Los Angeles Imports Slump Further As Congestion Throttles Volume

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Import volumes to Southern California ports continue to deteriorate, underscoring just how severe the supply chain crisis remains, despite public relations spin to the contrary.

Los Angeles disclosed on Thursday that it handled just 385,251 twenty-foot equivalent units of import cargo in December. That's down 16% year-on-year and down 18% from December 2018, pre-pandemic.

December marked the fourth month in a row that Los Angeles' imports fell versus the preceding month; imports were down 4.5% from November and 17.6% from October. December imports were the lowest since June 2020, a month when ocean carriers were canceling sailings to America due to lockdown-depressed demand.

Los Angeles' December export performance was even worse: Exports were down 41% year on year to 70,872 TEUs, the lowest monthly tally since October 2002, almost two decades ago.

Chart: American Shipper based on data from Port of Los Angeles

Los Angeles' import slide mirrors the trend at neighboring Long Beach, which reported December results on Jan. 19.

Long Beach handled 358,687 TEUs of imports in December, down 12% year on year and down 1% from November, marking the second straight month of declines.

Why LA/LB import volumes matter

There is now an intense focus on measuring supply chain pressure, particularly given its presumed effect on Federal Reserve policy decisions, and thus tens of trillions of dollars of bets on stocks and bonds.

There is a crowded field of bellwethers on supply chain pressures, ranging from spot rate indexes to a new Fed index to an index measuring transit time. Another way to gauge supply chain pressure, one that is particularly telling: Watch the changes in import volume to Los Angeles/Long Beach, the gateway handling 40% of the country's inbound containers.

Normally, the LA/LB import tally doesn't measure supply chain stress, it measures import demand, which fluctuates due to seasonal and economic factors. For the past year, however, there has been a growing armada of container ships anchored or loitering in the Pacific waiting to unload at LA/LB. 

More import volume is stuck aboard ships waiting to unload than the two ports handle in a month. Regardless of the level of U.S. consumer demand, demand for LA/LB terminal handling services now drastically exceeds supply as a result of the backlog — and whether there are 80 ships waiting or 105 ships has no effect on LA/LB throughput in any given month.

As a result of the massive offshore backlog, changes in LA/LB container imports are not reflecting month-to-month changes in import demand, they're reflecting changes in the ability of the LA/LB gateway system to handle inbound volumes from the queue. 

Under these circumstances, if LA/LB import volumes rise in a given month versus the preceding month, it indicates that the landside bottleneck situation is alleviating. If LA/LB import volumes fall, it means the landside bottleneck is getting worse.

Import volumes vs. ship capacity in queue

Southern California import trends imply that the landside bottleneck situation — driven by constraints on terminal space, trucking and warehousing —  is getting worse.

Combined LA/LB imports totaled 743,938 TEUs in December, down another 3% from November and 13% from October. Combined imports haven't been this low since June 2020.

John McCown, founder of Blue Alpha Capital and publisher of the monthly McCown Container Volume Observer, told American Shipper: "The December data is concerning in terms of both level and trend. LA/LB inbound volume is the lowest it's been in 18 months. With the readily available backlog, the problems are clearly in the terminals and unfortunately the data indicates the problems are getting worse."    

The effects of congestion can be seen by comparing December's imports to May's. In May, LA/LB handled a record 980,450 TEUs of imports. Given the backlog, LA/LB theoretically could have matched or exceeded that May record in December — after all, there was no shortage of cargo stuck offshore to unload — but due to landside constraints, the LA/LB imports in December were down 236,512 TEUs or 24% versus May. 

The capacity stuck in the offshore backlog rose sharply in the second half of 2021.

American Shipper compared the combined monthly import numbers of LA/LB to the TEU capacity of ships waiting in the queue as of the last day of the month, based on data from the Marine Exchange of Southern California. (Ship capacity is not the same as TEUs of actual cargo on board, but given that ships are sailing full, it's a strong indicator of actual cargo trends.)

The data reveals that offshore capacity in the queue came in just below LA/LB import volumes in November and then handily exceeded import volumes last month. Between May and December, the month-end queue jumped in capacity by almost 650,000 TEUs. (Queue capacity has remained relatively stable through January versus the end of December.)

Chart: American Shipper. LA/LB import data from ports of Los Angeles/Long Beach. Data on total TEU in the queue at the end of the month calculated by American Shipper based on data from the Marine Exchange of Southern California.

A different story

The press releases and media headlines on Los Angeles/Long Beach over the past week painted a different picture than the one shown by falling import and export data.

The recent public relations focus has been on the year-end total throughput number. That number reached an all-time high for 2021 as a result of gains back in the first half.

In its press release, the Port of Long Beach touted the "incredible milestone" of moving 9.38 million TEUs in 2021, up 15.7% from its previous record in 2020. Its December import decline was addressed fleetingly in the last paragraph of the release.

Los Angeles held its annual State of the Port event last Thursday. Executive Director Gene Seroka said at the event: "In 2021, we learned how much cargo we could move through our port under extraordinary circumstances. The Port of Los Angeles processed about 10.7 million TEUs. That's about 13% more than in 2018, our previous record year."

No data beyond the total throughput estimate was made available at the time of the State of the Port event. Asked about the import statistics, a Port of Los Angeles spokesperson told American Shipper that "data from one vessel is delaying the final tally." 

On the same day as Los Angeles' State of the Port event, the White House released its latest update on the port situation. It too focused on the booming full-year results. It said: "2021 was a record year for the Ports of Los Angeles and Long Beach, which moved more than 10 million import containers. This is a 14% increase over 2020 and a 13% increase over 2018, which held the previous record."

The White House's twice-monthly port reports have always cited LA/LB imports as a key performance indicator, but when quantifying changes, the White House has always featured year-to-date changes, which in practice hide more recent monthly setbacks behind earlier gains.

Combined import data from LA/LB confirm that last year's record results were entirely driven by outperformance in the first half.

Chart: American Shipper based on data from the ports of Los Angeles and Long Beach

Seven days passed between Los Angeles' State of the Port address and the White House release and the eventual release of final December results showing the deteriorating import and export numbers. 

In the interim, the media reported: "Port of Los Angeles breaks cargo record in 2021" … "Record year for Port of Los Angeles" … "Ports move record amounts of cargo in 2021" … "Port of Los Angeles has busiest year on record as imports surge during COVID." The headlines focused on the positive spin.

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• This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.