Empty containers are piling up at LA ports

The drop in shipping containers arriving at Los Angeles-area ports is a leading indicator of a slowdown in U.S. economic activity and rising inflation for American consumers.

And there is little sign that this decline in port activity will ease.

Based on discussions with those in our professional network and a visit to the ports of Los Angeles and Long Beach, we expect the plunge in imports to begin showing up in the real economy during the first two weeks of July.

After a 25% surge in shipping from China before the announcement of tariffs on April 2, the volume of containers arriving from China has since fallen by an average of 10% compared to last year. And it’s likely to fall further.

At the same time, empty containers have been piling up at Los Angeles-area seaports, upending the balance in trade between Asia and North America.

In the normal course of events, containers from Asia are unloaded and then either filled with U.S. exports (agricultural products and recycled items, for the most part) or sent back as empties to be refilled at Asia’s factories.

But those empties aren’t being sent back at nearly the same rate. A record 710,000 containers sat empty at the Los Angeles-area ports in January, a number that grew at an average yearly rate of 25% during the first four months of the year. 

This pileup is having an impact on Asian production centers, and ultimately will hit American consumers:

• China is reporting delays in accessing containers for finished goods, with time-sensitive exports like electronics and apparel rerouted or postponed.
• India is reporting that agricultural and pharma exporters are facing rising leasing costs and the diversion of containers to higher-paying routes.
• Vietnam is facing 20% to 30% higher leasing premiums because of a lack of available empties coming in from Gulf and West Coast ports in the United States.

The takeaway

In our view, the idea that a sudden reversal in tariff policy—or even a spate of framework agreements to work toward eventual trade deals—will instantly put the global supply chain back on track is mistaken.

It will take time to return empty containers to the global supply chain, and for U.S. producers to regain confidence in the efficiency of just-in-time ordering.

These are lessons learned during the pandemic era that some appear to have forgotten.