• ITVI.USA
    13,908.850
    -16.050
    -0.1%
  • OTRI.USA
    22.040
    -0.040
    -0.2%
  • OTVI.USA
    13,887.180
    -17.040
    -0.1%
  • TLT.USA
    2.640
    -0.010
    -0.4%
  • TSTOPVRPM.ATLPHL
    2.480
    0.060
    2.5%
  • TSTOPVRPM.CHIATL
    2.190
    0.050
    2.3%
  • TSTOPVRPM.DALLAX
    1.400
    0.180
    14.8%
  • TSTOPVRPM.LAXDAL
    2.730
    0.160
    6.2%
  • TSTOPVRPM.PHLCHI
    1.440
    0.040
    2.9%
  • TSTOPVRPM.LAXSEA
    2.870
    -0.010
    -0.3%
  • WAIT.USA
    108.000
    5.000
    4.9%
  • ITVI.USA
    13,908.850
    -16.050
    -0.1%
  • OTRI.USA
    22.040
    -0.040
    -0.2%
  • OTVI.USA
    13,887.180
    -17.040
    -0.1%
  • TLT.USA
    2.640
    -0.010
    -0.4%
  • TSTOPVRPM.ATLPHL
    2.480
    0.060
    2.5%
  • TSTOPVRPM.CHIATL
    2.190
    0.050
    2.3%
  • TSTOPVRPM.DALLAX
    1.400
    0.180
    14.8%
  • TSTOPVRPM.LAXDAL
    2.730
    0.160
    6.2%
  • TSTOPVRPM.PHLCHI
    1.440
    0.040
    2.9%
  • TSTOPVRPM.LAXSEA
    2.870
    -0.010
    -0.3%
  • WAIT.USA
    108.000
    5.000
    4.9%
American ShipperContainerMaritimeNewsRailShippingTrucking

East Coast ports poised to poach even more boxes from West

The shift of container shipping services toward U.S. East and Gulf Coast ports and away from West Coast ports is far from over, according to industry veteran John McCown, founder of Blue Alpha Capital and former CEO of liner company Trailer Bridge.

During a discussion presented by investment bank Stifel on Dec. 6, McCown noted that the East/Gulf Coast share of container imports among the top 10 U.S. ports has risen from 43% in 2015 to 47% this year. “I see that trend continuing to play out,” he asserted.

Panama Canal plus U.S. population

Two factors are fueling the transition: the larger locks of the Panama Canal, which opened in June 2016, and location density of the U.S. population.

“Ships [serving the East Coast] are now 58% larger than they were [prior to canal expansion],” he said. “That’s changed the economics of moving all-water to the East Coast. What used to be a really meaningful difference in the size of ships [calling at the West versus East Coast] has been fully mitigated. The ships are now the same size.

“The cost of moving freight by water is geometrically less than moving it by land,” he continued, estimating that it costs less than a $0.05 per 40-foot-equivalent unit (FEU) per mile (FEU-mile), versus “easily $2 by truck and close to $1 by rail.”

Ocean transport allows shippers to more cheaply move cargo to where their buyers are. “If you look at the density of the U.S. population relative to the coasts, it’s simply a closer distance to the U.S. East and Gulf Coasts – 76% of the population is closer to these coasts than to the West Coast,” he said.

Blue Alpha Capital founder John McCown. Photo courtesy of John McCown

“I don’t think it’s going to swing quite that far,” he added, referring to the current 53-47% West versus East/Gulf Coast split. “But we’ve been seeing a swing of 80-90 basis points [0.80-0.90%] per year in that direction [i.e. away from the West Coast ports] over the past three or four years and that will continue for a multi-year period,” McCown predicted, noting that Long Beach, California and Seattle/Tacoma, Washington have been particularly hard-hit by the coastal transition.

More room to grow

The East and Gulf Coast ports securing the most cargo growth in the years ahead are likely to be those that offer the best distribution center (DC) options for cargo shippers, he opined.

“Savannah has been a real out-performer because it realized that having large DCs around the port and marketing to the Walmarts and Home Depots and Amazons of the world rather than the carriers is the best strategy. You also see that in Houston.”

A key advantage going forward will be availability of land for DCs and other facilities. The largest ports are “often located in very large cities and those cities have grown up around them,” he said, noting that smaller up-and-coming ports such as Jacksonville, Florida are showing promise because they don’t face the same land constraints.

Trade-war impacts

McCown also commented on the trade war – how it is impacting overall inbound U.S. container traffic and how it relates to the East-versus-West-Coast issue.

He noted that the top 10 U.S. ports account for 90% of inbound containers, with 65% coming from Asia and 42% from China. He cited a “very meaningful impact from the China tariffs in October,” with the U.S. ports posting an 8.5% year-on-year decline in inbound container volume.

Chart courtesy of Blue Alpha Capital

As previously reported by FreightWaves, there was significant “frontloading” of U.S.-bound cargoes in second half of 2018 as shippers sought to bring in boxes prior to potential tariffs. One possible reason for the sharp decline in October 2019 might be that the “comps” are getting tougher due to frontloading behavior the year before.

This dynamic is very evident in container-shipping prices tracked by the Freightos Baltic Daily Index. Over the past six months, pricing on the China-to-U.S. West Coast (SONAR: FBXD.CNAW) route has been much lower than in the same period last year, but roughly on par with the second half of 2017.

To the extent there was frontloading to avert tariffs, McCown said it would almost certainly involve shipments to California or Washington state “because there would be two to three weeks more transit time to the East Coast and if you’re trying to get there before an increase in tariffs, you’re always going to defer to the West Coast.”

Blue Alpha’s data shows that in October 2018, inbound container volumes to U.S. ports increased by about 14% versus October 2017. Those gains were indeed driven by the West Coast, where volumes were up about 17% in October 2018 year-on-year, with the East Coast volumes up by just under 10% that month.

Fast-forward to this October and the trend reversed: West Coast inbound volumes were down by almost 15% year-on-year and East Coast volumes were down by only around 2%.

Chart courtesy of Blue Alpha Capital

As long as the trade war persists, the East Coast will have several advantages, believes McCown.

More of the trade on the East Coast is tied to Europe and South America, which isn’t really affected by the current tariff situation. Also, the tariffs are driving imports [from China] to places like Vietnam. The more you move into Southeast Asia, the more it becomes geographically closer to the East Coast by shipping westbound through the Suez Canal,” he said. “So, all else being equal, the [trade war] situation favors the East Coast relative to the West Coast.

Asked whether an end to the trade war would shift the pendulum back to the West Coast, he maintained that it would not. “I don’t see it going back. I think it’s a structural change,” he said.

“Between the expanded Panama Canal and the bigger ships and the increased use of the Suez Canal from Southeast Asia, you’re going to see more volume to the East Coast. This will have an impact on both trucking and rail firms, and I think you will continue to see this transition play out for years to come. Supply chains don’t adjust overnight.” More FreightWaves/American Shipper articles by Greg Miller  

Editor’s note: Freightos has a business agreement with FreightWaves that includes editorial coverage.

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Greg Miller, Senior Editor

Greg Miller covers maritime for FreightWaves and American Shipper. After graduating Cornell University, he fled upstate New York's harsh winters for the island of St. Thomas, where he rose to editor-in-chief of the Virgin Islands Business Journal. In the aftermath of Hurricane Marilyn, he moved to New York City, where he served as senior editor of Cruise Industry News. He then spent 15 years at the shipping magazine Fairplay in various senior roles, including managing editor. He is currently sheltering in place in Manhattan with his wife and two Shih Tzus.

3 Comments

  1. Some very cogent points reflecting some of the key issues involved. But one might include how many shipper interests also want to avoid the West Coast due to labor disruptions, which in the past has cost in the tens of billions of dollars. The word poaching doesn’t really seem to fit, there’s been a shift for the various reasons, poaching would indicate some form of illegal activity. And the differences of “two to three more weeks transit time” may be true in some instances, but not a majority of services.

    1. Good point! We’re all getting tired of the labor disputes and now this new law with the leased owner operators and company crap that has a bad smell to it. Also was mentioned about the population density comparison of east coast and west coast is a very valid observation. Due to the extremely expensive cost if living on the west coast, folks are getting priced out of places to live and are moving away from the west coast. Even though tech corporate headquarters are out there, other locations like Texas and Georgia and other Southeast states are rolling out the welcome mats with all kinds of tax breaks and easy access to shipping ports and railroads accompanied with major trucking hubs long and short haul like Atlanta and Savannah. The movie industry as well as agricultural and bulk commodities are thriving in the in the southeast which also utilizes the divers transportation hub thats in place and growing. Makes sense that the pendulum would swing towards the east and definitely the southeast!

  2. Great insight and extremely well broken down article that I posted on LinkedIn! (had to share your research)!
    Many. many factors to take into account when coordinating global door to door solutions.
    Thanks very much.
    Jason

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