What U.S. West Coast Ports Export

By Jock O’Connell

Most of us succumb at least periodically to the urge to elevate the significance of our occupations or preoccupations to the highest reaches of what metaphysicians might call “the whole scheme of things.” Back when coffee shops were open, baristas would do this all the time. Turning out a proper macchiato was thought, at least on their side of the counter, to require so much more skill than brain surgery that even the most generous tip would not deter them from flashing a haughty sneer.

Like a host of other periodicals devoted to maritime trade, this newsletter admittedly obsesses about the movement of TEUs, especially on the inbound trades. And we’re not alone in dramatizing the role of containerized trade. Hardly a media outlet reports on the nation’s foreign trade without displaying an image of towering cranes perched over gargantuan vessels laden with thousands of metal boxes. So, at least the public can be excused for thinking that the business of importing and exporting is pretty much confined to the waterfront.

A problem, however, arises when those who should know better begin to think the same way.

Take, for example, the chatter we’ve been hearing lately from maritime leaders about the desirability of a national export strategy. In the past, calls for the federales to promote U.S. exports more aggressively have customarily had the goal of creating more manufacturing jobs to counter the hollowing-out of the nation’s middle-class or at least winnowing down the nation’s worrisome but chronic foreign trade deficit. By contrast, the current talk about a national export development program seems to be driven chiefly by a desire to better balance the demands being placed on the nation’s goods movement infrastructure, especially at U.S. seaports. The notion that a more equitable balance can also be achieved by reducing America’s dependence on foreign manufacturers is apparently not on the current agenda.

Last month’s PMSA newsletter addressed the very sizable imbalances between the number of loaded import containers and loaded outbound. At the Port of Long Beach, inbound loaded TEUs exceeded outbound loads by a 3.5-1 ratio in September. The situation is not much different next door at the Port of Los Angeles. At the Port of New York/New Jersey, the ratio in September was about 3.3-1.

Let’s stipulate that this is not a universal issue. Of the sixteen U.S. ports this newsletter routinely tracks, the ratio of inbound loads to outbound loads in September was 2.2-1. And some ports – Oakland, Port Everglades, JaxPort, and New Orleans – actually shipped more loaded containers than they received that month.

However, let’s also stipulate that trade in TEUs has seldom been as imbalanced as it has been lately. A year ago, in October 2019, Long Beach handled about 2.6 inbound loaded TEU to every outbound load. At Los Angeles, the ratio was 2.8 to 1. This October, the ratio for both ports was 3.5-1. It is therefore not unreasonable to expect that, once the import surge subsides, the imbalances at the San Pedro Bay ports will revert to levels they had long been accustomed to. Momentary crises do not always require massive intervention by the federal government, and I would expect that today’s fervent demands for a national export initiative will be muted as soon as a semblance of normality returns.

Still, most everyone associated with supply chain management thinks the current imbalances are not healthy. Terminal operators, truckers, and railroads all agree that too much traffic moving in one direction strains their capabilities and prevents them from providing their services as expeditiously as possible. Whether a national export strategy would have a salutary impact in boosting exports of the kinds of goods that typically get stuffed into containers is another question. (I am consciously leap-frogging the more fundamental issue of whether, given the fractured political climate in Washington, devising such a strategy is even remotely possible.)

But let’s step back and look at what we’re talking about here with the aid of a few relevant if impertinent numbers. In a more congenial, bipartisan climate, politics would demand that a national export strategy would have to boost overseas shipments from more than a few industrial constituencies. But the talk we’re hearing seems limited to bolstering exports of the kinds of goods that normally fill containers.

But before even identifying those commodities and how closely they comport with a countrywide economic agenda, the first order of business is to recognize that, frankly, America’s foreign trade is not all about goods shipped by sea in metal boxes.

The state of a national economy is not measured in TEUs. Rather, gross domestic product – the standard, if deeply flawed, calculation of economic robustness -- is expressed in terms of a nation’s currency. For the United States, GDP in 2019 totaled $21.73 trillion, according to the Bureau of Economic Analysis in the U.S. Commerce Department. (BEA is the official scorekeeper with respect to GDP.) No doubt the final number for 2020 will be rather lower owing to the pox.

U.S. merchandise exports, meanwhile, totaled $1.74 trillion in 2019, up from $1.67 trillion the year before. (Through the first three quarters of 2020, merchandise exports are running 10.7% behind last year.) Those numbers represent about eight percent of U.S. GDP. If that relatively modest percentage seems low, we need to appreciate that services account for roughly two-thirds of America’s economic output.

Next up to ponder is the question of how those tangible goods we do export are transported.

Let’s look at the last fairly normal year for U.S. trade, 2017. That was before President Trump got around to imposing tariffs on friends and not-so-friends alike. The first thing to realize is that, even before the outbreak of bilateral trade hostilities, China was not America’s chief export market. That status went to Canada and Mexico. Together, the two accounted for 34.0% ($526.38 billion) of the $1,547.20 billion in U.S. merchandise exports that year. All but around five percent of our exports to Mexico and Canada went by road, rail, or pipeline. Meanwhile, airborne shipments accounted for another $462.52 billion (29.9%) of the nation’s overall export trade, while non-containerized oceanborne shipments were valued at $581.08 billion (37.6%). That leaves the $264.94 billion (17.1%) in merchandise exports that sailed from U.S. ports in containers. That’s a meager share for a trade that is often offered up as the be-all and end-all of global trade.

By 2019, the value of America’s merchandise export trade had grown to $1,643.16 billion of which $549.20 billion (33.4%) went to Canada and Mexico. Airborne exports ($495.81 billion) accounted for 30.2% of all merchandise exports last year, while non-containerized oceanborne shipments accounted for $301.29 billion (18.4%). Containerized exports amounted to $284.99 billion, a 17.3% share.

There is, to be sure, no question that maritime shipping does the heavy-lifting in supporting the nation’s export trade. The tonnage involved in airborne exports last year was barely 2.5% of the tonnage shipped overseas by container. But, even excluding exports of petroleum and coal, which generally have represented nearly half of America’s oceanborne exports by tonnage, much of what we export by sea falls into the category of relatively low-margin merchandise. Goods that boast high value-to-weight ratios or which just simply have to be there tomorrow generally fly to market.

Any plan to grow the number of laden export containers leaving USWC ports has to reckon with two realities. The first is the disconnect between the national and regional goods-producing sectors and the types of commodities that typically are shipped abroad in containers. The other is that filling otherwise empty outbound TEUs with new cargo could drive up shipping rates to the extent many of the low-value commodities we now export would be priced out of foreign markets.

For USWC ports, the challenge of filling outbound TEUs with the output of local industry is especially daunting. With its proliferation of high-tech companies, nearly half (46.8%) of California’s $174.03 billion merchandise export trade last year went by air. The role of containerized trade to the economies of three West Coast states varies by Customs District. The presence of the huge maritime trade complex in Southern California helped boost the containerized export share of all exports from the Los Angeles Customs District to 47.5% (2019). At the opposite end of the scale, with Boeing as the region’s dominant exporter, only 16.1% of all exports from the Pacific Northwest Customs Districts were shipped in marine containers. As for the high-tech San Francisco Customs District, the $30.99 billion in airborne exports easily eclipsed the district’s $18.51 billion in containerized shipments.

Exhibit A lists the Top 25 export commodities (by weight in kilograms) from USWC ports in 2019 along with the portion of those shipments that were transported in containers. Overall, 40.1% of the tonnage exported from USWC ports last year traveled in containers. What may be worth noting is the fairly negligible shares of the heaviest commodities that were containerized.

Exhibit B shows the average dollar value per kilo for the 25 leading containerized exports from USWC ports last year. The fact that so few of these commodities report a value of more than a buck-and-a-quarter a kilo points to a potential dilemma: would an aggressive export promotion strategy, by driving up demand for outbound containers, cause future shipping rates to be unaffordable for those exporters now accustomed to stuffing outbound TEUs with low-value stuff?

Happy Thanksgiving.

Disclaimer: The views expressed in Jock’s commentaries are his own and may not reflect the positions of the Pacific Merchant Shipping Association.