Keeping TEUs in Perspective

By Jock O’Connell

Just about every month around the time ports announce their latest container tallies, I get calls from reporters soliciting my thoughts or at least a pithy quote on what the numbers might imply and, as is often the case these days, whether the figures support the popular narrative that U.S. West Coast ports are losing market share to their rivals on the East and Gulf Coasts or up in British Columbia.

Before ringing off, the callers will usually ask if there is anything else they should know, if there might be something going on in the world of foreign trade they’re missing.

“Well, you could look at airfreight,” I often offer.

“Thanks, maybe I will,” is the polite response from people I suspect are thinking: “Sure, I’ll do that when pigs fly.”

Well, Jimmy Olsen, pigs, along with a wide variety of livestock, do fly, and with some regularity. So do an awful lot of other things.

I bring this up because much of what appears in the media about America’s foreign trade could be leaving a distorted impression of how goods are moved across borders or oceans. For example, scarcely an article dealing with a trade issue appears in a newspaper or magazine without an accompanying photograph of a fully-laden container ship. Similarly, television news producers evidently believe their on-air “talent” can’t read a script dealing with the latest trade controversy unless they’re posing against a backdrop of towering ship-to-shore cranes. (Perhaps we should be grateful they can at least find the nearest seaport.)

Here along the West Coast, talk about maritime trade almost invariably morphs into talk about containers, and the relevant numbers are expressed in Twenty-foot Equivalent Units or TEU. That’s fairly understandable since nearly 48% of the 31,772,921 loaded TEUs that mainland U.S. ports handled through November of last year passed through five maritime gateways in California and Washington.

While even first-term legislators in Sacramento and Olympia probably know what a TEU is, there are at least a couple of huge downsides to the popular predilection for counting TEUs, comparing this month’s volumes with the figures from a year ago (which admittedly is a large part of what this newsletter does), and then obsessing over what the numbers mean.

For one thing, TEU traffic is frankly not an especially accurate barometer of America’s foreign trade. Even though folks who are paid to move boxes are apt to be finnicky about keeping track of the numbers of boxes they move, what’s in the boxes is far more important from an economic perspective. GNP, after all, is not denominated in TEUs but in dollars. (That’s why, when the Census Bureau’s Foreign Trade Division isn’t shut down, this newsletter supplements TEU data with statistics on the declared value of containerized goods.)

Similarly, although the various facets of the maritime supply chains do have an enormous physical presence and employ legions of workers, the value of the goods transported in maritime containers is much less imposing than one might conclude from what we read in the papers or see on TV.

For the sake of perspective, it’s worth spending a moment deconstructing America’s trade statistics.

In 2017, the last full year for which official data are available, U.S. international trade totaled $5.25 trillion, a quarter of which (25.5%) was trade in services. Of the $3.89 trillion in merchandise trade, $1.55 trillion were exports and $2.34 trillion were imports.

Now, how were these imports and exports transported? Below are three Exhibits showing the modal shares of U.S. foreign trade in 2017 and through the first ten months of the asterisked 2018.

For starters, it’s useful to keep in mind that approximately 30% of the nation’s foreign trade is conducted with Canada and Mexico, and almost 90% of that commerce moves overland by truck, rail, and pipeline.

Another 15% or so of our foreign trade is comprised of non-containerized shipments of goods, typically commodities with very low value-to-weight/volume ratios. (Owing to our declining reliance on imported oil, it’s been a diminishing share in recent years, even before Chinese tariffs on U.S. soybeans shot up last summer.) Then there are the cornucopia of goods traveling in seaborne containers. Through October 2018, that trade represented 26.3% of the nation’s total merchandise trade.

Missing anything? Oh, yeah. Those uninteresting airfreight shipments. Through the first ten months of last year, they accounted for a 27.4% share of the nation’s merchandise trade. That’s right, airports handle slightly more of the nation’s international trade than do all the container terminals at America’s seaports.

Air freight’s role is more pronounced on the export side. (See Exhibit B.) That shouldn’t be surprising given the generally high-value, time-sensitive nature of what’s transported by air. In a high-tech economy like the San Francisco Bay Area, the great majority of the region’s exports depart through San Francisco International Airport. In 2017, SFO handled $29.13 billion in export shipments, as opposed to the $15.77 billion worth of containerized goods that sailed from the Port of Oakland. (Through October of 2018, the respective numbers are $24.54 billion and $14.02 billion.) It’s on the import side where the value of containerized trade reasserts itself. (See Exhibit C.)

In Southern California, the value of containerized imports handled at the Ports of Los Angeles and Long Beach dwarf the value of imports arriving at LAX. The neighboring seaports handled $283.63 billion in containerized imports in 2017 and $252.46 billion through the first ten months of last year. By contrast, import shipments at LAX totaled $56.21 billion in 2017 and $51.67 billion through October 2018.

Similarly, in the Pacific Northwest, the Ports of Seattle and Tacoma collectively handled $52.77 billion in containerized imports in 2017 ($46.25 billion through October last year) as opposed to just $9.53 billion (and $8.57 billion) at Seattle-Tacoma International Airport.

Things were different in the San Francisco area, however, where SFO handles the preponderance of the region’s import as well as exports. In 2017, aircraft delivered $34.49 billion in imports to SFO, while $26.15 billion in containerized goods were off-loaded at the Port of Oakland. The numbers for 2018’s first ten months were $29.86 billion at SFO and $23.12 billion at Oakland.

Not to diminish what seaports do, but it’s wise to remember that diamonds come in small boxes.

The commentary, views, and opinions expressed by Jock O’Connell are his own and do not reflect the views or positions of the Pacific Merchant Shipping Association. PMSA does not endorse, support, or make any representations regarding the content provided by any third party commentator.