00:00In strong numbers, the question really is how sustainable is it and what is that reflecting in terms of the
00:05choke points in the street of Homo's?
00:07Good morning, Hazlinda. You know, our line of sight has really been narrowed because of all the changes in policies
00:13and the geopolitical environment that we face.
00:16But realistically speaking, the American consumer has been resilient and American factories are doing quite well.
00:23The ISM reports show an uptick for the last seven months.
00:27Now, the question will be, has a lot of this cargo on the retail side moved early because of the
00:32trade policies you mentioned?
00:34And do we see a little bit of a slowdown? Maybe not because of the issues surrounding the Suez and
00:40Panama Canal.
00:41So in terms of cargo bump, you're expecting at least 5 percent. How high can that go, you think, in
00:48your calculations?
00:49It may go a little bit north of that. And we're preparing on the ground, maybe 10 percent.
00:54But we're preparing on the ground to ensure we've got that great skilled workforce ready, the equipment and the land
00:59don't want to be caught on our heels.
01:01Now, realistically speaking, as Suez Canal sees a little bit of cargo movement, not anywhere near normal.
01:08And the Panama Canal continues to issue guidance on drought restrictions, which means more cargo is going to be pointed
01:13our way.
01:14What are some of the challenges that you're facing right now in trying to meet demand?
01:21Planning and that planning horizon, which has really shrunk because of the changes in policies and the landscape worldwide.
01:27How do we prepare ourselves every day? And what are these trends going to look like?
01:32We've answered the bell so far, but we're trying to see around corners a little better.
01:36And that's why I'm on the ground in Asia this week, talking to factories, shippers and third-party logistics companies
01:41to make sure I see where their purchase orders are so we can plan a little bit better back home.
01:46Well, the question really is, if the choke points continue to be suffocated, I mean, to what extent are the
01:54ports in the West Coast able to absorb, you know, all the business?
01:59Generally speaking, I like the shape we're in right now.
02:02Now, we're at about 45 to 50 percent of real capacity, and we have not had a ship backed up
02:07in five years.
02:09The stats I look at every morning show a very healthy port.
02:12Cargo velocity is very high.
02:14But again, now we're seeing a little bit of weather activity in Asia, typhoons, which create vessel bunching, meaning ships
02:21don't leave on time.
02:22They tend to get to the port of L.A. at the same time.
02:24We've managed through that as well.
02:25We've got to keep our eye on that ball and keep the cargo flowing.
02:28Interesting, Gene.
02:29You talked about how retailers are no longer waiting for the perfect condition.
02:34They ship whenever they can.
02:36What does this mean for you?
02:37What does it mean for your business?
02:38Is this the end of the peak season, so to speak, the concept of the peak season as we know
02:44it?
02:45Well, for this year, just maybe.
02:46Many of the retailers, large and small, shipped a little bit early because they had some certainty.
02:51They knew the temporary tariffs were going to be in place until the end of July, and they shipped just
02:56ahead of the new vessel fuel surcharges that were implemented at the end of that month.
03:03So they had a little bit of a window there, maybe three months, to get all their cargo in, knowing
03:07what their prices would be.
03:09After that, you've seen the bigger retailers ship in August and September.
03:13We probably see that volume start to wane a little bit as we head into China National Day, first week
03:19of October.
03:19I imagine there's rising anxieties among shippers.
03:23I mean, we're talking about higher fuel prices, you know, the continued geopolitical uncertainties.
03:29Are they looking at new contracts?
03:31How are they looking to possibly buffering themselves, you know, from the pain?
03:37That's the question of the day.
03:39The vessel fuel price here in Singapore is up over 80 percent compared to a year ago.
03:45In Los Angeles, it's doubled.
03:47Petrol in Southern California is up by 30 percent.
03:50But the diesel fuel that powers all of those trucks that move two-thirds of our cargo on the ground
03:56is up nearly 60 percent from a year ago.
03:59So trying to rationalize costs, making sure that the impact is not felt broader than the supply chain, really is
04:06the formula that folks are trying to figure out right now.
04:09So what are they doing?
04:10What are the alternatives?
04:11What are the options for them?
04:13Finding any way they can to secure their supply chains in a better way.
04:17In some cases, passing on those costs from service providers to importers and exporters and then to the American consumer.
04:24That conversation of affordability is happening and it's nationwide in the United States.
04:29Bananas and coffee are up double digits at the grocery stores compared to last year.
04:34Everyone's talking about this and it's the supply chain experts that are trying to whittle down those costs as best
04:39they can.
04:40So from your conversations, how much higher would it mean for the consumer if we see status quo?
04:49The consumer has defied logic for several years now, going through very high inflation following COVID to where it moderated
04:57and now all these external factors.
04:59Wages have grown to a point but not keeping up with inflation in totality, yet that American economy of $32
05:06trillion, even if it grows at one and a half to two percent, is still very substantial and meaningful in
05:13our industry for import and export.
05:14So this high inflation, sticky inflation, you think will be around for longer.
05:20I mean, we talk about how, you know, Chairman Walsh has been trying to whittle it down to two percent.
05:26But two percent is not coming until maybe two to three years from here, you think?
05:29The Federal Reserve has two mandates, two percent inflation and maximum employment.
05:34And that's what they're focused on.
05:36For us in the supply chain, it's making sure that that cargo moves through as much as possible because we
05:41see where those bottlenecks do impact cost as well.
05:44Yet inflation has not run away.
05:47The jobs market, softer than some would like, has not seen massive declines.
05:52And that American consumer continues to spend.
05:56This upcoming holiday season will be a real barometer to where the economy goes next.
06:00China. We know that Chinese exports to the U.S. have decreased.
06:08Where are you seeing an increase?
06:10Where are they going?
06:11What are your what are your numbers suggesting?
06:13Really interesting has Linda since 10 years ago when we first saw these trade policies come into the world view.
06:20China was 60 percent of our business portfolio at the port of Los Angeles.
06:24Today it's 40 percent and dropping.
06:27Yet we're still growing.
06:28We've chased every pound of freight.
06:30We've aligned with our shipping companies to get nonstop services put in place here in Southeast Asia.
06:35Vietnam has quadrupled its business with us in that past decade.
06:40We're seeing growth in Indonesia, Malaysia and specifically Thailand.
06:45So there's definitely a migration of production here to Southeast Asia.
06:49And it also includes Chinese investment.
06:52How fast is this happening?
06:54How fast is this shift happening and specifically through the alley port?
06:59It's really been accelerated in the last 18 to 20 months.
07:04The first round back in 2016 and 18 when we saw tariffs go into place, folks started thinking about a
07:11China plus one policy again, as we have for many different circumstances in the past, whether it was SARS or
07:17the Asia economic crisis currency specifically.
07:20But in the last year and a half, we've really seen a shift in that migration.
07:25Now, with flat tariffs in place, the Section 301 of the Trade Act, China's coming a little more into balance.
07:33So some of that loss of cargo has started to slow again, just showing the dynamics of this marketplace and
07:40the supply chains that everyone is trying to pull back together.
07:44Gene, one of the key issues for the industry is actually cyber attacks.
07:48In fact, the U.S. has come out to say that they're tracking cyber attacks on potentially 20 vessels.
07:54How concerned are you?
07:55I mean, how rampant is it right now?
07:58Yeah, very.
07:59The bad guys are out there all over the place.
08:01We implemented a cybersecurity operations center at the Port of L.A. 12 years ago.
08:06Last month, it stopped over 120 million intrusion attempts, network exploitation, credential harvesting, malware, ransomware.
08:16And to step that up, we put together a coalition of private sector interests, including IBM, to create a cyber
08:22resilience center.
08:23That's helping the private folks watch this domain as well.
08:27But all they have to do is get it right one time.
08:30And we've got seven layers of firewalls now around the Port of Los Angeles.
08:34This is front of mind every day.
08:36But what's the biggest, most consequential attack that you've seen on the L.A. port?
08:42Is there anything you can share with us?
08:43Yeah, it was the not petty attack of 2016 and 17 that we saw really going after banks in Eastern
08:51Europe.
08:51But it also impacted shipping lines and terminal operators to the point where one of our facilities was down to
08:5810 percent of normal activity.
09:00And the company, Maersk, has been on record saying that it cost them 300 million dollars in replacement and upgrades
09:08to their systems.
09:09So 2016, that's quite some time back, though.
09:11How about any recent incidents and, you know, using perhaps the AI tools to have these attacks?
09:19Yeah, there have been some one-offs, but no impacts to the Port of Los Angeles.
09:22Yet we've got to stay ahead of the curve every single day.
09:26Individual companies are faced with this.
09:27And that's why we're working so closely together to prevent that next catastrophic attack.
09:32And, Gene, how are you positioning for the next 12, 24 months, given the uncertainties in the world today?
09:36Yeah, I think we're in really good shape.
09:37We've had strong financial policies for the last decade.
09:40We're investing in a new container terminal for the first time in a generation, cruise terminal.
09:45And we're out on the road talking about building a new bridge to make sure that we can handle the
09:49largest vessels in the world at the port.
09:51I like our position from the standpoint of investment and the continued confidence that the private sector has in our
09:57gateway.
09:58Gene.
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