Thank You, Mr. Musk (At Least For Now)
By Jock O’Connell
Among maritime industry leaders (and followers), the years-long slide in the U.S. West Coast’s share of inbound loaded containers from the Far East entering North American seaports has been grist for fretful conversation as well as spirited debate about who or what has been to blame. In its over three years of publication, this newsletter has documented that downward spiral in market share, much to the annoyance – I’m told – of some port officials.
By contrast, while there is general consternation along the USWC that East and Gulf Coast ports have succeeded in poaching a steadily growing portion of containerized imports from Asian suppliers, we don’t seem to fret much, if at all, about why USWC ports have not been similarly able to capture an appreciably greater share of America’s oceanborne trade with Europe.
For all the attention being lavished on China these days, it may be easy for some to forget that, while economic growth in the European Union has recently been stalling, its pre-Brexit GDP measured in terms of Purchasing Power Parity ($19.5 trillion) ranked ahead of the U.S. ($18.2 trillion) in 2018, with both trailing China ($22.5 trillion).
Last year, merchandise trade between the E.U. and the U.S. totaled $805.4 billion. That was considerably more business than the U.S. did with China in 2018 ($659.8 billion). And as U.S.-Chinese relations may well be devolving into a never-ending trade conflict, it’s useful to note that, while trade with China through this year’s first three-quarters amounted to $420.7 billion, our trade with the E.U. totaled $636.2 billion.
It is somewhat puzzling that, with all of pilfering of market share going on, the USWC ports’ combined share of U.S.-European Union maritime trade has been remarkably flat over the past decade and a half. In fact, the USWC share of the bilateral trade (measured in containerized weight) last year was 11.5%, precisely the share the ports of California, Oregon, and Washington held in 2003. To be sure, the amount of containerized tonnage shipped between the European Union and USWC ports did increase by 48.5% over that decade-and-a-half. But, while East and Gulf Coast ports (not to mention ports in British Columbia), were aggressively stealing transpacific cargos from USWC ports, West Coast ports were struggling to hang onto their historic sliver of the transatlantic container trade.
That should be puzzling. After all, it’s not as though the economies of the vast hinterland most readily served by USWC ports have not been expanding or their populations of the western states growing. Nor is it likely the case that residents of these states are unique in patriotically spurning European goods or having precious little to offer European businesses and consumers.
I recall that in the years of near panic after the Panama Canal Authority announced plans for a more capacious set of locks, USWC officials, fearing a market loss calamity, consoled themselves with the observation that a broader canal could prove to be a two-way street, bringing more than empty containers on east-to-west passages (or north-to-south, to be geographically accurate).
One reason why this prayer has not been appreciably answered may be that, at least in value terms, the majority of the trade between the European Union and West Coast gateways involves high-technology goods that are best transported by air. Last year, for example, U.S.-E.U. trade via LAX totaled $22.72 billion, dwarfing the $9.73 billion that moved through the Ports of Los Angeles and Long Beach. Further north, the Port of Oakland’s $6.38 billion in trade with the E.U. trailed the $8.22 billion that traveled via SFO. Sea-Tac’s $8.19 billion easily exceeded the $2.84 billion traded through the Ports of Tacoma and Seattle.
One bright spot in the maritime trade between the USWC and the E.U. has been the recent surge of electric vehicle exports, specifically those manufactured by Tesla in Fremont, California on the site of what had been the New United Motor Manufacturing (NUMMI) plant, an ill-fated joint venture between General Motors and Toyota. In January, Tesla began exporting EVs to Europe through the Pasha Automotive Services terminal Port of San Francisco’s Pier 80. The impact on trade statistics was as disorienting as it was immediate. Suddenly, tiny Belgium (population 11.4 million) overtook mighty Germany as California’s leading European export destination. Last year, it ranked not just in back of Germany but behind the Netherlands, the United Kingdom, and France, just beating out Switzerland (population 8.6 million). The main reason: the first port-of-call of the roll-on/roll-off (ro-ro) vessels carrying Tesla’s automobiles has been the Belgian Port of Zeebrugge near Bruges.
In a September 23 article, Forbes magazine reported that electric vehicles had become California’s 8th most valuable export, worth almost $3 billion in revenue—more than phones, pistachios, and even oil. “In 2019, California’s EV exports are poised to grow further – expected to hit $3.4 billion, which would have made it the state’s fifth most valuable export in 2018,” the article went on to state.
How permanent is this new trade in automobiles? Although Tesla is primarily responsible for this growth, a reduction in the federal tax credit for EV buyers wanting to buy a Tesla model also played a major role. The old $7,500 federal tax credit for EV buyers ramps down after an automaker reaches 200,000 cumulative plug-in electric sales, which Tesla did last year. The company’s federal tax credit has since dropped to $1,875 and will reportedly fall to zero in 2020. With the U.S. tax credit phasing out and presumably dampening domestic demand for Tesla vehicles, the Fremont firm will almost certainly seek to increase its deliveries to overseas markets.
Tesla's contribution to boosting maritime exports from the USWC (and particularly from the Port of San Francisco) to Europe may be short-lived, though. Earlier this month, Tesla’s CEO Elon Musk announced that a new manufacturing facility intended to serve the European market would be built outside of Berlin. If Musk has his way, the plant should be producing Tesla’s Model 3 sedan and Model Y compact sports-utility vehicle by sometime in 2021.
At least until then, a steady stream of ro-ro vessels will be calling at Pier 80.
Happy Thanksgiving.
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.