The High Price of our Container Market Share Decline

By Mike Jacob, President, Pacific Merchant Shipping Association

Anecdotally, we are all familiar with the benefits of trade.  They are direct and personal, as well as broad and regional.  When containers are moved through our West Coast ports, jobs for individuals are created, and the economy and tax revenues grow.   But, when these containers bypass our ports and instead go to competitors, like those in Houston, Savannah, or British Columbia, they take these jobs, and their economic activity and tax revenues with them.

One of the most pervasive and consistent trends facing West Coast seaports since 2006 has been our loss of containerized market share to these competitors.  While ports across North America were growing their market share at our expense and logging double- and triple-digit rates of growth, even after accounting for the impacts of the Great Recession and the pandemic, total container volumes lagged in our portion of the transpacific trade. 

Specifically, after 17 years, when compared to 2006, volumes in 2023 at the Ports of Los Angeles and Long Beach grew only 6% or roughly at a compound annual growth rate of just over 0.3% per year.  When comparing 2006 to 2019 volumes, taking out the boom and bust of the pandemic container cycle, the compound annual growth rate for the San Pedro Bay ports was still just under 0.7% per year.  By contrast, the Port of Savannah from 2006 to 2019, grew at a 113% clip, and through 2023 by 128%, at a compound annual growth rate of 5% -- that’s 7x faster.  Per year.

Over this same period of time, another pervasive and consistent challenge has been to effectively measure, characterize, and quantify the many significant opportunity costs that have resulted in West Coast communities as a result of this lost growth.   A recent economic impact Study completed by the California Center for Jobs & the Economy, entitled the “Economic Importance of Trade & the Ports to Southern California,” has put together a comprehensive analysis which has quantified these costs which have resulted from the impacts of reduced market share. 

If we had been able to maintain our 2006 market share in 2022, our cargo volumes would have been 23% higher.   The economic impacts from our reduced market share, which are the opportunity costs of lost containers from Asia that are going to competitors, are dramatic:

·        Annual loss of 45,400 jobs in Southern California

·        Annual lost income for workers of $3.86 billion – this equals a cumulative loss of income to Southern Californians since 2006 of $30.9 billion (in 2022 dollars)

·        Annual total economic value added to the Southern California economy of $5.48 billion – equal to a cumulative loss since 2006 of $43.8 billion

·        Annual total economic output in Southern California is $9.67 billion – equivalent to a cumulative loss to the Southern California economic output since 2006 of $77.4 billion

And, it isn’t just workers losing wages and the economy losing activity that results from the diversion of cargo, but one of the unintended consequences is a significant reduction in total state and local tax revenues.  These revenues are derivative of workers’ wages and economic activity

·        Annual loss of state and local tax revenue of $560.9 million in 2022

·        Total cumulative losses of state and local tax revenues of $4.5 billion since 2006

And, as significant as these cumulative impacts and losses are, when one considers the demographics of where these negative job and income impacts are concentrated the key economic findings reveal that these opportunity costs are even more substantive.  When we lose cargo, these impacts of lost income, lost jobs, and lost economic opportunity are not spread evenly across all demographics, rather they hit blue collar, middle class, latino, and immigrant households the hardest:

·        Trade jobs are one of the region’s most significant source of middle-class jobs for lower-skilled workers, with 2/3 of jobs in the Southern California trade cluster only requiring a high school diploma or less. 

·        Trade jobs are the second-largest source of jobs for Latinos in Southern California.  

·        41.5% of Trade workers in Southern California are immigrants, compared to an overall regional average of 34.6% of workers.

As we continue to move forward with policymaking in the trade, logistics, and supply chain, it is imperative that we start making the case for the economic benefits of growing the volume of trade at our San Pedro Bay Ports.  Not only do we facilitate the generation of additional port revenue to pay for infrastructure for both freight transportation and environmental improvements at the ports, but we create jobs, economic activity, and new tax revenues throughout the entire economy.  Otherwise, we leave these benefits to our competitors, who are not just diverting a container away from our ports, but diverting a healthy and growing economy away from Southern Californians.