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.
Even with the recent announcement of a pause in some of the more extreme tariffs on Asian trading partners, 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 that the plunge in imports will begin showing up in the real economy during the first two weeks of July.
Read more of RSM’s insights on the economy and the middle market.
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 falling further. Projected shipping into the Port of Los Angeles for the week of May 25 declined by 54.7% from the previous week and has fallen by 28.9% compared to last year.
At the same time, empty containers have been piling up at the Los Angeles-area seaports, upending the balance in trade between Asia and North America.
In the normal course of events. import containers from Asia are unloaded and then either filled with U.S. exports of goods (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 and have been growing at an average yearly rate of 25% during the first four months of the year.
This piling up is having an impact on Asia production centers, and ultimately will hit American consumers:
- China is reporting delays in accessing boxes 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 containers diverted 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.
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 it will take time for U.S. producers to regain confidence in the efficiency of just-in-time ordering.
These are lessons we learned during the pandemic era that some appear to have forgotten.
