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Economy

The 2 largest ports in the U.S. are making progress clearing their cargo

RACHEL MARTIN, HOST:

The two largest ports in the U.S. are making progress clearing their cargo. As a result, Los Angeles has decided to hold off on charging fees for containers waiting to get picked up. But how did the ports get so big in the first place? And why are they so backed up? From the team at Planet Money, Erika Beras has the story.

ERIKA BERAS, BYLINE: For decades, the ports of Los Angeles and Long Beach moved the most amount of stuff for the lowest costs. Now it's the most clogged.

GENE SEROKA: We're in a triage situation.

BERAS: Gene Seroka runs the Port of Los Angeles. He says the problems at the port aren't just about the port.

SEROKA: We can't control everything. We're only one of 12, 15, 20 participants in the supply chain. The notice here is much more pronounced because of the sheer size of this gateway.

BERAS: And its sheer size - the port covers 43 miles of waterfront - is part of what made this port so attractive and made it grow. But it's also what's causing this blockage. The Port of Los Angeles operates in what's called a landlord model port. What that means is that while the land is publicly owned, the terminals where ships dock are leased to private companies. Those companies want to attract more cargo from more importers. That's how they make money. So to stay competitive, those companies spend their dollars on bigger, taller cranes at the terminals and on making the waterways deeper to accommodate heavier ships. Steve Flynn is a ports and maritime expert at Northeastern University.

STEVE FLYNN: It's deep enough for the biggest ships to come in, and therefore, the ships can turn around very quickly.

BERAS: The quicker those ships turned around, the quicker they could get more cargo. And as we started importing more from China, the ships full of those goods got bigger, loaded down with more stuff.

FLYNN: Its size really helped, that there was an economy of scale of having essentially the super container ships, the really mega ones. But then that created its own challenge of there was only a few ports that had the infrastructure that could handle ships of this size.

BERAS: Because those big ships, they can't dock at just any port. Ports have to have the kind of infrastructure the leasers at the landlord model Port of Los Angeles had invested in. So it meant shipping got more concentrated. But when consumer demand spiked, the system wasn't ready. It was built for predictable demand. This deluge of buying threw everything off. Other ports couldn't take those big ships. So they're just idling for weeks, waiting to unload. And even if other ports can dock them, there isn't a simple way to reroute all the other pieces of the supply chain, like the trucks that take things to the warehouses that were built for things arriving to Los Angeles. Steve says this all revealed the system's fragility.

FLYNN: And so things like thinking through what to do if you have a disruption, what's the plan, how are you going to coordinate that, none of the infrastructure for doing that is in place. So imagine if, like, the, you know, global financial markets, when they melted down in 2008, you had no central bankers, right? How would that work?

BERAS: There is no central bank of the port's supply chain system. So now that there is a crisis, there is no one who can look at the whole system and find fixes for it. And even with this backlog, there aren't the same financial incentives that there were to grow and concentrate the system as there are to make it more fluid and less concentrated because there's still the expectation that things will go back to normal. And normal worked for those companies for a long time. Erika Beras, NPR News.

(SOUNDBITE OF RJD2'S "INCORPORATE ANTHEM") Transcript provided by NPR, Copyright NPR.