Latest Blog: Earthrise or Earthset: Tho... - 06/02/2020
Investment Insights are written by Angeles' CIO Michael Rosen
Michael has more than 30 years experience as an institutional portfolio manager, investment strategist, trader and academic.
Not enough attention is being paid to the work slowdown/stoppage going on at West Coast ports.
The last time there was a disruption was in 2002, and it ended 10 days later only after a presidential order.
The contracts expired 1 July of this year, and the unions (ILWU and PMA, who represent about 20,000 workers) have initiated a slowdown as part of their negotiating strategy, despite an agreement to keep operations flowing normally. The port of Tacoma, for example, reports 10-18 container moves per hour, versus the normal 25-35.
This past weekend, slowdowns were reported at Los Angeles/Long Beach, combined, the 9th largest container port in the world, and the ports of entry to about 20% of entire US imports. Surcharges are being added for shipments to the West Coast that are doubling the cost of shipping, and truckers are adding additional surcharges $50-$100/per hour.
Cargo passing through West Coast ports represent about 12% of US GDP, and a 5-day shutdown, should that occur, will reduce GDP by $2 billion per day. Spot rates on the East Coast have soared versus last year (see Chart below, courtesy Merrill Lynch). There are few alternatives: the East Coast is at capacity, Canada can’t handle the flow, Mexico is three times as expensive as US West Coast, and air is 5-6 times more expensive than shipping.
Not coincidentally, this is a key Christmas-time for every retailer, with the potential to cause major disruptions, not just in the broad economy but, more importantly, for all the good children on Santa’s list.
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