Any Port in a Storm: The Effect of West Coast Port Delays

Delays at West Coast ports were one of many transitory factors in Q1. In this short report, we examine the timeframe of the slowdown, how it affects economic indicators and what it means for growth at U.S. ports.

Effect Is Far and Wide

Labor disputes at West Coast ports have been blamed as one of the temporary factors that led to Q1’s dismal economic performance. The March Beige Book from the Federal Reserve featured 12 references to West Coast port delays negatively affecting the outlook. The ISM manufacturing survey began noting the effect of the shutdowns in November and still included comments in its most recent report in April. During that time, nine out of 18 industries surveyed commented on how their business was being negatively affected.

Sittin’ on the Dock of the Bay Wastin’ Time

Although the West Coast port issues did not draw much national attention until February, delays began in the second half of 2014 following the expiration of a labor agreement on June 1, 2014. The months in between were marked by discord between the owners and workers which reduced productivity and resulted in work slowdowns and cut hours at the ports. By most measures, this came to a head with the worst of the slowdowns affecting activity in February 2015.

So What Is the Effect on the Economy and the Ports?

While the negative effect on activity was evident in the survey data, the effect is tougher to isolate in the economic indicators. However, container traffic data show that not only did West Coast ports not experience their customary bounce ahead of the Chinese New Year, but traffic in February fell to its lowest level since the recession. Moreover, durable goods shipments have fallen in seven of the past nine months, with the largest drop occurring in February (top chart).

The economic effects may not drag on as long as many had feared. Despite concerns that it would take the better part of a year to clear the bottlenecked shipments, recent reports suggest that port activity has snapped back much faster than expected. Our aggregation of the five affected ports shows that activity is more or less back to normal (middle chart). With port activity snapping back so quickly, the effect on trade may be rather muted, with a plunge in February imports being quickly offset by a surge in March. Further down the production pipeline, however, the supply-chain constraints could linger as parts and materials make the overland journey to their final destinations.

The greater damage may be to the West Coast ports themselves. Total port traffic (by container count) has been growing faster at East Coast and Gulf Coast ports for the past several years. For 2014 as a whole, West Coast port traffic increased a scant 0.4 percent (bottom chart). Growth at East Coast and Gulf Coast ports saw traffic jump 4.9 percent. Shippers have learned that East Coast ports are a viable alternative, a lesson that may have greater implications when the Panama Canal expansion is completed next year.