While the Port of Los Angeles’s Executive Director Gene Seroka was in Asia and Australia this week to meet with various groups to promote trade with LA, he was interviewed by Bloomberg Asia’s Heslinda Amin and David Ingles to discuss both where the Port stands at the midpoint of the year and just before its peak season; and, the impact of ongoing national policy efforts to de-risk supply chains from China. Seroka ascribes much of this year's cargo decline to high post-pandemic inventory levels and to the movement of some cargo (de-risking) to other ports around the country, Seroka notes, as well, that the Port’s long-shore labor negotiations, which took place until a tentative agreement was reached in June, made some shippers wary of doing business with the Port of Los Angeles.
Heslinda Amin: We’ve talked about how crude prices have jumped. What assumptions are you making about freight rates? We've seen a jump in freight rates as well?
Gene Seroka: Right. It's a supply-demand curve that's now in the corner of the cargo owner. We've seen new capacity come online--that's the new build capacity that so many of us have been talking about for years--starting to make its way into the trade. Having additional capacity means price compression on the downside.
Heslinda Amin: Talk to us about capacity. What are you anticipating in the coming months? We know that peak season demand should be seen in the next one or two months. What are you anticipating?
Gene Seroka: A kind of a muted peak season simply because inventory levels in the United States are still high. The Federal Reserve says that those inventories are at about 1.40 on the inventory sales ratio. That means that for every sale, you’ve got about 40 percent more back in the warehouse. Experts would like to see that at about 10 to 15 percent. We'll see a kind of softer than normal peak season, but the American consumer remains resilient.
Heslinda Amin: We’ve talked about how US retailers have been de-stocking. How much is that impacting you? What does it say about the overall economy?
Gene Seroka: Yeah, those sales prices still continue throughout the retail market. For the Port of Los Angeles, volume through the midway point of the year is down 23 percent compared to last year, and that's really riding on the tails of that inventory that's so high. We're about 12 percent below the five-year running average, so we have yet to recover from pre COVID numbers.
David Ingles: Gene, it’s David here in Hong Kong. I was going to ask what you're doing in town. I'll do that next, but I'm just curious to ask because you just mentioned something: what's your outlook for the second half [of the year]? Do things improve? Will things be better than the first half?
Gene Seroka: At the Port of LA, things will be better.
But we also saw a purposeful shift of cargo, last year at this time, from the West Coast gateways to the East and Gulf Coasts of the United States. It was really because there was trepidation about the long shore labor negotiations that became protracted and covered about 13 months’ worth until that tentative agreement was reached back in the middle of June.
David Ingles: So, that labor deal is in place?
Gene Seroka: It’s a tentative agreement. They're going through their democratic process at the International Longshore and Warehouse Union right now. I expect a vote with results by the end of the summer.
David Ingles: Understood. Sir, what are you doing in town?
Gene Seroka: I started off in Hong Kong on Friday. I’m in Singapore today, and I'll be going down to Melbourne tomorrow evening. All are to be at supply chain symposiums arranged by third party logistics company: APL Logistics. We’re meeting with different verticals of customers among retail, industrial, and automotive to talk about broader economies and an attempt to bring more cargo back to Los Angeles.
Heslinda Amin: Yeah, that's the thing, right, Gene. You kind of lost market share during the labor strikes. I'm just wondering, how much of that is lost permanently? How much will you regain?
Gene Seroka: History has shown that some of the cargo will stick to the other coast, Heslinda, but it's my job to go after every pound of freight possible. We saw that basically 15 percent of our cargo moved to these other gateways during those negotiations.
While there was no strike, there were a couple of days there that were a little dicey as we headed toward the completion of that tentative agreement. Now it's up to us to bring back that cargo, but it's going to take an industry push, not just one firm.
Heslinda Amin: The other issue is also de-risking. We have the US and we have Europe trying to de-risk supply chains from China. Is that impacting you in any way? Are you concerned?
Gene Seroka: It has for the last 20 years.
You've seen folks go to a four corners strategy in the United States, which is port diversification, to de-risk what could take place at some of the larger gateways. We've seen market share in Los Angeles dissipate from about 50 percent of the nation's imports down to 33 percent. That is all because of the cargo moving to these other gateways. Folks have invested a lot in and hired really switched on people to lead their efforts and align with policymakers.
Heslinda Amin: We’ve been talking a lot about the sluggish Chinese economy. Might that impact you in the end because this is the largest trading partner for a lot of countries around the world?
Gene Seroka: 57 percent of the Port of Los Angeles’s cargo last year was trade with China. That's a high watermark for us that we may not see in the future, but with the second quarter GDP at 6.3 percent and the first half at 5.5 percent for China, it's got folks worried. Still, that trade that's been in place for decades will continue, though I see a lot more cargo shifting here to Southeast Asia.
Heslinda Amin: There’s a question mark whether they can meet those GDP numbers given what we're seeing right now.
Gene, thank you so much.