around 15,000 TEU. Big, sure, but when you consider that carriers are operating containerships with nearly 23,000 TEU capacity nowadays, it's not unfair to say that the canal is limited in its ability to relieve today's pressure.
This leaves importers who normally rely on East Coast ports of discharge adding to the volumes on the West Coast because being on the water to somewhere is better than being on a factory floor to nowhere.
From a trucking point of view, everything needs to be looked at for its bi-directional nature. Trucks that come east from California with produce or distribution goods will have an incentive to go back to California for more of the same — and there's plenty "more" to be had. Can the same be said for trucks that are going into and out of other ports? Is the traffic to those ports — like Houston — more destined for local consumption than far-away locations?
The network imbalance we're seeing on domestic 53-foot dry vans is telling for the South and Southeast compared to Southern California. This is an economic tale for them — go where the profitability lies. The profitability comes in the locations with the highest rates and the lowest dwell time or delays.
As we move through May, a traditional year would be looking ahead for back to school and holiday merchandise in the next three to five months. The question on everyone's mind is when — and even more scarily if, purchasing moves from goods to services in 2021. When does home remodeling and shopping give way to family vacations and theme park visits or a resumption of expenses for children's extracurricular sports and activities?
Does a fully vaccinated logistics workforce translate into increased velocity at choke points? Do people return to shopping in person rather than ordering online, changing the demand to fill brick and mortar shelves again instead of centralized distribution warehouses?
We remain for the foreseeable future in uncharted waters, but continue monitoring for signs and clues as to what lies ahead.
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