East Coast and Gulf Coast ports gain ground as retailers rewire shipping routes

By Jeannette Neumann and Augusta Saraiva (Bloomberg) —

Supply chain hurdles are forcing US retailers to rewire their shipping routes. The early winners are East Coast and Gulf Coast ports, which are taking business from their western rivals at the fastest rate in at least two decades. Some of the gains, retail executives say, could be permanent.

The number of inbound containers arriving at ports in the East increased by around 9% in the first half compared to the same period in 2021 and volumes via Houston – the main container port on the Gulf Coast – increased by 22%, according to the National Retail Federation. . West Coast imports fell 0.1%.

These higher volumes are a boon for ports from Massachusetts to Texas, driving greater investment in ports and warehouses while increasing demand for workers to staff larger operations. The Eastern and Gulf gateways for trade increased their share of Asian imports by almost 5 percentage points in the first quarter of 2022 compared to the previous year and by 4 percentage points in the second quarter, the biggest increases since at least 2008, according to digital freight forwarder Flexport Inc.

“Charleston and Savannah were both very aggressive in courting us,” said Chris Peterson, chief financial officer of Newell Brands Inc., which sells Rubbermaid, Yankee Candles and Mr. Coffee products, among others. The rhetoric from port authorities in states like South Carolina and Georgia is, “We invest in infrastructure so you should have confidence in building reliable infrastructure,” he says.

Currently, 44% of Asian imports enter the country via the East and Gulf Coasts, up from about a quarter in 2008. This has come at the expense of the West Coast, which has seen its share fall to 56 % by about 75% over the same period.

Over the next several years, Newell Brands aims to import approximately 50% of its products through East Coast ports, including Charleston, Savannah and the nation’s second-largest port complex, New York and New Jersey. The other half will continue to enter through the west coast, down from the current level of 80%. To accommodate this change, Newell is spending $100 million this year to renovate five warehouses and equip two new ones.

The eastward expansion of U.S. logistics networks is among many economic trends the pandemic is accelerating.

Importers began diverting an increasing amount of cargo after congestion at Los Angeles and Long Beach, the nation’s two largest ports, got so bad in 2021 that at one point more than 100 ships were waiting to unload . Delays of two weeks or more meant many chain stores ran out of the merchandise they needed and missed holiday sales. So some companies have moved east to circumvent bottlenecks in California and, this summer, to avoid the possibility of even longer waits amid ongoing labor negotiations at the docks.

While much of the change is temporary, a growing number of retail executives say they plan to stay on the East Coast for the long term.

“We used to think the West Coast was the only option,” says Jose Velez, COO of Doral, Fla.-based Creative Home and Kitchen, which imports products like cast iron cookware. from Colombia and holiday decorations from China. “The pandemic has opened our eyes to more options for getting to the United States.”

Call Charleston

The company, which sells to Macy’s Inc., Bed Bath & Beyond Inc. and other major retailers, began importing some products through the Port of Savannah in late 2021 and then sending its goods to Miami by rail. . “We never shipped there before the pandemic,” Velez said.

Supply grunts on the West Coast have forced Jim Emme, chief executive of dietary supplement company Now Foods, to branch out. The company imports about 8% of its products through Charleston, a South Carolina port that has seen inbound shipments jump by almost a fifth this year. “We encourage our freight forwarders and suppliers to consider ports like Charleston,” Emme said.

Although it’s about 30% more expensive for Emme to run Chinese imports through Charleston compared to Long Beach due to the longer route and higher fuel costs, he says it’s worth s to ensure company products are not misappropriated on the road. Some vitamins and supplements have a short shelf life.

“Time was of the essence,” Emme said. It has already hiked prices twice during the pandemic and is considering the possibility of a third hike on some products in part due to rising supply chain costs.

Now Foods plans to import through Charleston in the long term to have more alternatives, Emme says, although he expects the volume of goods to drop to about 5% over time as the west coast backlog is being reduced. He and other leaders are also awaiting the outcome of contract negotiations between 22,000 dockworkers in California, Oregon and Washington and their employers. During the last discussions in 2014, some shippers also chose the East Coast options to avoid delays that only ended when the White House got involved nine months after negotiations began.

Emme and other executives say they will continue to rely on the west coast to import most of their goods, as they manufacture much of their products in China. More than 40% of inbound freight from Asia passes through facilities in Los Angeles and Long Beach and traffic remains robust, although not growing at the same rate as the East.

play to win

Long Beach executive director Mario Cordero said he was “playing the game to win,” noting that his port had invested $4 billion over the past decade and was planning $2.8 billion more in coming years.

“It is in the interest of the country that all of our major container gateways work together to move the country’s trade,” he said. “We will remain the most important strategic gateway for the United States, given our proximity to the most important trading region.”

Other retail executives say their expansion to new ports on the Atlantic Ocean is only temporary pending a return to some form of normalcy in California. The diversion to the East Coast “takes time and incurs additional costs,” said Lindsay Keys, director of logistics for linen company Brooklinen. “We’re kind of putting a band-aid on a bigger, industry-wide problem.”

The move to the East and Gulf Coasts has brought new congestion issues that have kept some businesses away over the past year. Ports in these areas are on track to eventually capture about half of the market, said Flexport analyst Eric Oak. “Supply chains are living creatures that change over time,” he said. Keys says the Brooklyn-based company will continue to divert some goods through the Port of Virginia for at least another year, but will eventually send those imports back to Long Beach. The port of Norfolk has become the most efficient in the United States for handling containers, according to World Bank estimates.

Several East Coast and Gulf Coast hubs are trying to convince retailers that they are a long-term safe bet, and the $5.3 billion expansion of the Panama Canal in 2016 helped open up the path to expanding US trade routes with Asia.

South Carolina has invested $2 billion over the past six years to expand the Port of Charleston, while the Port of Virginia will spend $1.3 billion on improving terminals, tunnels and green transition in the years to come. Even a smaller port like Boston is grabbing a piece of the action, dredging its harbor to allow for bigger ships and gaining shipping services from Southeast Asia.

For Newell Brands, a revamped port strategy will see it ship most of its products to customers, including Walmart Inc. and Target Inc., within two days or less — down from the current week at 10 days it may take to deliver some items, such as Graco baby gear. CFO Peterson says the goal is “not to be so limited by one port”.

© 2022 Bloomberg L.P.

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