Odd Lots - Gene Seroka on the Logistical Logjam at the Port of LA

Episode Date: August 2, 2021

America's ports are a key source of congestion contributing to supply chain disruptions rippling through the economy. Things have gotten a little better, but very slowly. And the disruptions are expected to continue for quite some time. To understand more about what's going on, we spoke with Gene Seroka, the Executive Director of the Port of Los Angeles, to understand how bad the problems are, and how they will eventually be fixed.See omnystudio.com/listener for privacy information.

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And I'm Tracy Alloy. Tracy, I think we're actually getting to the point where we've covered a lot of the supply chain by now. No, that's impossible. Okay. There's always more. There's definitely always more. But I feel like, you know, the big things, we're starting to like, you know, if you were to have some manufactured good that was manufactured in China and consumed in the U.S.,

you would know a lot about it by now if you would listen to all of our episodes. We've certainly provided a public service in supply chain education. That's true. So, yeah, okay, so we've talked about ships and the containers at least three times, I think, actually. two on freight, one on dry bulk more. We talked about trucking. We recently did a warehouse episode, although unfortunately you had to miss that one. But of course, you know, okay, there's the ports. And we've talked about congestion at the ports, but we really haven't dived deep into what's going on there.

Yeah, well, we've sort of talked about the ports from the perspective of the shipping industry. And there's a bit of, I guess there's sort of. of blame being laid on both sides for the transportation gridlock, right? So a lot of the container shipping companies will say, well, yes, there's a shortage of containers and there are some issues in shipping, but the ports aren't handling stuff well or they haven't made enough infrastructure investment. And so there's a lot of gridlock on that side. And so you're sort of getting two different, well, two different versions of what's going on. Yeah, exactly right. Like we know that there's numerous ships that are waiting to be unloaded. We know some at the ports and people have

pointed this out several times that there are several days or that there are ships that are waiting there for their turn to get outloaded. We know all kinds of things are going on. It is a source of bottleneck. As far as I know, and we're going to learn more about it shortly, it has yet to ease, really. But I think it's time we really figured out what is happening when the ship gets to the port, when it needs to get, have the containers unloaded, put on to trucks. And so, worth and really drill down into that specific points along the supply chain. Yeah, absolutely. So it's going to be a really interesting discussion.

My only knowledge about ports comes from that one season of the wire. So I'm quite keen to learn more about how they work and what's going on right now. Exactly right. Well, we have the best possible guest for this episode. We're going to be speaking to Gene Soroka. He is the executive director at the Port of Los Angeles. He's been in that role for a little bit over seven years. Gene, thank you so much for joining us.

Thanks, Joe and Tracy. Pleasure to be here today. Why do you just start us off big picture? We know that there is a lot of congestion at the ports. How bad is it right now? What are the numbers like versus say, you know, versus historical comparisons? And what are the prospect for things easing? Give us the state of the Port of Las Angeles.

Angeles right now. Yeah, Joe, the story really goes back over three years ago to the introduction of trade tariffs and a pretty unique take on the trade policy by the previous administration of Washington. It created a lot of choppiness in the industry. Folks were importing big numbers to get inside of tariff milestone dates and taxes that American companies were paying on those imported goods. Similarly, and at the same time, we started to see retaliatory terrorists put in place, specifically by China, which have impacted our farmers, manufacturers, and our automotive sector broadly. Flash forward to the end of 2019, we went off a cliff. Because of those trade policies that were in place, our business dropped by about 16%.

And most folks were looking for a pretty mundane year 2020. As we got into that area of around Lunar New Year in January of 2020, the bottom really fell out completely with the advent of the COVID-19 virus. The Chinese economy shut down manufacturing sector was shuttered, and then soon thereafter, we went into safer-at-home orders, and our volume dropped another 19% up through May. Then suddenly, the American consumer found that they could buy a lot more online. They could make a family outing to a big box retailer or a home improvement store, and our retail goods started going through the roof. And since then, we've averaged about 900,000 container units a month, every month.

That used to be a good single month in our traditional peak season. So where we stand today is that birth productivity, our vessels, are up 50% compared to pre-COVID times. We're welcoming in about 15 vessels a day compared to 10 before COVID and this buying surge started. But all parts of the supply chain have been kind of stacked up. The warehouses are full. And remember, we've got about 2 billion square feet of warehousing from the shores of the Pacific out to the Mahavi desert here in Southern California. They're overflowing. If those warehouses are overflowing, about a third of our cargo goes to them directly.

So those containers sit as warehouses on wheels. Are marine terminals of which we operate today seven for container business out of the 27 here at the nation's largest port in Los Angeles. Those terminals are operating at about 95% of land usage. Physical design, full capacity, is 80% utilization. So the next ship that comes in can only unload so much cargo because there's no room to put it. The ship after that winds up sitting outside our breakwater at anchor. And today we've got 26 container vessels at anchor outside that breakwater, destined for both the ports of Long Beach and Los Angeles, the twin ports of San Pedro Bay.

The average stay out there is five days. It's about half of what it was at its worst point back in February. But compared to what we normally like to see, zero ships at anchor, high levels of fluidity of cargo. So this pandemic-induced buying surge is something the likes of which we've never seen before. So let me ask you the obvious question based off of that. But what, in your opinion, is driving some of the gridlock that we've seen people complain about? So we have lots of ships anchored off the port waiting for a birth, although, as you said, it's not as bad as it once was. but plenty of people out there are talking about rising shipping costs, longer waiting times,

shortages of various goods. What's contributing to the gridlock? Is it just the surge in activity that you described? Yeah, primarily. And as I stated, the choppiness of imports, the paucity of exports, the lack of a balance of trade, which has been exacerbated by these ill-advised trade policies, have really moved us out of kilter. And Tracy, what you've seen is basically, and I think Dan Maffa, the chairman of the Federal Maritime Commission put it best, it's like putting 10 lanes of traffic into five.

We've been breaking records every month. We surpassed 1 million container units in a month, which was a first for any port in the Western Hemisphere. We surpassed 10 million container units in a fiscal year, first time ever in the Western Hemisphere. So we're pushing through a lot of cargo, we just have much more coming at us than ever before. And when these nodes of the transportation systems start getting clogged up, they back up all the way to the waterfront. So, Gene, you mentioned just then this idea of trade being out of balance. And this is something we've heard consistently from our guests, this idea that you have a one-way flow of trade from China to the U.S., which means you have all these full containers going to America. And then you

have an issue of the containers actually getting back to Asia so that they can complete the round round trip and be sent again. And I think Ryan Peterson from Flexport gave us a stat that before the pandemic, something like 60% of containers leaving the U.S. were empty. And it since jumped to something like 80%. Can you give us some color around that issue? Why is that a problem? And how many empty containers are you seeing as a proportion right now? Well, start off. with the major solve for in the industry is that most of our imports go to metropolitan areas, and many of our exports emanate from rural America. So as an example, we bring in a ton of product into Chicago, and then we still, as an industry, have to cater to the American farmer in the

Red River Valley in North Dakota. So how do you get that empty container, chassis, rail service, and align it with ship service from Chicago up to someplace outside of Fargo, where a farmer wants to load a bunch of containers. That's number one difficulty. Number two is that with all these imports coming in now, there has been a look by the liner shipping companies that they need to get empties evacuated back to the manufacturing location to pre-position those containers to catch the next round of lucrative imports

faster than ever. So there's been a commercial decision made. And then thirdly, the strength of the U.S. dollar is also continuing to impact us. And while it's so important and so good for our economy in many, many ways, it's not good from a competitiveness standpoint because we're going up against other trading nations that have better exchange rates and are beating us to the punch. So we know Ryan likes to comment on a lot of things in the industry. I can tell you what goes on here and through the nation's largest gateway, we're right now sending back about 300,000 empty container units per month to every 100,000 export units. We're about five to one imports to exports. And in more normal times, Tracy, that's about two and a half imports to every one export.

You know, let me back up for a moment in something I realize I don't know. What is the corporate structure of the port of Los Angeles? I mean, we think of it as like the sort of important public infrastructure, but what is, is it owned? Is it private? Is it for profit? What's the nature of it? Joe, the port of Los Angeles is a municipal agency of the city. I report to Los Angeles Mayor Eric Garcetti directly. He has appointed a five-member Harbor Commission that works with me on all policy issues and helps drive business. We are a not for, we are a not nonprofit agency where all monies and revenue sources from our customers coming in are reinvested in our ports infrastructure, our community with respect to public access, and our environmental

strategy. We hold these 7,500 acres of property and trust for the people of California based on the state's Tidland's trust regulation that was an unintended consequence of the state joining the union. Can you talk about when a ship actually comes to a port like you're What are the economics or the process of unloading and loading the ships? Like, how does that work and how do you decide who to prioritize? Probably two questions there, one being operations and two being economics. One, as a landlord port defined by the U.S. Army Corps of Engineers, we manage the property and we lease it out to private sector companies who manage the transportation business.

business. So those would be primarily marine terminal operators who welcome in the liner shipping companies to work their vessels and move cargo throughout the nation's 435 congressional districts with product moving in and out of Los Angeles. So the private sector companies are responsible for designing schedules, vessel birthing windows, priority lists, and how they physically want to move cargo in and out while working very closely with the international law. longshore warehouse union for the dock workers, truck drivers, warehouse operators, etc. From the financial perspective, we lease out property to these private sector companies, and we make our money by every container that is moved over these docks.

And that revenue stream then, as I mentioned, goes back into three major segments of port infrastructure, both physical as well as digital, our community efforts on public access, retail, dining, entertainment, public infrastructure. And then thirdly, the environmental strategy that has been in place now for the better part of 17 years, which has witnessed a reduction in diesel particulate matter by 90% over that time. What is the market share? When we think about the biggest ports entering the U.S., and I know there's, you mentioned the Port of Long Beach is another big one, can you give us this sort of distribution of major sort of entryway for imports? How much share does the Port of Los Angeles have. And I guess it's a sort of, I don't know, I guess it's a two-part question.

You know, we think about, okay, the ports are jammed and we obviously have this issue. Is this an area that would be ripe for potential further public investment? You know, there's this big infrastructure bill that they're debating in D.C. Is there an opportunity to expand our import capacity so that we don't have these issues in the future? Sure. Both are good questions. broad picture on the market share percentages. While both ports, Long Beach and Los Angeles are municipal agencies of the respective cities, most in the industry, observers, users of the port, customers, and transport service companies all see this as one port complex.

And this complex represents 40% of our nation's imports and about 30% of our nation's exports. Now, the interesting take here, Joe and Tracy, is that before 2002, we had 50% of the nation's imports. We've lost about 20% of our market share, as many importers have gone to four corners and poor diversification strategies due to what they saw as difficulties or trying to de-risk their supply chains over time. That was also met with increasing investment on the East and Gulf Coast, also on the Pacific Coast of Mexico, as well. well as British Columbia. So importers now had more choice than they ever had before. And then just several years back, the opening of the third lock of the Panama Canal gave further scale to those who wanted to utilize other ports of entry and exit in the United States. Back to the market share position, Los Angeles right now is it about 20, 21 percent of all container cargo traffic moving

in and out of the United States. So a healthy number one position in that segment, that we've held now for 21 consecutive years. So again, matched up with the fact that the cargo and passengers traversing this port reach each and every one of our nation's 435 congressional districts, I would say all those numbers combined mean that this is a conversation of national economic significance. We also employ, as part of this port complex, one in nine jobs in the five County, Southern California region. That means about a million paychecks every week go to people who have jobs related to this port, whether it's the large manufacturing community in Los Angeles County, are dock workers, truckers, and warehouse personnel that I mentioned to other logisticians and

business folks around this supply chain. So it's a very important part of our economy, and when there are problems here, it is felt across a wide swap of the working population. on the notion of infrastructure, there's a lot to like about the American Jobs Plan. And we've been following very closely talking to administration officials back in Washington about the bipartisan negotiations that continue to this very hour on how we are going to push out money to all these important areas, including right now at its latest rendition, about $16 billion U.S. dollars related to ports and inland waterways throughout the country. But there is one area that makes me pause is that. over the past 10 years, the federal government has out-invested the West Coast 10 to 1

by putting about 11 billion U.S. dollars into ports on the East and Gulf Coast versus about 1.2 billion U.S. here on the West Coast. That's got a change. And what we've asked the Biden administration and the officials are to look at investments that will have the greatest economic good for the country. And that leads you to one place, Los Angeles. I'm Francie Lacquan, an award-winning journalist. And I've got a new podcast. Leaders with Francine Lacqua from Bloomberg Podcasts. I've interviewed everyone from Heads of State to fashion icons about the news of the moment. But I've always been curious who are these people as leaders.

I don't think there's one right way to be a leader. Make decisions. A poor decision is always better than no decision. Listen to new episodes every other Monday. Follow leaders with Francine Lacaner wherever you get your podcasts. Just on the topic of market share and I guess competition with other ports, I'm afraid this is probably also going to be a two-part question. But one, have you lost market share to other ports specifically because of the congestion issue? And then two, what can you do to ease congestion or what have you been doing? Good questions.

One, the numbers here have been going up since last June. No, we've not lost any market share to other ports. But most of the industry observers, Tracy, who look at this information, lag by about six to eight weeks. So you're not going to see anything just this moment. But in watching our numbers, again, averaging 900,000 container units a month crossing a million in May, very unlikely that we'll lose market share in this snapshot in time. What can we do to ease congestion? We've been working on that around the clock with our business partners, with government officials. Mayor Garcetti and I were just on a nationwide conference call with Secretary Pete Buttigieg of the Department of Transportation, with representatives from Agriculture, the FMC, and maritime administration, plus many others. We've outlined what we're doing right now. And number one, we believe that digitization is going to

carry us through this. Think of a place this complex with this myriad, of customers, about 200,000 importers and exporters, no one of which has more than a 5% market share, 18,000 truckers, 12 marine terminals, 20 vessel operators, and a look at railroad systems that are unlike anywhere else in the world, where we have about 100 trains per day, no less than three miles in length, moving in and out of this port complex. Working with all these private sector companies, everybody works in their own silo. what we've tried to do is create our nation's first and still only port community system co-created with WabTech called the Port Optimizer. And it's meant to be a system of systems to aggregate

data so folks don't have to hunt and peck around dozens and dozens of websites. And with our partnership through United States Customs and Border Protection, we receive data some 40 days before a vessel comes into Los Angeles. So our partners through this information sharing concept can see what's coming in, plan their staffing and asset positioning better than anyone else. And with that, I think we've gotten a leg up where vessel productivity is up 50%. We're moving more cargo in and out of this port than we ever have before, but there are still adjustments we have to make. More people need to join our digitization project. And that's going to be a must if we're going to have everyone filtering out through this information flow to make sure

they're prepared better than they are today. Second, we've put numerous incentives in place to reduce trucker wait times, the time they spend at the port, and how quickly they can move out. In addition, we've encouraged our truck community to move containers in and out at the same time, bring an import out of the port while dropping off that export at the same time, so it's not to wait that precious gate time. We also, through our digitization program, have a look at a portwide reservation system that will show us exactly where we have opportunities to expand service. For example, right now on our night shifts that go from 6 p.m. to 3 a.m., 30% of our truck reservation system go unused. So we've got to drive truckers to that particular open

reservation to avoid their wait times during the day and maximize their productivity. 30% of containers are sitting because truckers are not showing up. And for a myriad of reasons, not just that individual driver or that trucking company, we've got to get the information so precise that these folks know how to act on a dime to get in and out of this port and trust that they will be serviced when they come in. In addition to all that, we've given the secretary a five-point plan that also includes investment and information, but also trade policy and working on the digitization aspects. So these discussions are taking place ongoing with our partners here on the ground locally in Southern California, as well as the highest levels

in today's government. So just on the subject of technology and digitization, so this is something that I was wondering, but we talk about containers as a revolutionary technology, the ability to standardize shipments really contributed to the globalization and trade that we've seen in recent decades. But on the other hand, containers now are a technology that was invented in the 60s or 70s, and I don't think we've had a significant update to that tech in the time since. So I'm just wondering, is there something more fundamental that could be changed about containers, or where is the next area of potential innovation? A couple of fronts. I think on the digitization spot, folks want to know where their

shipments are at what time, so they can not only trace them compared to a pro forma schedule, but also enact what we call exception management. So if something's going against a schedule or not in line with arrival dates, the importer of record can act on that and take decisive steps to move the cargo along a little bit quicker. But the interesting thing about the container is that it naturally sits for some time. It's not like us moving on and off airplanes or driving on freeways and tollways. A container loads on a ship in Asia, and it will sit. in that same position for anywhere from 15 to 30 days before it reaches its shore of discharge.

Once it reaches there, there'll be a spot for it specifically to move, and then it'll move on a train as our gateway being the example. And that'll take another five to seven days to get to destination. So you're not seeing these incremental moves at specific areas of time. What you do see is the points of rest. And that's been a problem for us here in Los Angeles. For example, We've got ships at anchor because all those other nodes are backed up, as I mentioned to you. But once a container gets on the ground at our Marine Terminal here in Los Angeles, it's sitting for an average of five days. Pre-COVID or pre-surge, it sat for two to two and a half days. So the velocity has been slowed down and there's so much cargo coming in, folks don't have a place

to put it. Once it leaves our port facility by truck, it's sitting an average of about eight to nine days, now, which is nearly three times what it was pre-surge. And that adds a tremendous amount of cycle time. So when folks start talking about a limited supply of containers, it's because they're sitting longer than they're normally planned to do so. And here in Southern California, underneath that container are trailer wheels or chassis as we call them in the industry. If those are dislocated for nine days out on the street with a container, the next round of imports have a difficult time matching up those trailer wheels to get the box out of the port property. The third piece on what we call these dwell times is related to the rail system.

And with a paucity of exports, as we've described so far, this one-way trade is hitting our Western railroads successively each and every day. There used to be a time when we had 10 ships coming into port every day, that you'd have a day or two to kind of clean up the terminal yard, get your rail cars managed, put them in place with the engine power and the crewing. Now it's an all-out departure from Los Angeles to the interior of the country. And at the same time, the cargo is sitting longer at those interior points. For example, the Union Pacific Railroad recently slowed down cargo to Chicago because they had 25 miles of trains sitting outside of Global Ford Joliet where cargo owners

were not picking up that inbound product the way they had used to. So it slows down the whole system. And now you see it from Chicago to Los Angeles back to the water and to Asia. I want to dive deeper into some of these congestions. But I'm curious, like one factor that kind of sort of different. There are a lot of fires this year, a lot of heat this year. People talk about the role of a contribution of climate change or climate disasters to some of these shipping tensions. How do you see that from your perspective?

How is that adding to some of the, adding to the difficulties this year? We could do another show, Joe, on climate change alone. But what I will tell you is this, that many more folks in our industry at the highest levels down to family businesses are very concerned about that and what they can do to make this a better place. Second, when it comes to the wildfires in California and the drought, we've seen a couple of things happen. number one, it will impact rail and truck service if we can't get over the Cajon Pass or we can't go out the 10 freeway to the Inland Empire where the majority of these warehouses are located. The other piece that many people don't see here outside of California is that when we get to these extreme heat waves, the governor and the Public Utilities Commission has been shutting down power. and that power gets shut down at ports and it stops the use of our cranes that lift the containers on and off the vessels. It also stops the use of our alternative marine power, which was designed to plug in a ship to the electrical grid and turn off all but the auxiliary engines, saving thousands of tons of diesel emissions with every port call.

So the impacts here are pretty wide and far, whether it be transportation, environment or a combination of both. Since we're talking about factors that are sort of compounding the congestion issue, I wanted to touch on something that you already brought up, which is the trucking industry and, I guess, more generally, labor market tightness. So we've heard a lot of discussion about this idea of a trucker shortage affecting the transportation industry. We've actually done an episode on it before. You're in an excellent position to see that issue if it exists. So I guess my question is, how worried are you about an alleged trucker shortage and how is it impacting your business? Well, this is one of the areas that we focus on a lot and whether it's equity for drivers, the ability to get them affordable, cleaner trucks to operate, or the amount of time they spend here at the port simply waiting,

taking away from their 11 hours of daily regulated service by the federal government. So all of that comes into play. And then from a round numbers perspective, the average age of a trucker in the country is about 57, and they have a 20% attrition rate per year. So this is an area that we really want to boost up, and we're working very closely with a number of trucking associations as well as the private sector itself to try to make this a career. And we can make it a career if these folks have good working conditions, affordable machinery to run their craft.

And thirdly, the ability to make multiple turns. Here in the port dreyage business, these folks mainly work on a per run revenue rate. So for every container they haul, they earn money. For every moment they sit, they don't. So getting them greater turns here at the port is important. And in good times, we're getting a trucker on average three, three and a half. maybe even four turns per day before their hours of service run out in a healthy and safe environment. Today, I'd say that number is a lot closer to two turns a day. And that doesn't help them make a lot of money. So you have not only the headwinds that you face nationwide with those numbers I just shared, but also an artificial shortage because it takes longer to get in and out of the ports. And we've got to straighten that out. And that's why we've put in incentives, the digitization product to open up these

and illustrate these appointment times so folks can really tap into them as quickly as possible and real-time information to show around this massive court complex where I can get in quickest during the day and how I can make decisions. Because previous to this, hunting and pecking through those websites, by the time you figured out what was going on on the ground at the port, it was time to dispatch for tomorrow. What about port workers more widely? Are they harder to hire in the current environment?

You've got different segments of folks, and our dock workers under the International Longshore and Warehouse Union are about 15,000 members strong here in Southern California alone. They have about 8,000 registered members, meaning strong career folks with skilled practitioner certification. And then you've got about 7,000 apprentices or what we call casuals that are trying to build their skills, hours, and certification to become full-time employees. those folks have been extremely strong during this surge. In fact, I'm told now by the Employers Association that the average rank-and-file dock worker is averaging between five and a half and six days of work every week since this surge began last June.

Then you've got the warehouse workers that were really hampered by COVID because they typically work in teams in close spaces. And with the advice of the medical experts, we had the physical distancing, the face coverings, and gloves, but also smaller teams, so we weren't bunched in the same capacities that we were before the virus started to spread. So that, in part, we believe, had an effect on how slow the movement through the warehouses, distribution and fulfillment centers was, and why they filled up so quickly during this surge. So all of that is important to us, but with 6.5 million Americans still out of work compared to pre-COVID days, we think there are opportunities, and we've said this, the Secretary of Commerce, Gina Romando, to look at a national export policy. Export jobs in general

compared to other segments pay about 17, 18 percent more than their competitors, getting folks back into the areas of agriculture, which is so big here in California and throughout the country. Manufacturing broadly the auto sector and tiered suppliers, we think will help stimulate that trade and break down some of the barriers to get the American export companies back in touch with their overseas customers. So there's a little bit of both, Tracy, where we're trying to work on those core areas of employment here, but also trying to expand employment and jobs creation in other areas that need it today.

Gene, you mentioned the Long Sherman, and my understanding is they have a contract that's coming up the next round sometime in 2022. Can you tell us what you anticipate in those negotiations? Like, what should we be looking for? what will be the big issues that need to be hammered out? Yeah, the ILWU Pacific Maritime Association contract expires June 30 of 2022. And while I do not speak for the union or the employers association, I think that what we'll see is coming off a spirit of camaraderie like we've never witnessed before. When COVID first struck and we went into the emergency orders, trying to figure out who was essential and who was not,

the port of Los Angeles jumped into action. We got cleaning materials and solutions to make sure equipment and communications devices were safe to handoff between work efforts and making sure that our workers had the necessary protective equipment to be safe on the job, understood the medical recommendations of the county, state, and federal agencies. As we take that momentum and move into negotiations, I'm hopeful that folks will work on the key issues that are of great importance. health and safety of the worker, making sure that they're paid a just wage, and we have an opportunity for the proper transitioning as technology continues to be prevalent in our industry. But we'll also see areas discussed, I'm sure, concerning robotics and automation, which is always a flashpoint

in these discussions, and then we'll see what the future of work looks like. I believe there's going to be a day in the not too distant future where mechanics, as an example, who are skilled on multi-tiered levels, we'll be operating with computers and not just wrenches. We'll have to make sure that there is training and development opportunity, upskilling and re-skilling of our labor force to tackle the needs of the future supply chain. So all of that and more will probably be discussed, and we'll be doing our level best. You may remember that Mayor Garcetti and I were pretty visible during the last negotiation, and at the proper time, President Barack Obama dispatched, then U.S. labor sales. Secretary Tom Perez to bring it home over the last seven days and help complete the tentative

contract. So there'll be a lot of people around. There'll be some of us around who have got pretty good experience and want to keep that cargo moving. But I will leave it to the experts on both sides of the table, who we work with very closely on a daily basis to shepherd us through this contract negotiation, get us out the other side with good worker protections and companies that can move the cargo swiftly for the American consumer. Speaking of the American consumers, so one of our most read stories at the moment is about seafood shortages and some seafood restaurants cutting things like scallops and other fish stuff off of their menus. And one of the things we've heard is that there are perishable items such as fresh fish that are getting stuck at various ports. So I'm just curious, is there anything you can do to prioritize?

shipments of perishable goods or groceries? Is that something that you do on a regular basis? Is it something that's become more of an issue given the current congestion issues? And then secondly, you know, not all choke points or goods shortages are created equal. And the American government has expressed a lot of concern about, for instance, a shortage of semiconductors that then hits the manufacturing industry. So I'm just wondering, do you make exceptions for prioritizing either perishable goods or goods that are sort of deemed as strategic or economically important for the U.S. like semiconductors? Yes, on both. And I'll explain a little bit about each. For perishable commodities, we do an appreciable business here from Asia as well as the west coast of South

America. And I think the easiest way to put it is that a white colored box with an engine on the front is typically a refrigerated box. Those of other color schemes for the company's logos are traditionally the non-perishable or dry boxes. So you've got not only a line of sight if you're a dock worker looking at these, but we have plans across the board in the industry. Lining up these refrigerated boxes in certain areas are what we call bays on the vessel for stowage purposes has been a core competency of the industry for decades now. So we know exactly where these containers are of the perishable variety on a particular ship at any time during its voyage. Typically, those are prioritized to be unloaded early in the sequencing of discharge, and they are

placed at a certain location on the terminal where they're plugged in immediately to the electrical grid here locally as an example in Los Angeles. The line of sight of the dock worker, the trucker, the logistician is all right there with that type of product. And fortunately, as we've continued to plan in those areas, we have not heard or witnessed too many service failures to this point because of this huge surge of cargo that are perishables are going unservice and going bad on the other side. With respect to priority products, this is where digitization really comes in and shows its wares. Being able to have highlighted in our port community

system, the port optimizer, what cargo is hot as we call it or prioritize. To make sure that we can really speeded through the system has been also a competency that's been driven by this digitization product. So I think we're doing a pretty fair job as an industry. There's much more improvement that we must participate in. And in fact, we categorize for public consumption our metrics around how long containers sit, where they're going to be going to next, what the next movement is. And while we've just recently uncovered some real problematic areas of containers sitting for enormous amounts of time, we're doing a pretty good job on speeding up the containers that we have a line of sight on earlier in the path from Asia to Los Angeles. So we've got to keep pulling people together, working and bringing folks at the confluence here of all these service providers activities right here at the port to stepping it up every day, especially in times when we've got so much cargo to manage. and easily things could slip through the cracks.

Gene, you know, the first, I think the first episode that we did, and maybe even it was back of January when we started looking at supply chains, we talked to Mark Levinson, who is the economist and author of the book, The Box. And one of the things that's come up that he brought up and it's come up in some of Bloomberg's reporting is the trend of much larger vessels. And they take longer to get in and out. they're less efficient. And as Mark pointed out, they also take longer to unload. They're wider, and so the mechanical arms have to go deeper into them. How big of an issue is that the sort of

ongoing increase in vessel size? And how much does that contribute to bottlenecks at the ports when so many just sort of very large ships are all there at once? Yeah, I think it's a variable in the equation across a number of areas. First, to answer the question, I think it's one that has to be thought of very carefully because you think, big ship, you load a lot of containers, and then you go from there. But as you rightly say, you've got landside opportunities, you've got timing with schedules, etc. But I'll give you one stat that I think I'm most impressed with here, and that's 11,000. At the port of Los Angeles, we're averaging an exchange of 11,000 container units per vessel call, which today is the best in the world. So even as the ships have gotten larger and wider,

as you say, Joe, coming in here, the work that's done for every vessel call, we're moving more cargo per vessel than anybody else on the face of the earth. Now, that comes with adaptation as well. used to be when I started off in the industry, a big ship was 4,500 container units. Today, the port of Los Angeles, fortunately, with a lot of forethought from my predecessors, has been able to welcome the largest ships in the world at 23,000 container units and work them without a hitch. But they take longer. So you've got to line up more trains. You've got to have more land on your terminals to service them because you've got more containers. You've got to be able to get truck gates in and out, over a wider timeframe than just working eight to five during the day as we had done for

decades in the past. So there has to be adjustment all the way along the way. But the key for the liner shipping companies is if they can put a six ship rotation in from North Asia to Los Angeles and they can leave Shanghai every Monday morning at 0800 and do that consecutively week in and week out, then we're doing our job here. Right now, that's not the case because of all those congestion points that we've talked about during the show, but that's the task at hand. So the bigger vessel can be managed. Adjustments have to be made land side. They have to be made on the water side. But the work of these longshoremen, women, and logisticians in our marketplace in Southern California, where the institutional knowledge, I would also say is world class, has been proven to be a net

positive for us. You can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris. And I'm Karen Moscow here to tell you about our new on-demand news report, delivered right to your podcast feed. Bloomberg News Now is a short five-minute audio report on the day's top stories. Episodes are published throughout the day with the latest information and data to keep you informed. Yes, there are other products like this from a variety of news organizations.

But they usually rerun their radio newscasts throughout the day. That's not what we do. We create customized episodes that can only be heard on Bloomberg News Now. And we don't wait an hour to publish breaking news. When news breaks, we'll have an episode up in your podcast feed within minutes. So you're always getting the latest stories and developments. Get the reporting and the context from Bloomberg's 3,000 journalists and analysts we're all over the world. Listen to the latest from Bloomberg News Now on Apple, Spotify, or anywhere you listen. So one of the themes that keeps coming up on all these supply chain or logistics episodes is the idea of expectations. And at the beginning of the pandemic, everyone thought we were going into a deep, deep recession.

We were going to get a massive pullback by U.S. consumers. And of course, the opposite ended up happening. And we had this huge import boom as everyone stayed home and ordered a bunch of stuff online or, you know, redid their houses, that sort of thing. I'm just wondering, with the benefit of hindsight, is there anything you would have done differently over the past 12 or 15 months? Yeah, sure. A number of things start with our natural convening powers to bring people together. As I mentioned to you, our industry tends to be a little bit siloed.

Private sector companies really work with their customers closely. broader and greater good is not normally in the front of mind for many folks in the industry. So bringing people together a little bit earlier, although the information was moving fast, and most of us were trying to take care of the health and safety of our worker, our staff, our families, that probably could have been sped up a little bit. But again, Tracy, as I mentioned to you, we had a press conference with the results of our main numbers. we were down 19% and although I saw the pendulum moving about three times because we saw unevenness in the supply chain, you probably needed to get people to the table a little bit quicker.

I think secondly, pre-positioning assets knowing that we were going to have a one-way trade episode also would have helped us, maybe a little faster. And thirdly, I wish I pushed on that past administration even more than I did to rectify these ill-advised trade policies. We have absolutely hurt the American farmer and the American exporter broadly, and that has been, if we look back, something in the systemic portion that has really amplified this area of how do you handle the surge, right? Because it's all one-way trade. And if you can't bring back the assets, the crew, and the power fast enough, then you're going to wind up in a situation like we are right now. But I think the industry generally has

managed this unprecedented volume better than most had expected. We usually run a supply chain under the radar where folks don't want to talk to us on shows like this unless something's going wrong. And our business day-to-day is just that. It's moving America's economy. It's keeping people employed and making sure those store shelves and those front porches have our groceries and toys and goods on them. And when it doesn't go that way, I think in the industry, you say if it bleeds, it leads, and that's what we've been seeing, that folks are now interested because you've got shortages across the board, and whether it be the advent of the price of lumber doubling and tripling, the way that housing starts look, the purchases of homes, and the folks

who wanted to redo theirs, I think from the prognosticator standpoint, it would have been pretty tough to hit a royal flush on all of these issues at one time. Well, it is true that we probably wouldn't have been doing so many episodes had it not been for all this tension, but it really has been great to learn all this stuff. You know, we just have a few more minutes left, but I want to talk a little bit about the future a little bit. Christmas, people, there's been talk, okay, are we going to, is Christmas going to get disrupted? Are there going to be problems getting toys? So I guess another two-parter, A, is Christmas going to be disrupted? and B, to what extent are retailers pulling forward orders even more because they're worried about Christmas?

And to what extent is that pull forward effect contributing to the ongoing congestion? I'll go on record and say, no, Christmas will not be disrupted. It will happen on December 25th again this year. But we're going to have to do a lot of jumping through hoops like we've done in the past to help out folks. I'll give you the example of the toy importers, right? most of their revenue is made up over a 10-week span, even less in some cases, during the course of a year. And this is everyone from the large multinationals to the small family-owned business that's maybe third or fourth generation today, or the folks that are just starting up their companies.

So we understand the importance. And with all the folks that are paying attention to the supply chain today, we don't shy away from the spotlight. The look at what we see right now, Joe, is that we're pivoting this moment. between this surge and our traditional peak season. So we're starting to see back-to-school products, fall fashion, even Halloween items start to come in. And yes, to answer your question, a number of retailers have told me they're trying their level best

to pull forward inventory and get it in a little earlier. My advice to families and friends who ask me, buy your holiday gifts a little bit earlier this year as well. Get online, go to the store, try to pre-plan. I know I'm a last minute guy, but even I'm going to have to pivot a little bit this year. But also what we're seeing, and this comes directly from the merchandisers at these big retail chains, is that their manufacturers are behind on their orders as well. I mean, you think about everything that's happened over the last 17 to 18 months.

Even the factories in Asia are working around the clock trying to pick up every order they can and fulfill them, and they're struggling as well. but their output is higher than ever on record. So it's a matter of, are you matching yourself up against aspirations that may not be attained versus are you just really blowing out numbers that no one's ever seen on the face of the earth to how do you get the American consumer in a good place?

And that's by building confidence within your supply chain. We also love the president's executive order on supply chain. Here again, it's putting focus where we need it to, whether it be agriculture, the chips that Tracy mentioned, and those going into cars and washers and dryers, just about everything we have today, we've got to get a line of sight on what this means. And there is a difference in the supply chain between sourcing and procurement, transportation, the chain itself, the delivery and distribution. So delineating all those segments and trying to just keep fine-tuning them is the job of leaders in this industry today.

I guess the, I was about to say the million-dollar question, but it's probably, probably closer to a trillion. How long do you expect the congestion issues to go on for? It'll be a while. There was a major retailer that told me that their inventory system, nationwide retailer with over 3,000 stores said their inventory right now is at about 48% of an acceptable level. So even as we pass through these seasonal effects that I just mentioned, these guys are going to keep buying and buying and buying. As we go into the latter part of the fall. We're going to get those last-minute orders coming through, and we're going to have to thread this needle from a mile away just about every transaction to get it done. What I do see, Tracy,

is given where we stand right now with the Delta variant, that's going to go a long way to telling us where we're going to wind up, because we're starting to see here in Southern California, and I follow this nationwide. The number of diagnosed illnesses are going up rapidly, hospitalizations, even fatalities, many of which, unfortunately, due to folks who are unvaccinated, but it's hampering the rest of us. And I had an outlook that basically said after Lunar New Year 2020 and into the first quarter, we'd start to see a leveling of this import freight, not a steep decline, but a leveling, because we as the American consumer, would go back more wholly into the service sector, getting back on airplanes, going out to ball games, and restaurants going to the movies,

and that may slow a little bit, so we may keep buying online for a while. We also have to look at, as I mentioned, squeezing all the opportunities out of the port complex that we can, but in unison with these other folks, the warehouses, the railroads, trucks, et cetera, and the shipping lines. I want to squeeze more productivity out of the port, meaning if we have to work flex-ships, if we have to open a little bit earlier. Now, again, these are agreements between labor and management that have to be worked out through a collective bargaining agreement. But I think there's some opportunity to add a little bit in the mornings, a little bit later at night, and get the truckers and others confident that we could move the cargo through and service them. That's all going to play into this as well.

But this is going to be a strong second half of the year. I don't see us chipping down too much on these anchorage numbers beyond what we've been attempting to do so far. We're about half of where we were at the highest point. We got down the single digits. And then the South China folks came back to work off of their third wave of COVID. So we're going to keep watching the incoming and try to take advantage of all the opportunities to push the cargo through. We're going to be in this for a while. Gene, that was absolutely fantastic.

I learned a ton from that. And it was a real treat to have you come on Adlaught. So thank you so much for joining us. Well, thank you both Joe and Tracy for the opportunity, Laura, for running the program. today. Really appreciate the chance to get some of the information out there. Absolutely. Thank you so much, Gene. Take care. All right. You too. Thank you. Thanks, Jane.

So there you have it. We're going to be in this for a while, huh? It's not very encouraging, is it? Yeah, I guess, well, one encouraging thing was Christmas is saved. I guess that's good. If you order early, just make, I'll, I'm definitely a late shopper too for gifts. So I'll I went to take Jeanne's to Hart. He was awesome. That was great. I learned a ton from that episode, and I thought that was a great education in the importance

and the sort of like the role that the ports play. I mean, of course, it's sort of intuitive. The ports play a crucial role because everything has to go through the ports, all imports, but just sort of like understanding the relationship that they have with the truckers and the shipping companies and the warehouses, et cetera, the retailers. I learned a lot from that conversation. Yeah, so two things, I guess, struck me. So the first one is, we've spoken about this before, but this idea of technology upgrades for shipping and the digitization process. So clearly this is a

complex industry. You have so many different factors going into supply chains. Can technology help you organize them and achieve some efficiencies that would help you move goods from A to B? That keeps coming up. And then the other thing that struck me, and sort of related topic, but this idea of prioritizing strategic shipments and being able to say, well, this ship has a bunch of containers full of semiconductors and they're important for supply chains for a bunch of important industries. And so we're going to get them out sooner. That's a really interesting thing. And I wonder if that's a big shift for ports and other shipping industries. I wonder if that's something that's going to become more important going forward.

maybe you don't need like the shipping container full of like, I don't know, maybe toys for Christmas, but like semiconductors might be more important. Yeah, no, so many like interesting things. And I'm thinking about like potential for productivity enhancements and how long a truck driver might just be sitting there waiting to pick something up, even when there are containers on the ground that are waiting to be moved, you know, this sort of like, the opportunity still to just make these turnaround times faster. I don't know.

Just lots of interesting details. We should go out to the port sometime. Yeah, I would totally go to the ports. We still have a lot to do on transport and supply chains. And one thing that I really want to do is pallets. You know, pallets? Oh, okay, yeah. Yeah, I think we...

Okay, palettes. Palettes, packaging. Palettes, rail and barges are three that we still have to do. We definitely have to do rail. We haven't done a single rail one. And plastics as well. well, like plastic packaging. There's plenty to talk about.

Yeah. Okay. The series continues. Shall we leave it there? Let's leave it there. All right. This has been another episode of the Allotts podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Allaway. And I'm Jill Weizenthal. You can follow me on Twitter at the stalwart.

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