Rising interest rates, waterfront labor dispute could dampen container volume prospects
WASHINGTON — With the first quarter of 2023 officially in the books, U.S. seaports want to know what the rest of the year holds as they prepare for what they hope will be a fall peak shipping season.
A panel of port executives who gathered here this week for the American Association of Port Authorities’ annual legislative summit (this year’s moniker, “Strong Ports. Strong America.”) attempted to answer that question.
“If you’re looking at current volumes coming through, we’re definitely concerned,” said George Pasha IV, president and CEO of the Pasha Group, a family-owned transportation and logistics company that owns container ships and operates marine terminals on the U.S. West Coast and Hawaii.
“One explanation is that retailers overbought and ended up with goods that were mistimed. So it’s hard to know and get a sense, looking at current data, whether that’s a ‘tell’ or not. Everybody’s optimistic that the second half of the year will improve and cargo volumes will come back, but there’s a lot of mixed data and a lot of mixed sentiment.”
John Wolfe, CEO of the Northwest Seaport Alliance, which includes container terminals at the ports of Seattle and Tacoma, Washington, is seeing similar downward volume trends.
“Optimistically I believe we’re going to see a stronger second half. It’s a matter of how much stronger,” he told attendees.
“Are we going to have a peak season later this year? In talking to our customers, most are pretty optimistic. They’re watching their inventories go down, and I think they recognize that in the second half of the year, in preparation for the holiday season, they’re going to need to replenish.
“My one concern is, what is the Federal Reserve going to do — are they going to continue to ratchet up interest rates, and if so, how will that affect consumer demand? That’s something everyone’s watching. But from our perspective, we’re investing in our infrastructure as though we’re going into recovery in the second half and into 2024.”
One of the strongest foundations upon which ports build and expand their infrastructure is through channel deepening, and Great Lakes Dredge & Dock (NASDAQ: GLDD) is the industry’s heaviest hitter in the U.S. Lasse Petterson, the company’s CEO, will be keeping close tabs on Capitol Hill this fall when it comes time to fund the U.S. Army Corps of Engineers, which oversees federal money for port deepening, for fiscal year 2024.
“The Omnibus bill passed last year fully funded the government for fiscal ’23, which means the Army Corps can get projects on the street and keep the wheels turning for the dredging business,” Petterson told attendees.
However, “we’re concerned about what will happen this fall — whether we will have to go into a continuing resolution again,” he said, referring to the month-to-month stop-gap measures from lawmakers when they can’t agree on long-term spending — a process that makes industry hesitant to invest.
“There are eight port-deepening projects ongoing in the country right now, and six of them are behind schedule and are not moving ahead, which means their completion times are being delayed. We’re optimistic, but that keeps me awake sometimes.”
Employers, dockworkers need to wrap it up
Tom Van Eynde, North American Region director for Terminal Investment Limited, which operates terminals on the U.S. West and East coasts, told attendees that current volumes coming through his terminals are “way below what is sustainable for the long term.” With the second quarter just underway, however, he expects to see a gradual ramp-up in volume as importers start restocking for the summer.
And like the rest of the panel, he’s somewhat optimistic about the second half of the year — with the caveat that contract negotiations between the West Coast dockworkers and marine terminal employers resolve soon.
“With negotiations already starting up on the East Coast contract [with the International Longshoremen’s Association, to extend an agreement expiring in 2024], and with the threat of more volume moving to the East Coast [due to West Coast labor uncertainty], I think it will help the two sides realize it’s important that they come to an agreement soon and keep things operating normally,” Van Eynde said.
“Certainly there’s concern, because historically, as things go on without a contract, oftentimes there’s mischief on the waterfront,” Wolfe noted. “We haven’t seen much of that, and I want to commend the workforce for keeping to the grindstone and taking care of the work. And I want to continue to encourage both sides to negotiate in good faith, stay at the table and get this done, hopefully in the next couple of months.”
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