The shipping industry will remain volatile for most of 2020 as the coronavirus outbreak in China upends the global supply chain, said the head of the largest U.S. container port.
Cargo traffic through the Port of Los Angeles is down about 25% in February amid a rash of canceled ship sailings, Executive Director Gene Seroka said Monday. That could drag the total container volume in the first quarter down 15% from a year ago, he said.
“That’s a pretty tough start to the year, and we think that is mostly attributable to the coronavirus,” Seroka said in an interview at Bloomberg’s headquarters in New York.
The comments underscore the broad and rapidly expanding impact of the virus, which has curtailed factory output, hampered travel worldwide and wreaked havoc on the markets. A global stock rout pulled U.S. benchmarks down more than 3% over concerns about a possible pandemic.
From Feb. 11 to April 1, there are about 80 canceled sailings of container ships to the U.S., half of which were scheduled to come through the L.A. port, Seroka said.
Even if the virus can be contained in the near term, the effects may linger in the shipping industry. There is a glut of containers in the U.S., both full and empty ones waiting to return to Asia, Seroka said. Those will need to be moved rapidly once the supply chain starts to return to normal, potentially creating bottlenecks and other problems.
“That will create an artificial spike in the traditional calendar year of the shipping industry, and it’s going to keep swaying, this imbalance, back and forth until we can find a way to level set it,” he said. The repercussions could extend into the fourth quarter.
The virus adds to volatility caused by the Trump administration’s trade dispute with China. Seroka said the “ill-advised trade policy out of Washington” had led to 14 consecutive months of export declines for the port.
China accounts for about half of the L.A. port’s inbound and outbound cargo traffic.
Separately, the port’s profile could get a boost in the coming months from Elon Musk, whose Space Exploration Technologies Corp. is expected to build a Mars-bound spaceship at the facility under a new deal.
The L.A. Board of Harbor Commissioners last week approved a permit for the company to lease space, and the L.A. City Council will consider the matter in the coming days.
SpaceX had previously planned to work on its next-generation spacecraft, dubbed Starship, at a new facility at the L.A. port before changing course in 2018 and hammering out a deal to do the work in Texas. The company is now expected to use both the Texas and California locations, Seroka said.
“We’re excited because it further diversifies our port,” he said. “We have every intention of seeing them as a long-term tenant at the Port of L.A.”