A vivid illustration of America’s supply chain woes are the photographs of container ships lined up outside the ports of Los Angeles and Long Beach, waiting to unload. But this outcome shouldn’t have been a major surprise. The World Bank and IHS Markit published The Container Port Performance Index 2020 back in May 2021 (available with free registration here). It is the first effort to offer a systematic ranking of performance of 351 ports around the world. In general, US ports do very poorly. As the report notes:
The CCPI 2020 was constructed based on two different methodological approaches, or what have been termed the administrative approach: a pragmatic methodology reflecting expert knowledge and judgment, and the statistical approach, using factor analysis (FA). … The top ranked container ports in the CPPI 2020 are Yokohama port (Japan), in first place, followed by King Abdullah port (Saudi Arabia) in second place. These two ports occupy the same two positions irrespective of the methodology. The top 50 ranked ports are dominated by ports in East Asia, with ports in the Middle East and North Africa region, such as King Abdullah port, Salalah in Oman (ranked 6th and 9th respectively), Khalifa port in Abu Dhabi (ranked 26th and 22nd respectively), and Tanger Med (ranked at 27th and 15th respectively) as the notable exceptions. Algeciras is the highest ranked port in Europe (ranked 10th and 32nd respectively), followed by Aarhus (ranked 44th and 43rd respectively). Colombo is the top-ranked port in South Asia (ranked 17th and 33rd respectively). Lazaro Cardenas the highest ranked port in Latin America (ranked 25th and 23rd respectively), with
Halifax the highest ranked port in North America (ranked 39th and 25th respectively).
The reader will notice that no US ports are named in the top 50, and the top-ranked North American port is located in Canada. Here, I’ll just give the factor analysis statistical ranking of some major US ports, which essentially comes down to a measure of how long it takes ships to unload–adjusting for the size and type of ship. However, the scores based on expert knowledge and judgement are similar. Out of the 351 ports ranked around the world, the main west coast US ports are Los Angeles (#328), Oakland (#332), Long Beach #333), and Tacoma (#335).The main US east coast ports are New York and New Jersey (#89), Savannah (#279), Virginia (#85), and Charleston (#95). The main US Gulf of Mexico port is Houston (#266).
Inefficient ports matter. As the report notes:
Maritime transport is the backbone of globalized trade and the manufacturing supply chain, with more than four-fifths of global merchandise trade (by volume) carried by sea. The maritime sector offers the most economical, energy efficient, and reliable mode of transportation over long distances. A significant and growing portion of that volume, accounting for approximately 35 percent of total volumes and over 60 percent of commercial value, are carried by containers. …
Unfortunately, ports and terminals, particularly for containers, can often be sources of shipment delays, supply chain disruption, additional costs, and reduced competitiveness. Poorly performing ports are characterized by limitations in spatial and operating efficiency, limitations in maritime and landside access, inadequate oversight, and poor coordination between the public agencies involved, resulting in a lack of predictability and reliability. Poor performance can also have an impact far beyond the hinterland of a port: Container shipping services are operated on fixed schedules with vessel turnaround at each of the ports of call on the route planned within the allocated time for port stay. Poor performance at one port on the route could disrupt the entire schedule. The result far too often is that instead of facilitating trade, the port increases the cost of imports and exports, reduces the competitiveness of its host country …
While much of the discussion of US ports focuses on international trade, it’s worth noting that the issues affect within-US trade as well. There are substantial US flows of goods that could be shipped up and down the east coast, the west coast, or in and out of the Gulf of Mexico. But much of that ocean-based shipping doesn’t happen because of costly and inefficient ports. The result is that those goods end up being shipped overland by truck and rail.
The World Bank/IHS Markit report just offers a ranking: it doesn’t make any effort to sort out underlying explanations for the poor performance of US ports. I haven’t made a deep study of this subject, but there are plausibly three main contributing factors.
First, the benefits of more efficient ports are spread across the logistics system, with lower costs for all the carriers hooked into ports and ultimately lower costs for producers and consumers. But those potential benefits are somewhat invisible. Those who run the port will capture only a small share of those benefits if they go to the time and trouble of updating the capacities of a port and running it as efficiently as possible, so they have only mild incentives to make such an effort.
Second, the Jones act is a century-old law which requires that water transportation of cargo between U.S. ports is limited to ships that are U.S.-owned, U.S.-crewed, U.S.-registered, and U.S.-built.” The goal of the law was to protect US shipbuilders from foreign competition. The result has been that it costs far more to make ships in the US than anywhere else, and the ships that are U.S.-owned, -crewed, and -registered have much higher shipping costs. In other words, it’s not just in its ports where the efficiency of US shipping has fallen far behind.
Finally, the International Longshore and Warehouse Union is the famously militant union representing port workers on the west coast. The union has done a fabulous job of negotiating high pay and benefits for its workers, and in that sense, I say more power to it. But the union has also been able to pass along these higher costs along the supply chain, while making it harder to update the efficiency of the west coast US ports in particular.
Most of the largest US ports have dramatic room for improvement. The pandemic-related supply crunch has brought the issue to the surface, but it was a largely ignored issue that existed before the pandemic and–unless some dramatic and permanent changes are made–it will exist as the pandemic wanes, too.