If cargo traffic in the LA and Long Beach ports happens to be the way you gauge economic vitality, you’re in for some depressing news. In a sign that the California economy isn’t quite out of the woods yet, port traffic at the two major shipping ports declined by 1 percent in July this year, compared to July of 2011. However, as is the norm in economics, things aren’t quite what they seem.
According to Ross Devol, Chief Research Officer at Santa Monica’s Milken Institute, the 1 percent decline can be more closely tied to Asia’s problems than the United States’.
“Outbound traffic from California has been negatively affected by the tremendous slow down in Asia,” DeVol said. “We’ve seen trade volumes decline more than output – it appears inventories are being reduced, and it’s consistent on the outbound side.”
But is a 1 percent decline enough to have an effect on the California economy? DeVol belives so.
“It certainly has an impact. In the early stages of the recovery when you go back to late ’09 and early ’10, you saw very strong growth of trade volume through the LA ports, with all the logistics in transportation related employment beginning to recover,” he said. “We’ve lost that source of growth. But we’re starting to see other sectors of local economies recover.”
Because of the rapid rise of shipping in 2009 and 2010, the slight contraction represents something more of a return to the norm for the ports.
“It’s things coming back down to Earth in some sense,” DeVol said. “You wouldn’t expect trade volumes to be rising at 10 to 15 percent a year. We had a bounce back from the recession, but I would say these recent modest declines are more just normal pull back. You would expect a moderation in growth or a plateau.”
Still, despite what should have been an anticipated contraction, the decline does make its presence felt. This is true even outside of the Golden State. “It’s not just a California story: it’s a Western United States or even a Midwest story,” DeVol said. “Southern California has the benefit of traffic that flows through the port. We have a vast trade infrastructure from the ports themselves to shipping to warehouses out in Ontario, throughout the Inland Empire. They benefit from increased activity and higher employment.”
And DeVol doesn’t see a 1 percent decrease as the end of the port traffic decline. “I would say we could probably see declines in the range of minus 3 or 4 percent on a year-to-year basis,” he said. “I think that will probably be the bottom, barring recession in the US or in Asia, which I don’t see happening. It certainly does add another risk to the Southern California recovery, but I think we’ll end up weathering it.”
But in order to weather the storm and ensure that shipping declines don’t exceed normal rates, California must be sure to put its businesses and shippers in a position to be successful. While California can do very little about Asia’s slow-down, it can at least streamline regulations and train its citizens to take on the logistical transportation jobs that, despite the minor July decline, are still anticipated to grow in the next decade.
And keeping California competitive in the global marketplace is the goal of the Economic Summit and the Summit Action Plan is the roadmap. By putting our state in a position to not only weather the decline, but be even better prepared once a boom returns to shipping, California will be ready to embrace its economic future, not fight against it.