Coronavirus weighs on shipping through Port of Los Angeles

President Trump is set to send a massive Navy hospital ship to the Port of Los Angeles to aid with the surge of coronavirus patients in the area. Yahoo Finance’s Seana Smith and Akikio Fujita discuss with Port of Los Angeles Executive Director, Gene Seroka.

Video Transcript

SEANA SMITH: The coronavirus is taking a toll really across all industries, but we want to talk about the toll that it's taking on the Port of Los Angeles. It is the nation's largest port. Now, it could be a leading indicator, just in terms of the pain that we could potentially see or what could be in store for the US economy.

So for more on this, I want to bring in Gene Seroka, executive director of the Port of Los Angeles. And we're also joined by our very own Akiko Fujita. Thank you both. And Gene, let me start just in terms of the facts as to what you're seeing so far, how big of a slowdown you're seeing because of the coronavirus. What has that been like?

GENE SEROKA: Yeah, the port is open for business, and our marine terminals are all in operation. The emergency orders that came from the state of California, Los Angeles County, and Los Angeles City have all defined the port as essential, and keeping our supply chains moving is job number one. For the first quarter, my estimate is that we'll be down about 18% in volume. We've got Southeast Asia running at full tilt, but China's manufacturing community is still only running at possibly 50% of normal capacity at this time.

AKIKO FUJITA: Gene, can you speak to that bounce-back that we've seen? You know, a lot of the economic models we've been looking at have been based on sort of what we've seen out of China after they have peaked with the outbreak. You've got some good visibility at the port. What are you seeing in terms of bounce-back in activity, and how do you square that with the situation that's now playing out in LA? I know you've got the exemption, but you still have to be worried about the safety of your workers.

GENE SEROKA: Absolutely. The health and safety of the workers that are on the docks, our staff at the Los Angeles Harbor Department, and so many others, including truck drivers and visitors, is job number one for us. We're taking steps, following the medical advice, making sure that we have cleaning supplies at all of our facilities, and folks are operating under that care of health and safety.

The bounce-back really is non-definitional at this point in time. We've not only been looking at our decades' worth of contacts, after having worked in China myself for many years, as to what the manufacturing community is doing. But we're also cross referencing that with energy consumption, traffic patterns to and from work, as well as pollution levels. And all or charting between the 40% and 50% level right now of normal output this time of year.

So again, bounce-back, we saw on an elongated Lunar New Year holiday that was extended by the central government. The cargo flow is much less than normal, obviously. But we're running at about 80% of normal volume at this point in the year, and the delta really is that lack of China manufacturing at its full capacity.

We also believe it's going to take time for that manufacturing community to come back. Realistically, we see now about six to eight weeks down the line, as far as orders and what vessel loadings look like. And there will be modest increases in volume coming out of China over that time frame.

SEANA SMITH: Gene, I want to just talk about, just in terms of-- you're obviously saying that you are operating at 80% normal volume at the port, at least at this time for the year. The officials have said that they expect declines to continue through the end of the month. Is there any threat, just in terms of the fact that maybe that timeline could expand at any point?

GENE SEROKA: Oh, I see the knock-on effects of this going throughout the rest of the year. We've had two huge shocks to the system-- the trade war between China and the United States, which showed a 16.5% decline in volume in the fourth quarter of 2019 and then coming back after the new year with the shock of COVID-19, which will continue to rattle on down the line.

What we see happening next is a pendulum effect. We've had 41 vessels canceled from mid-february through April 1, and that represents about 25% of our normal vessel calls to the Port of Los Angeles. Without those ships calling here, we've seen empties start to pile up, those empty containers, as well as some distressed exports, both refrigerated, frozen, as well as dried. We're doing our level best to get those exports out to their customers, and we started that a week and a half ago with a large 19,000 container unit ship, the MSC Oscar, set into Los Angeles to evacuate those empty containers back to China.

Second, that same company, Mediterranean Shipping out of Geneva, is dispatching three 23,000 container unit vessels beginning on Wednesday, April 1 for three consecutive weeks to do just that, evacuate the empties, start loading up on exports. And this will be the first swing to get those empty containers into the hands of manufacturers in China and Southeast Asia, in order to capture the gradual uptick in exports to Los Angeles.

AKIKO FUJITA: And Gene, very quickly, on the public health response, the question I was asking earlier, you've got the Naval hospital ship being deployed out to the port of LA. What are you hearing in terms of the timeline to get that up and running right now?

GENE SEROKA: We were just on a conference call early this morning with the Navy and the Military Sealift Command. Plans are being put in place right now for the preparation of that vessel and its arrival, location in the Port of Los Angeles. It will be soon.