Southern CA Ports Broke Records in July
After much hand-wringing after the tariffs were announced as the ports had a few light months (although not nearly as low as feared), the Southern CA ports had a record-breaking July. The port of Los Angeles handled over 1,000,000 twenty-foot equivalent units (TEU) which represented an increase of 8.5% from last year. Long Beach handled close to 950,000 TEUs which equates to a 7% annual increase. Logistics was booming!
When the tariffs were announced, everyone related to logistics, which is one in eight jobs in Southern CA, went into a state of despair and expected huge drop-offs in volume. The Southern CA ports would bear the brunt of the decrease as China goes through the Southern CA gateway. 40% of shipping containers entering the U.S. go through the gateway. However the decrease in volume was not nearly as bad as expected. The volume from China was down close to 30%; however, overall, the two ports were down slightly less than 20% immediately following the tariff announcement as other areas offset the decreases. In fact, year to date, Los Angeles is up 5.3% and Long Beach is up 17.2%. Logistics remains robust.
Logistics Will Evolve & Remain Relevant As Supply Chains Move
As investments pour into the U.S., stirring a manufacturing, data center and shipbuilding renaissance, logistics will evolve. Logistics, distribution and goods movement follows manufacturing and consumers. Thus, as manufacturers expand, more goods will ship via rail, truck, and air from the “new” manufacturing location to consumers and supply chain partners (manufacturers, distributors, etc.) and less product will ship from the current manufacturing site. Logistics will evolve as it follows these changes. In addition, as nearshoring and regional supply chains increase, new logistics routes will expand (rail and trucking gateways from Mexico and shipments from Latin America will follow different routes).
As supply chains move, where your consumers and next step operations are located matters. Thus, Southern CA will remain relevant to logistics supply chains as California has a huge population. California has surpassed Japan and is currently #4 if it were viewed as a country. Industries that support key population such as logistics will remain robust although will reconfigure to support evolving needs. E-commerce remains significant and growing at a rapid pace. Amazon has proliferated the region with distribution centers surrounding key population centers. Food and beverage will remain robust as it is bulky and heavy and so shipping costs can outweigh automated manufacturing and distribution.
The ports have an advantage of scale and core capabilities not available at other ports. Thus, although more container shipments are likely to go directly to the east coast from places like Latin America, thereby decreasing the volume through the Southern CA gateway, volumes will remain relatively robust for the foreseeable future. There is a significant logistics infrastructure and talent supporting the region. Hopefully, the ports will pursue automation, robotics, and advanced technologies to remain relevant and cost effective. Significant sourcing changes do not happen overnight yet businesses must prepare.
On the other hand, next stop operations are leaving the state at a fast pace due to high costs, regulations, and energy. For example, according to analysis by the Public Policy Institute of California (PPIC), approximately 50% of the headquarters that left California between 2011 and 2021 were in manufacturing, wholesale trade, or business services. The Hoover Institution did a study and found that 789 headquarters moved during that timeframe with a spike in 2021. Unfortunately, there are several recent examples including Chevron, Tesla, and Spreckels. From a logistics standpoint, these are not significant as logistics and e-commerce is more related to population growth.
What Should Leaders Do?
Manufacturing and logistics leaders must think ahead about these changing conditions. Stay up-to-speed on relevant trends, regulatory changes, and opportunities for growth and profitability. Modernize and upgrade your equipment, processes and talent. Roll out predictive demand and supply planning upgrades including SIOP (Sales Inventory Operations Planning) processes to stay ahead of changing conditions and optimize your network. Leverage artificial intelligence and advantage technologies to streamline operations, improve quality and service and increase margins. You must not stand still to survive, let alone thrive in he next decade. Collaborate with forward-thinking executives.
Business has evolved from a five-year strategy process to thinking in terms of strategic sprints. Will you wait for the marketplace and your competition to determine your future or will you take a leap and create your future? As dramatic change takes place, there will be more opportunities than at any time in history. Will you take advantage of them?
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