Trade with Asia Remains Healthy, but Uncertainty Looms
September 1, 2018
Ports on the US west coast (USWC) had a strong 2017, especially in regard to imports from Asian countries. But due to the Panama Canal expansion project, completed in 2016, East Coast and Gulf ports are gaining a lot of ground.
The five largest USWC ports imported 54.2 million metric tons from Asia last year, according to the Pacific Merchant Shipping Association (PMSA). East Coast ports did, however, gain 2.5 million metric tons in imports from Asia, compared to just 1.5 million metric tons on the west coast. Despite these gains in the East, tariffs still pose the biggest threat to both import and export volumes on the west coast.
USWC exports didn't see the gains that imports saw, with the San Pedro Bay ports of Los Angeles and Long Beach recording a small 0.7 percent increase from 2016. Other ports, like Oakland and the Northwest Seaport Alliance (NWSA) of Seattle and Tacoma saw decreases in export volumes.
The balance of power between the two coasts has shifted gradually, and PIERS data shows that the USWC now has about 44.9 percent market share, compared to more than 50 percent in 2010. So far in 2018, the market share slide doesn't appear to be changing. Although cargo handling volumes through May at the largest USWC ports are up 2.1 percent compared to the same period in 2017, the gains aren't on pace to exceed the 6.6 percent year-over-year increase these ports saw throughout last year.
Mixed Results at west coast Ports
In the San Pedro Bay as a whole, the modest 3.7 percent year-over-year increase through May overshadows some record numbers at the Port of Long Beach.
According to Lee Peterson, media relations manager at the port, 2017 was Long Beach's "biggest year ever and our first year after 2008 that we surpassed pre-recession levels."
The port moved 7.5 million twenty-foot equivalent units (TEU) of cargo last year and has posted strong numbers since then. It showed no signs of slowing down, breaking a monthly record this past June with more than 752,000 containers moved. Peterson attributes these healthy numbers to increased consumer demand in the U.S.
Roughly 85 percent of the cargo handled by the Port of Long Beach comes from Asia and Australia, with the Port of Los Angeles sharing a similar breakdown. Through April, PMSA reports that the latter port saw decreases of 2 and 4.7 percent, respectively, in year-over-year inbound and outbound container volumes.
Year-over-year gains through April in Oakland were slight, with the port seeing just a 1.2 percent increase in import tonnage and a tiny 0.5 percent increase in exports.
Oakland does about 70 percent of its trade with Pacific Rim countries, and China, Japan, South Korea, Taiwan, Thailand and Vietnam are among its largest trading partners, according to Port of Oakland Communications Director Mike Zampa.
Through May, trade with Japan has declined by about 15 percent year-over-year, driven by a striking 45 percent decrease in imports, according to World City trade numbers. The port has recently tried to court more trade with Japan, and executive director Chris Lytle called the country a "large and very important part of our business" in a July article for Logistics Management magazine.
On the other hand, Vietnam recently overtook Germany as a top five trading partner at the Port of Oakland. Trade with the southeast Asian nation is up 23 percent through May.
PMSA's June report states that, since the recession, import tonnage at the Northwest Seaport Alliance (NWSA) ports has fallen by 11.7 percent, while export volumes have seen a lesser decrease. Year-over-year import numbers were down by 8.8 percent, while export numbers were up by 1.7 percent through the first four months of this year.
Although China ranks as the leading trade partner for the NWSA, export volumes to this country have fallen significantly, especially at the Port of Tacoma. However, these losses have been partially offset by rising exports to Vietnam in the form of agricultural commodities like corn. Tacoma reports a 59 percent year-over-year increase in trade with Vietnam through May. Trade with Japan has also fallen at both NWSA ports, with imports suffering the most.
Asian Trading Partners
China remains the largest trading partner for USWC ports in terms of tonnage, although the nation's dominance in west coast trade has diminished slightly. According to PMSA's April numbers, China was responsible for 29 percent of all exports from the west coast and 53 percent of imports – that's down from 35 percent and 55 percent during the same month last year.
The ports of Los Angeles and Long Beach have increased their business with China for the first five months of 2018, reporting year-over-year gains of 6.87 and 18.33 percent.
Electronics like cell phones, computers and their related parts rank as the most valuable imported products from China. Imports of these electronics, especially at the San Pedro Bay ports, have risen since last year. Los Angeles and Long Beach have also increased their imports of motor vehicle parts since 2017. These two ports together import more than 50 percent of all Chinese auto parts that are shipped to the United States by sea.
Civilian aircraft continue to be a major US export to China, but the once-dominant Port of Everett has lost some Chinese trade to the East Coast. In terms of the dollar-value of civilian aircraft exports shipped to China, the Port of Charleston now holds about 76 percent market share, up from 45 percent throughout 2017.
China imports a lot of US agricultural products as well, and soybean exports were up through May. The Port of Kalama, for example, saw soybean export volumes of 1.43 million tons, already exceeding last year's volumes. However, this was likely due to the Chinese stocking up on US soybeans prior to the July tariffs taking effect – a phenomenon on which the New York Times and Wall Street Journal both reported.
Japan's import and export volumes to the west coast are down ever so slightly this year, PMSA has reported.
The west coast's largest import from Japan, by far, is automobiles, most of which come in through the Port of Los Angeles. It should be noted that this port handles 24 percent of all US maritime trade with Japan. The west coast Port of Everett still exports a high volume of civilian aircraft parts but has lost market share to the East when it comes to Japan, as well.
Vietnam has steadily risen as a west coast trade partner in recent years and is now the third-largest partner in terms of import tonnage, and fifth-largest in terms of exports. World City's trade numbers report that Vietnam does well more than 60 percent of its trade with USWC ports, with 43 percent of cargo, in terms of value, being handled by the Port of Los Angeles.
Trade with Vietnam has especially increased when it comes to furniture. The United States now receives about half of the nation's furniture and furniture parts. Tonnage-wise, furniture was the leading import at Los Angeles, Long Beach and Oakland through 2017, although it's worth noting that the majority of furniture imports still come from China, according to the American Journal of Transportation (AJOT).
USWC ports, especially those in the Pacific Northwest, have begun exporting more agricultural products to Vietnam over the past year. Corn exports, in particular, have skyrocketed from under $800,000 in 2017 to more than $200 million through the first five months of this year, according to World City. The ports of Longview and Kalama in Washington state each exported more than $60 million in corn to Vietnam through May - a combined weight of about 821,000 tons. But another agricultural product – cotton – is now the leading US export to Vietnam in terms of dollar value, and shipments of this commodity through May of this year have already exceeded 2017 values.
Trade volumes with South Korea, the fourth-largest export partner and fifth-largest import partner for the USWC, remain stable. As with Japan, automobiles are the most significant import from South Korea, and the ports of Hueneme, Portland and Tacoma are on pace to exceed their import volumes from 2017.
Taiwan continues to be a large net importer to the United States, with the Port of Los Angeles handling the most cargo, by a margin of about $4 billion. Exports to Taiwan from the Port of Los Angeles have surged year-over-year through May, however, driven in large part by high soybean volumes (about 263,000 tons).
Other countries like Thailand, Malaysia, the Philippines, Indonesia and Singapore also do a significant amount of trade with the west coast. The Port of Los Angeles, which handled $12 billion in cargo from these nations through May, is the main gateway for imports from these southeast Asian nations. Agricultural exports like corn, soybeans, cotton and wheat are also shipped to southeast Asia from ports in Washington state and other locations.
The Future of west coast Maritime Trade
Looking at southeast Asia, west coast ports could see higher trade volumes with the Philippines going forward, as representatives from the country plan to meet with US trade officials in September to discuss a free trade agreement. In 2017, the San Pedro Bay ports handled about one-eighth of all US trade with the Philippines. If a trade agreement takes effect in the next year or so, the two largest ports on the west coast might witness increased imports of agricultural products, textiles and other goods.
The US already has a free trade agreement with Singapore, but tariffs on solar cells, steel and aluminum could result in a small decrease in imports from this country going forward. Trade with other southeast Asian nations stands to increase in some areas and suffer in others, as a result of protectionist economic policies.
Malaysia's solar panel exports to the US will certainly suffer a blow, but their chemicals might soon offer a competitive alternative to Chinese chemical imports, ASEAN Business reported.
The trade situation with Indonesia is a little more tense. This past April, the office of the US Trade Representative announced plans to scrutinize the country's relationship with Indonesia, which exports textile products and some foods to the west coast, according to The Straits Times. Although relations between the two countries are still healthy, a decrease in agricultural exports like soybeans could have a big impact on ports in Washington state.
But the recent tariff exchanges between the US and China pose the greatest danger for west coast trade with Asia. In July, China imposed $50 billion in tariffs on US cars, soybeans and agricultural products in response to US tariffs on Chinese semiconductors, electronics and other goods. While it's still too soon to determine the full impact of tariffs, many ports can estimate their exposure.
Representatives from the ports of Los Angeles and Long Beach, for instance, both estimate that about 6 to 15 percent of their cargos could be affected by the Chinese and American tariffs imposed in early July.
Oakland reports a similar picture, and Zampa commented on the potential impact of tariffs.
"Only one percent of imported TEUs from China (based on 2017 cargo numbers) will potentially be affected by higher tariffs; an estimated 3,400 TEUs, or commodity value of $223.8 million," he said in an email. "The potential impact on exported cargo may range from 4.5 percent to 11.5 percent of exported cargo to China, or about 10,300 to 26,200 TEU. This is primarily agricultural commodities."
Zampa also said the Port of Oakland has noticed reduced volumes of exported waste material, due to China's new standards on imported plastics, unsorted paper and other types of recyclable materials. His port is hardly alone.
From January through May, the Port of Los Angeles has seen a 25.5 percent decrease in exported paper and paperboard, a category which encompasses many of the items China banned last year. The port exported just 58,674 TEUs of this material to China itself, compared to 89,427 through May of 2017, according to internal port data.
Going forward, agricultural goods may be threatened more than any other exported commodity.
Eric Schinfeld of the port of seattle says the US tariffs, and subsequent retaliations by other economies, could effect "about $13.5 billion worth of our two-way trade." He said a majority of that $13.5 billion is trade with Asia.
NWSA exports large volumes of grain to Asia, and soybeans are the alliance's leading exported commodity. Many other Washington agricultural goods are also shipped from NWSA's ports.
"India has a pretty big impact as well, because India's put retaliatory tariffs on apples, which is a big business for us," Schinfeld said.
Although he's very concerned about the current climate, Schinfeld added that the $200 billion tranche of tariffs, proposed by the Trump administration after China's retaliatory measures in early July, could impact cargos on a much wider scale. Hearings regarding these tariffs, which include Chinese textiles, electrical machinery, petroleum products and agricultural goods, occurred on Aug. 20-23.
The Port of Portland, which isn't part of NWSA, exports more automobiles than anywhere on the west coast, but also ships high volumes of soybeans that come in from the Midwest.
"Right now, approximately half of the tariff‐impacted exports from Oregon can be tied to automobiles and soybeans," said Melanie Mesaros, media relations manager at the port. "We expect soybeans to be impacted the most; however, soybeans won't start shipping until around November (or) December."
After a healthy 2017, and some promising developments on the west coast so far this year, current tariffs don't seem like they will seriously cripple trade with Asia. But escalating tensions could pose significant risks, especially for ports with less diverse cargo streams.