Markets In Turmoil: COVID-19 Coronavirus Complicates Shipping; 'We Will Need To Reinvent Ourselves'

The Port of Los Angeles loses approximately $400,000 in revenue with each canceled sailing. With 28 blanked sailings forecast for the remainder of the second quarter through June 30, that's $11.2 million in revenue the port won't collect.

"But the story is much greater than that," said Port of LA Executive Director Gene Seroka of the coronavirus pandemic. "So many folks now are seeing the impacts, whether it be on quarterly earnings announcements, their decisions on personnel, what we see in the knock-on effects across the industry."

Seroka lived in China during the severe acute respiratory syndrome (SARS) epidemic. "I know firsthand what it is like to live through a viral episode such as we are in right now, but this maybe 10 or 15 times greater than what I witnessed back in 2002 and '03," he said during a video press conference.

"The number of folks who have fallen ill, those who have perished, the closure of businesses, the closure of the United States economy throughout its 50 states in this union is something we have never witnessed before in our lifetimes. The levels of unemployment, the creation of funding from the United States Treasury, the federal government all the way down to the taxpayer is of an epic level. The cost or price tag for SARS was estimated by economists at $40 billion U.S. during that time. This will be 10 to 15 times greater across the supply chain and its parallel businesses," he said.  

Seroka reported that the port handled 689,000 TEUs in April. That's a 6.5% year-over-year decrease but a big month-over-month improvement. The port handled 449,568 TEUs in March, a year-over-year volume plunge of 30.9%.

"Based on the first quarter of this year, the volume at the Port of Los Angeles was down 18.5%, and now if we add in the April stats we're down about 15.5%," he said. "On any given day looking at the traffic moving through the Port of Los Angeles we're doing about 80% of normal volume for this time of year."

Ports throughout the United States have been bracing for the disappointing second quarter as well.

Through the end of the second quarter of June 30, "we see 28 void sailings, which is a tremendous number, yielding softness in the market through the months of May and June," Seroka said. "Retail continues to delay, postpone and in some cases cancel orders. Fast fashion has struggled with a 50% drop in business overall. Auto and related parts are also down precipitously." 

Despite lower volumes, all Port of LA marine terminals have remained operational throughout the pandemic, Seroka said.

"We are not closing any terminals. What we're looking at specifically is how we adapt to this changing supply chain. We've been hit with two punches. Number one was the ill-advised tariff policy coming out of Washington, and two is this prolonged pandemic that has economic implications of which we haven't seen since the Great Depression," Seroka said. "We've long said that here at the Port of Los Angeles we will need to reinvent ourselves. 

"Because of the trade policy, it is my estimation we will lose about 15% of our imports over time as they migrate to other origin locations that may have quicker paths westbound through the Suez Canal, but at the same time it may give us an opportunity to reduce our cost to serve by being better balanced, eliminate some empty repositioning requirements in the trans-Pacific and have better roundtrip asset utilization for our service providers," he continued.

Seroka indicated a new normal could begin to emerge in the fourth quarter.

"Some economists have stated that we may not see better economic activity until the first quarter of the year 2021 and therefore a possible uptick in international freight moving inbound through the Port of Los Angeles" could come in Q4 of this year, Seroka said. 

Meanwhile, he continues in dual roles as the port director and as LA Mayor Eric Garcetti's chief logistics officer. Seroka said the first 100,000 of 24 million N95 face masks he helped procure through a manufacturing deal with Honeywell Corp. will be delivered to LA hospitals and other front-line workers no later than May 31. 

"While others clamor to international markets and to middle people, we have gone directly to the manufacturer with a facility that is right down the 10 freeway, six hours from our Los Angeles hospital market," Seroka said. "With the production schedule we have worked on with the Honeywell Corporation, we have specific numbers of units that will be delivered to Los Angeles each month for the next 24 months and by November we will ramp up to a steady-state of production and delivery of 1.2 million masks per month."

Logistics Victory LA is paying 79 cents per unit plus sales tax, Seroka said.

"The cost to the penny will be passed directly on to our hospitals and front-line medical workers. There will be no markup, there will be no margin on this product. And we will use the great Port of Los Angeles, LAX Airport and our vast domestic distribution capabilities to speed this cargo through directly to our front-line medical workers," he said.

"We must all rally. We are prepared here at the Port of Los Angeles to help reopen our economy. One reason I am so proud that we continue to move about 80% of the cargo that we normally would at this point of time is that we've got this machine revved and as cargo continues to increase when the economy opens and we get those demand signals, we will be ready to help this country recover," Seroka said.

He said Medical Optimizer, an offshoot of the Port Optimizer software platform, is now operational, "with the primary goal of driving these much-needed health care supplies and protective equipment to our front-line medical workers at our hospitals."

"By bringing technology, a savvy look at procurement and the ability to create a level of certainty in the supply chain," Seroka said, "out of this crisis I see this as one opportunity to help develop that supply chain within Southern California and hopefully points beyond."

Photo by Alexander Bobrov from Pexels.