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How supply chain, shipping routes adapt to Mid East tensions

As President Biden invests $20 billion in upgrading US ports' cybersecurity and replacing China-made cranes, the Port of Los Angeles has reported continuous cargo volume growth while global supply chains still see disruptions from Middle Eastern tensions.

Port of Los Angeles Executive Director Gene Seroka sits down with Yahoo Finance Live in-studio to talk about how shippers are adapting and optimizing cargo routes to account for these disruptions.

"What we're seeing is a couple things: One, [the] Panama Canal drought — about 23% less or fewer crossings in the first six weeks of the year thus far. The Canal Authority is doing a great job, they're trying to shuttle by train cargo from the Pacific to the Atlantic and onward movements to the US," Seroka says on shifts in global trade routes. "In the Middle East, now shipping lines are taking their vessels around the Cape of Good Hope, adding additional ships in so they can maintain their fixed weekly services."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

JOSH LIPTON: And Gene, I want to switch gears here a little bit. I'm just interested to get your take. What do cargo volumes look right now at the Port of LA, Gene? Are they strong? Are they soft? What do you see now and looking ahead?

GENE SEROKA: I'm encouraged, Josh. Six straight months of year-on-year growth. We've got a dockworkers contract now that gives us a line of sight of confidence for the next five years. January was our second best on record. And my prognosis for the first quarter is about 20% growth thus far.

JULIE HYMAN: Of course, we're watching what's going on around the globe in terms of shipping, in particular in the Mid East with some of the attacks that are going on there. But the way that the flow of shipping works around the globe, does that affect what's going on in the West Coast of the US?

GENE SEROKA: It does, and it's yet another series of issues for supply-chain executives to have front of mind. I was in India and Southeast Asia last month. My days in the Middle East, I still have a lot of contacts and keep up with those men and women who are driving supply chains.

What we're seeing is a couple things. One, Panama Canal drought. About 23% less or fewer crossings in the first six weeks of the year thus far. The canal authority's doing a great job. They're trying to shuttle by train cargo from the Pacific to the Atlantic and onward movement to the US.

In the Middle East, now shipping lines are taking their vessels around the Cape of Good Hope, adding additional ships in so they could maintain their fixed weekly services. What I heard on the ground in south and southeast Asia was that importers and exporters are now starting to shift their cargo to the West Coast of the United States, and we'll see a little bit more of that as the weeks and months go on.

This is not going to end anytime soon. During my time in the Middle East, we were faced with the Somali interests and the pirates that were going after vessels and tankers in the Red Sea. That took some time and a tremendous allied effort as response.

JOSH LIPTON: And, Gene, one big question for investors is supply chains, of course, you know, upended during the pandemic. You've got an interesting line of sight there. What are you seeing?

GENE SEROKA: We look at a dashboard of statistics every morning, Josh. And the numbers I see, the vitals, are at or better than where they were before COVID. The ship that comes in now makes the most transfers of any in the world at about 12,000 containers loaded and unloaded per vessel call, and that ship work is about 4 and 1/2 days. That is right where we want it to be. Truck and rail cargo moving off the port just where it should be and, in the case of trucking, a little bit better than it was before the surge happened.

JULIE HYMAN: There was a lot of talk during the pandemic when everything was jammed up that there needed to be work on the technology driving shipping, driving ports, driving trucking as well. Have we seen those changes take effect and that's part of what's benefiting, or is it just that things have kind of eased? But now that also means that the pressure to improve things has eased a little bit.

GENE SEROKA: Yeah, I think a combination of all that, Julie. And what we did in Los Angeles was create the nation's first port community system called the Port Optimizer with the Wabtec company, and it allows us to be able to look pre and post shipment to understand what the bottlenecks are, what's causing them, and how we can fix them.

During the surge, what we found is one simple causal, and that cargo was sitting for much longer than it should. And that place needs to be a transit facility, not a storage center. So if we can keep the velocity going-- we call it dwell times. If that cargo moves out by truck in three or four days, by rail in two to four days, then suddenly that velocity helps. And it will continue to be the data mining that allows us to get smarter every day, and more and more companies coming in to help us with that.

JOSH LIPTON: And, Gene, I want to get you out of here on one last question about China. You know, obviously there was-- some people thought you were going to see a post-COVID boom there. Hasn't happened. It's pretty shaky. What does that mean for the Port of LA? What's the impact?

GENE SEROKA: China's business with the Port of LA represents about 53% of all the containers that we move. And while many executives tell me they're looking at a China plus one strategy, we'll probably see that number drop into the mid 40s over time, but they'll still be a dominant trading partner with the Port of LA.

And it's interesting because we've got a different lens that we look through. When I was in China last summer, really not worried about the economic growth. Talking about circular economy. But at 5.8% GDP, a lot of folks were nervous about that. So we've got to kind of level set expectations and see how that migration of sourcing, manufacturing, and export flow will take place with these strategies going forward.

JULIE HYMAN: Interesting stuff. Thanks, Gene. Good to see you.

GENE SEROKA: Great to see you both.

JULIE HYMAN: Thanks for coming to visit us in New York. Appreciate it.