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Port of LA exec on COVID lockdowns in China: 'We have not seen a slowdown'

Port of Los Angeles Executive Director Gene Seroka joins Yahoo Finance Live to discuss current cargo traffic through the port and how China’s COVID-19 lockdowns could affect supply chains.

Video Transcript

AKIKO FUJITA: Well, the Port of Los Angeles processed its third highest volume in history last month, as crews worked around the clock to ease record backlog. But a slowdown at the world's largest port in Shanghai and a looming labor negotiations threatening to derail some of that progress. Joining us now, we've got Gene Seroka. He's the Port of Los Angeles executive director.

And Gene, always good to have you on the show. Let's talk about the exposure to China because roughly 60% of those containers you have coming in to the Port of LA are coming in from China. You've got heavy exposure on that front. What kind of slowdown have you seen as a result of the COVID restrictions over in Shanghai?

GENE SEROKA: Good morning, Akiko. Great to see you both. We have not seen any slowdown to date, but we're watching very closely, and not just reading the news clippings. We're looking at trucking power, transportation, energy consumption, even pollution. So what we see right now is factory output appears good. There are bottlenecks in the supply chain of getting goods to the port. The port's working OK. And right now, we've got 50 ships in the queue on their way to the ports of Long Beach in Los Angeles. It's a little bit more than normal.

So I would say that the outcome of this will be a short-term lull in arrivals, yet weeks out from where we're at today, with a pretty quick bounce back to catch up on purchase orders.

BRIAN CHEUNG: Hey, Gene, it's Brian Cheung here. So just to kind of hammer on that point again, so are you suggesting that we haven't necessarily seen the full impact of the China lockdown yet? I mean, we know that as of late, that's what's been happening in Shanghai, for example, some of those factories shutting down. Does that mean that you expect these pre-pandemic levels that we've already surpassed to perhaps even get a little higher?

GENE SEROKA: We may not have seen a slowdown in cargo yet, Brian. That's correct. But I'll take you back a month ago, when many folks were reporting that Shenzhen and municipalities in and around Guangdong Province were going to be locked down, we really didn't see much of an impact. But that's why each case is different. Each municipality is different. We're watching very closely.

And again, with lockdown now in day number 18, Pudong opened up a couple of weeks ago on the east side of Shanghai, east of the Huangpu River. And the Yangshan Deep Seaport being on the southeast side of Pudong continues to be open. But here again, we've got to be resilient. We've got to be able to pivot. With 50 ships on the way, we've got a lot of cargo working. Haven't seen a real dip in the amount of cargo flow since these particular lockdowns went into order by the central and municipal governments.

AKIKO FUJITA: Gene, you mentioned 50 ships in the queue. That's higher than normal, but it's certainly a huge improvement to where you were even just six months ago when we were talking about record backlog. At what point do you anticipate getting back to what is considered normal, these pre-pandemic levels? I mean, how much of that backlog has eased, and what have you kind of learned in the process in trying to get this up and running?

GENE SEROKA: Akiko, you'll remember that at its worst, we had 109 ships in that queue, either departing Asia or yet to call at the twin ports here in Long Beach and Los Angeles. We were down in the high 30s, low 40s over the past several weeks, and pretty steady, running through post Lunar New Year, the lockdown in Shenzhen, Guangdong Province, and now what we're seeing in Shanghai.

If things were a little bit more normal, what I'd say is this. We have 30 weekly services that call the Port of Los Angeles. We've seen 10 new entrants to the trade and still major retailers hiring charter vessels to come in. If you're around 40 to 45 ships, that's not bad for the amount of cargo that we have moving through here coming off that record March, and already, we've had 50 ships physically call in Los Angeles during the month of April, which really kicks off the slack season. So the retailers, home improvement stores, and others who told us they would replenish cargo in the second quarter to get inventories built up here in the US are coming through with their commitments.

AKIKO FUJITA: Gene, in the meantime, you've got a contract or labor talks with the International Longshore Warehouse Union looming this summer. These are negotiations that come up every six years. The last time you went through them, there was a significant labor disruption. What are you anticipating this time around?

GENE SEROKA: Contract talks will kick off May 12, Akiko. And what we have are savvy negotiators on both sides of the table, career leaders in their sectors that understand what's at stake here with the American economy. Of the 29 ports across the West Coast of the United States, their business accounts for about 12% of the US GDP. I visit regularly with leadership on both sides, and they are prepared for the task at hand. There will be very serious issues to discuss, and they understand they have to move along quickly.

I've been assured that the rank and file longshore members will be on the docks every single day, moving this caravan of cargo out into the economy. And that's exactly what we need to do. Your last question of what lessons have we learned, if cargo sits here at the Port of Los Angeles, it backs up everything. We need to keep the velocity of cargo moving at high rates of speed, given that we focus on health and safety of our workforce first.

But if we start to see cargo sitting elongated periods of time, whether it be on rail or truck moving into the United States, that's where we see problems amount. So we're still holding our calls with the White House and the C-suite of the private sector, making sure that we see problems around corners and over hills before they happen.

BRIAN CHEUNG: Well, and part of making sure that cargo doesn't get backed up is having the rail throughput to get them out of the docks. So we've known that's been part of the supply chain issues as well. What have you seen on that front? Have those pressures been alleviated, or does that remain an issue in trying to get some of the goods that are coming into the Port of Los Angeles around the other parts of the country?

GENE SEROKA: Right, Brian. Over the last five weeks, the rail or intermodal cargo, as we call it, has increased six-fold. We have 16,000 containers waiting to load on dock rail at our facilities here at the Port of Los Angeles. If it were more normal times, we'd have about 9,000 boxes. So the western railroads, both the Union Pacific and the Burlington Northern Santa Fe, are working very closely with us to expedite the movement of that cargo off our facilities.

I'm also seeing a little bit of a spike in the cargo that's destined to move out by truck. That means our retailers and others have got to pick up the cargo and get it into their domestic supply chain. But again, and I underscore this, nowhere near what we saw last October. With the evidence of data that we have in front of us and all the mining that we're doing to be able to see these issues, that's where these conversations happen every day to make sure that we don't get backed up again.