Some further effects of Donald Trump’s trade war with China beyond pressure on shipping and sea freight rates, are beginning to appear around the world. For example, various reports are emerging of congestion and volatility on the major West Coast ports of the US.
Confusingly, this congestion is being combined with a rapid fall in volumes passing through the port. In May, Long Beach’s container terminals handled 573,623 twenty-foot equivalent units, a 19.5% fall over the same period last year, with both exports and imports falling. For the year-to-date, volumes are down 6%. Los Angeles port is experiencing something similar, although it is being suggested that it is benefitting from its greater exposure to South East Asia.
What appears to have happened is that, worried by the indications of tariffs on Chinese goods at the end of last year and this beginning of this year, importers brought-forward orders for goods from China and stored the surplus stock in warehouses near the port as well as their usual inventory locations elsewhere in the US. Consequently, there is a spike in inventory and a consequent crash in demand for goods moving through the port.
This ‘whiplash’ effect has also had a knock-on effect on transport, with shortages of truck capacity for goods leaving locations around the terminal. In addition, the container terminals themselves are reported to be struggling with a surplus of empty containers putting further pressure on space at the ports. Press reports assert that vacancy rates for warehousing in the Southern California region have fallen to 1% as compared to around 5% this time last year.
Much of this will solve itself as inventory levels fall making space in warehouses and on trucks available. However, the danger then will be that in the future there may either be a shortage of products or a sudden flood of consignments if trade tensions ease.
The problems in California are a symptom of both short-term trade tensions but also an augur of longer-term changes in trade patterns.
Unconfirmed press reports also suggest that regions in South America and South East Asia are also experiencing congestion in logistics infrastructure as demand shifts away from the China-US trade. Spurred by trade-related risk, different supply chain geographies are emerging and these will require new logistics infrastructure.
Source: Transport Intelligence, June 13, 2019
Author: Thomas Cullen
