Lots More on What America's Busiest Port is Seeing from the Trade Tariffs

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1:08joe did you know you can buy a container gantry crane on alibaba oh i think i saw that how much is it they have different price points as you might imagine but i'm looking at one right now that's $37 ,000 to$28 ,000. Ooh, and it's customizable. You can change the color. Some of those prices for industrial equipment on Alibaba are so cheap that I cannot believe they're real. I think they are real, which is sort of the scary part, or at least in terms of from the perspective of an American industrial perspective. I think in many cases they are actually real, but I still can't believe what's theoretically available.

1:49I did a deadlift. I am both the most popular trader and most successful trader at Citadel. Fed has gone viral. Uh, barges. This is an after-school special, except... I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the U.S. Black gold! These are the important questions. Is it robots taking over the world? No, I think that, like, in a couple years, the AI will do a really good job of making the Outlaws podcast. one day that person will have the mandate of heaven. How do I get more popular and successful? We do have the perfect guest.

2:24You're listening to Lots More, where we catch up with friends about what's going on right now. Because even when the odd lots is over, there's always lots more. And we really do have the perfect guest.

2:38I'm very curious, why would you need a gantry crane in a specific color? Like, is branding very important for these things? I don't know. You know who might know. Oh, yes. So we have with us Gene Sirocca, the executive director of the Port of L.A., which is the busiest port in the U.S. Welcome back to the show, Gene. Tracy, Joe, good to be here. So one of the reasons we wanted to talk to you is obviously there's a lot of confusion about what's going on with trade policy right now. And, you know, we talked on the show about the potential for empty shelves in America if goods aren't coming in any longer.

3:13And so I really wanted to go kind of directly to the source and figure out exactly what is going on in terms of imports right now. So we thought you were the perfect person to catch up with. Your timing is impeccable because over the last seven days here at the largest port in the Western Hemisphere, we've averaged five container ships a day. Normally, at this time of year, it would be about 10 to 12 ships in port every single day. All right. Subsequently, job openings for our dock workers are down almost 50 percent over the last several weeks. So this is really interesting because, you know, on the one hand, we've had the delay in tariffs, the 90 day delay.

3:58And who knows what's going to happen after that. So you expected to see a drop in traffic in April and early May. But on the other hand, you could see some front loading of traffic going into the port as people try to get ahead of the new deadline. But that's not what you're seeing right now. No, not at all. And the thing of this is, Tracy, that 30 percent tariffs is simply an average. And that's still really high. A lot of American importers simply slammed on the brakes when they saw the 145%. And after the Geneva meetings, it was said that they dropped down to 30%. That wasn't met with a lot of enthusiasm in the import community.

4:37So you've still got some cargo coming in. Folks went back and scooped up what had been manufactured. Others let orders complete that cycle before shipping out. But what I'm not seeing are a lot of new orders because 90 days is a short period of time in our business. That's traditionally how long it takes for an importer to put that paperwork into a factory in Asia, make the product and simply get it ready to ship to the United States. We're a long way from there. That's really interesting because in a lot of the conversations that we've had, you know, they're long cycle orders. Right. So, you know, you talk about retailers and they're thinking about October or they're thinking about Halloween or maybe they're thinking about Thanksgiving or maybe they're thinking pretty soon they're going to be thinking about Christmas.

5:20I guess from that perspective, a 90 day window for some retailers, it must be a pretty big risk. If you're a big retailer, maybe you can like take the risk that like, yeah, you know, they'll probably extend it again, et cetera. But my guess is, you know, for smaller ones, like that's probably not enough certainty that they're not going to end up with a bunch of goods that they have to pay a huge bill on at the end. That's right, Joe. And the majority of the companies that import through the Port of Los Angeles are small to middle sized businesses. Why is that? Wait, I didn't know that. Explain that further.

5:52Yeah, yeah, yeah. We've got 125 ,000 companies that call L.A.'s Port home for all their imports. And we know the big box retailers, the home improvement stores, an equal amount of cargo comes in as parts for American factories. But of those 125 ,000 importing companies, the great majority are the smaller to midsize, even family businesses. They didn't have the wherewithal, in some cases, to be able to front load inventory, push carrying costs out, or get extra warehousing. So they're still having to make the choice right now to buy at these extraordinarily high levels, and I call 30 % extraordinarily high, because if they do bring those products in, they're likely not going to be able to pass on those costs to their customers because they become uncompetitive with the big guys.

6:40This is something that we hear over and over again in the tariff discussions, which is, you know, for the big guys, they have certain levers to pull. As you point out, they can front load some of their orders because they have the capital, the cash to get through that, or they could try to negotiate prices with their suppliers, things like that. But the smaller guys seem to really struggle here. That's exactly right. And what we're hearing on the ground, there's a part supplier for the big three automotive companies in Detroit that's right up the freeway from us here at the port. And they're telling me that their effective tariff rate is 57 and a half percent on these auto parts that go to the plants.

7:19Now, here's the dilemma. If they slow down too much or stop buying because 57.5 % is too much, they run the risk of shutting a factory line down back in Detroit. If that happens, it costs the auto manufacturer between$2 and$4 million an hour in lost sales, wages, and cost structure. It's unbelievable.

7:47Thank you.

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8:57To learn more, visit easycater.com slash podcast. Actually, I'm sort of curious about Port of Los Angeles corporate structure. You mentioned the dock worker job listings are currently down. Like, what is the structure? Who employs them? Who's putting up those listings? If someone is a dock worker, what company are they working for and what companies and what are those companies relationship to your entity, the Port of Los Angeles? Joe, the dock workers, the International Longshore and Warehouse Union, 15 ,000 strong members here at the Twin Ports of Los Angeles and Long Beach are hired by the Pacific Maritime Association.

9:32OK, that's a representative group covering 75 companies in our industry. Think of the shipping lines, the marine terminal operators, and the maintenance and repair companies. So each one of these terminals, every morning and every evening, wants to bring on the dock workers to work at their facility. Here at the Port of Los Angeles, we're a city entity, the port authority, if you will. Our job is that of a real estate company to lease out property to these international and national trading interests to promote trade through this gateway. it. So on this note, I mean, one of the things I wanted to ask you about is how you personally at the Port of L.A.

10:13are actually dealing with forecasting and coming up with your business plans for the rest of the year, because it just seems I mean, it seems almost impossible at this point. You don't know what's going to happen with the deadline. And then on top of that, you're not really sure what's going to happen with shipping because maybe people front load and traffic goes up, although it doesn't sound like that's happening, or maybe traffic goes down because people are just nervous. It seems really, really difficult to make any sort of plan right now. Yeah, to your point, Tracy, traditional forecasting is super difficult right now.

10:45But because we have a great information system, deep relationships in Asia and contacts that span nearly four decades in this industry, we're able to predict quite a bit. For example, last month in May, 17 vessels were canceled that eliminated 225 ,000 container units coming our way. The drop-off was so great that the first time in memory, I can remember that the month of May had lower cargo volume than did the month of April, down 16 % when we otherwise should be going up toward peak season. The month of June, we'll have an additional 10 vessel sailings canceled. So I can work from that kind of parameter right now.

11:24But we're in the midst of our budgeting season here in the city of Los Angeles. We're trying to make sure that we have everything lined up from proper staffing and training of the workforce all the way to how we're going to carry out these infrastructure projects, digitalization, cybersecurity, as well as our investment in the sustainability programs that we have. Fortunately, we've got a very strong financial policy for the last 10 years, so we'll be able to continue our investment through cycle. But the forecasting end of this is really sketchy. So obviously, the first ever time we talked to you was in 2021, I think, during the peak of when everyone was focused on the log jam at the ports.

12:06And there was so much stuff coming in. And there was all of this talk about, oh, there's this big traffic jam and backup, et cetera. When the tariffs first got announced and then there was some talk of rolling back, some people were worried that we get a similar sort of phenomenon where maybe because of the pull ahead, et cetera, that we get another pileup. That hasn't happened. But let's just say it did. Let's say something happened and there were a surge of orders tomorrow, et cetera. Based on the experience of 2021 and the stress of the 2020 on, has anything changed fundamentally at the port such that a sudden spike of imports that were sustained, there are best practices that would be able to be put in place today to avoid that sort of bottleneck the same way?

12:45Like, has anything changed or learned that could ameliorate an event like that in the future? Absolutely, Joe. And the first thing we did was an inward look. What could we learn, do better, replicate from best practices elsewhere? And what we found was that we all started working closer together. We looked at what the root causes were. And again, it's not this simple, but it's about the velocity. It's about how fast we can unload a ship and get the cargo on and off the port property quickly. That's what we didn't have in 2021 when those 109 ships were lined up. So what's changed in terms of your potential velocity today?

13:21Why should people think that it could be higher? Well, it's much better. And I'll give you this example. During 2021, the average container that was to leave the port by truck sat for 11 days. Today, that average container is sitting for three days. And that's been a trend for some time now. And I'm not just talking months. The average box that was going out by rail during that time period was 13 and a half days. Right now, it's just shy of four and a half days. So we made a concerted effort to work with rail and trucking firms, importers and exporters, to show them the value of speed when it comes to containers resting at any one time at our port.

14:01And it's been just a piece of work to continue to move forward with, meaning that we can work the next ship faster. We can put more cargo through here, hire more dock workers and truckers to handle that volume. And it's grown exponentially. The last point here is that because we started seeing front loading of cargo last summertime, we went 10 consecutive peak season like months from July through April and not one ship was backed up. We moved more cargo during that time than we did at the height of 21 or 22. How many cranes for containers did you purchase off Alibaba at that time? Unfortunately, based on the opening back and forth between you and Joe Tracy, I have never seen a gantry crane in$25 ,000 to$35 ,000 sale prices.

14:52It is a little suspicious, isn't it? They do come in different colors because companies have logos. They've got color schemes. Branding is really important in this business. But the average gantry crane on the ground right now, and we have 86 of them, is about$12 million a piece. Oh, wow. These must be little toy versions. But wait, why is branding important? I'm looking at every picture I have of the Port of Los Angeles, they all look like this sort of very satisfying aquamarine or like a blue or something like that. Why is branding important in the logistic shipping business? Well, just like it would be in clothing or footwear or for your favorite sports team, it really identifies the company.

15:29APMT, headquartered in The Hague with their parent company, Mersk & Copenhagen, is a light, we would call it a Carolina blue. Phoenix, owned by CMA CGM in Marseille, France is red, white, and blue mirroring that French flag. And then we go over to Evergreen based in Taiwan. And as you could imagine, green gantry cranes, green containers. So that branding across an industry of maybe 10 major players really identifies as you see a box moving on a train off a ship or the truck through your city, you know who they are. Yeah. I have to say, I have a little miniature Evergreen container on my desk. It's actually, It's a Kleenex box, I guess.

16:08Oh, the green, yeah. Yeah, and it's a very bright green, evergreen's colors. Okay, so one of the things we've been talking about on the show is this idea that if imports into the U.S. are slowing down, eventually you might see some shortages or at least lack of options at stores. Let's put it that way. When would you expect the slowdown in containers shipping to actually hit the shelves and affect the American consumer? Later this summer, Tracy. And this is why when we've seen 60 different announcements on trade policy and tariffs since January, even the most seasoned professional is having a difficult time keeping up with this.

16:48But I think one thing is consistent, that with high tariff levels and increasing prices to the buyer, folks just slammed on the brakes, hit the pause button on business and hiring capital investments and said, let's see how this thing shakes out. Because there could be new information that comes out in two hours, two days, or maybe even two weeks. Not sure how this is all going to end. So I'm going to buy the bare necessities. And we're seeing that now with these single digit container ship volumes at the Port of Los Angeles on a daily basis. So likely, we'll see fewer selections on store shelves and online buying platforms and higher prices.

17:29Fulfillment rates will also look different. If a blue, red, and white shirt option are not move in at high levels. You're not going to see them replenish just to top off inventory, but you likely will see the item that's selling get a backfill. And that just looks different from a supply chain perspective. Right now, the month of May that just closed would normally see a flurry of purchase orders over to Asia factories getting ready for the year end and Christmas holiday seasons. We're not seeing that at this point. All right. Well, Gene, Gene, thank you so much for coming back on and giving us an update on what you're seeing.

18:06It was really good to get your perspective. Tracy, Joe, great being with you again. Thank you. Thanks, Gene. Joe, what color should my crane be?

18:15Nice yellow or something. No, not yellow. Bright red. Pink. Pink. I wonder if pink crane. That would be the same. I think that'd be great. You don't see that color in logistics very much. Yeah. I agree with you.

18:29Lots More is produced by Carmen Rodriguez and Dashiell Bennett with help from Moses Andam and Kale Brooks. Our sound engineer is Blake Maples. Sage Bauman is the head of Bloomberg Podcasts. Please rate, review and subscribe to OddLots and Lots More on your favorite podcast platforms. And remember that Bloomberg subscribers can listen to all our podcasts ad-free by connecting through Apple Podcasts. Thanks for listening. For enterprise organizations, managing all your food needs is a tall order. But with EasyCater, you get a single workplace food vendor with the tools and resources to make it easy.

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