L.A. Ports May Not Recover Shipments Lost to East, Gulf Coast Gateways

A 27% slump in cargo shipped to the ports of Los Angeles and Long Beach in Southern California over the past year has led to unprecedented declines in demand for local logistics real estate, according to a new report from Prologis. It is unclear how much of those shipments can be recaptured. 

Prologis attributes the ports’ current slump to a decline in overall global activity, as well as diversions of cargo to other U.S. ports caused by a year-long dispute with the International Longshore & Warehouse Union (ILWU) over terms of a new labor contract. 

Amid disruptions to port operations caused, workers said, by labor shortages but employers claimed were due to intentional labor actions, a number of shippers and importers diverted cargo to other U.S. ports, especially on the East and Gulf Coasts.

Prologis believes that about half of the market share lost by the California ports can be recovered, now that a new labor contract has been agreed. “We project a stabilized market share to occur 6-12 months after contract ratification of approximately 33% of U.S. container imports will pass through the Los Angeles/Long Beach port complex,” up from 27%, the report states.

Others fear a more lasting impact. “The reputation of the West Coast ports as reliable conduits for Asian trade will be less tarnished, but they still have a long way to go in assuring shippers and customers, the importers and exporters,” the Los Angeles Times quoted international labor economist Jock O’Connell of Beacon Economics as saying.

However, Prologis contends that demand for logistics space is not contingent on short-term movement in port flows, because it serves multiple purposes. “High and rising barriers to development mean logistics real estate supply will likely fall short of demand over the medium to long term, yielding rent growth and investment outperformance,” the report states.

It cites the region’s advantages such as “serving the consumption needs” of local residents, acting as a distribution point for the greater Southwest region, and handling U.S. – Asia imports and exports more efficiently because of lower costs and shorter travel time.

According to Prologis, the most significant drivers of U.S. logistics real estate demand growth are retail/wholesale inventories, retail sales growth and e-commerce penetration. Positioning along global trade routes and sustained growth in TEUs (20-foot equivalent unit shipping containers) also affect the evolution of logistics clusters. 

However, while it names Southern California “the largest and most concentrated logistics cluster in the world,” Prologis contends that the region’s supply has not kept up with growth in TEU processing volumes, resulting in a decline in the ratio of modern stock to TEUs over time.

“The region’s substantial barriers to development create low supply elasticity, price shocks, pent-up demand and make existing properties more valuable,” the report concludes.