For port cities, slowdown in global trade hits home

Powerful cranes, each shaped like an upside-down "U" and towering a dozen stories high, hug the dockside. Specialized vehicles called jockey trucks scurry past stacked shipping containers, while in a nearby union hall, burly longshoremen pass the time playing cards and swapping jokes.

All that's missing here at one of the nation's leading ports are some ships. It's midafternoon on a workday and almost 2 miles of prime cargo-handling waterfront sit empty in the bright sunshine. The nine vacant berths symbolize a savage decline in global trade that is alarming economists and sending shivers through major port communities.

"Global trade is collapsing. ... The whole global economy continues to tank, from China to Europe to the United States," says Kenneth Rogoff, former chief economist for the International Monetary Fund.

For Savannah, the accelerating global downturn is arresting more than a dozen years of impressive growth, dealing a blow to a local economy that is weakening along with that of much of the United States. In February, the port handled 21.7% fewer containers than it had the same month a year earlier, its 10th consecutive monthly decline. "All of a sudden, it all started dropping at the same time," says Doug Marchand, 61, executive director of the Georgia Ports Authority.

This year, for the first time since 1982, trade is expected to shrink. Last month, the World Trade Organization predicted that shipments of goods would fall 9% in 2009, the largest decline since World War II.

As debt-laden U.S. consumers stop spending freely, factories in China, South Korea, Taiwan and elsewhere are shuttering assembly lines. In January, the dollar value of U.S. trade fell more than 20% compared with the same month in 2008. New trade barriers in the USA, Europe, Russia, India and elsewhere — including domestic content requirements for some government purchases — threaten to exacerbate an already dire situation.

Where trade once spread prosperity, it now transmits weakness. Fewer shipping containers passing through commercial gateways such as Savannah mean less revenue for port operators and local governments, fewer hours of work for stevedores, longshoremen and truckers, and fewer dollars flowing to local businesses. In January, the local unemployment rate hit 7.5%, up from 4.6% one year earlier.

"The port is a major economic driver for us. When imports and exports go down, it has a mushrooming effect. It just spreads out over everything," says Mayor Otis Johnson.

James Tandy, 38, knows all about the ongoing erosion. Last year, he worked up to 60 hours a week hauling cargo on the docks. Last month, after a seven-day week of showing up at the longshoremen's union hiring hall for 5:30 a.m. job calls, Tandy had worked just five hours total.

"It's pretty rough," he said.

Help from Texas

On this day, the waterfront is only temporarily empty. Container ships bearing goods such as dining room sets and flat-screen televisions begin arriving within hours. Savannah thus far is weathering the financial storm better than some trade centers. In California, for example, the port of Long Beach suffered a 40% decline in its February monthly container total.

Beneath the spring sun, men and machines join in an industrial ballet. Steel containers bearing the names of shipping lines such as Hanjin, Yang Ming and Maersk stretch for acres.

Wheeled minicranes and bulked-up forklifts weave among the forest of steel boxes, arranging neat stacks of inbound and outbound cargo. This is where the anonymous daily labor that greases the wheels of globalization occurs.

From the mid-18th century, when English settlers began shipping cattle and cotton to Europe, trade has been an essential part of Savannah's economy. In the modern era, it's only since the mid-1990s that the local port has really flourished.

In 1995, the year Texas native Marchand took the helm, the port handled a total of 626,151 containers. At the time, Savannah exported much more than it imported, which meant that potential exporters had to bring empty shipping containers from the Northeast to handle their loads. Often, that was too costly given the relatively low value of the shipments of kaolin clay or paper that were the region's key exports.

So Marchand set out to attract higher import volumes, figuring that containers that came in full of clothes or electronics could be reloaded with clay, paper or wood pulp and sent back across the oceans.

By 2002, thanks to a marketing push that persuaded major retailers such as Wal-Mart and Home Depot to locate regional distribution centers nearby, the port's cargo volume more than doubled. Six years later, amid a national shopping spree fueled by consumer credit, it had doubled again to more than 2.6 million containers.

That earned Savannah billing as the nation's fourth-busiest port and No. 2 on the East Coast, behind only New York.

"Every time they announced the port activity figure, it was record-setting. ... They developed a strategic vision for the port that appears to have played out pretty well," said Michael Toma, director of the Center for Regional Analysis at Armstrong Atlantic State University.

The benefits were felt across the region: More than 286,000 jobs, 7% of total state employment, are linked to port activity.

A chill in global trade

Now, the global financial crisis has thrown into reverse an almost two-decades-long process of globalization that seemingly spread prosperity to suburban American homeowners and Third World factory workers alike.

Trade is suffering a double whammy: The recession is depressing U.S. demand for goods made abroad as well as foreigners' desire to buy American products, while the credit crunch chokes off the routine finance that facilitates the movement of goods from one place to another.

In Savannah, trade flows began wavering last spring, but the monthly declines were minor until the Lehman Bros. bankruptcy in mid-September convulsed global markets. In December, monthly shipments fell more than 9% compared with the same month in 2007. January was even worse, down 16%, and February's nearly 22% drop indicated the global financial hurricane is intensifying.

"We feel it immediately," Marchand says. "You can see the numbers of trucks at the gates that you're handling in and out every day. You can see the number of rail boxes you've got going in and out or the number of lifts on and off the vessels."

As the global economy sank deeper into recession last fall, trade channels seized up. At Gulfstream Aerospace, long one of the pillars of the region's manufacturing industry, overseas orders for the company's corporate jets began evaporating.

Instead of the 94 aircraft the company expected to produce this year, it now plans to assemble just 73, spokesman Robert Baugniet says. For each aircraft it makes, Gulfstream brings through the port two engines and a tail section from Europe. So this year, the company will import 42 fewer engines and 21 fewer tails than it expected just a few months ago.

Gulfstream recently announced layoffs of 1,200 workers as well as plans to shutter a local plant for five weeks beginning in July, idling an additional 1,500 employees.

The recession also has hammered Atlanta-based Havertys Furniture, which should be accustomed to hard times. It conducted its initial public offering in October 1929, just before the stock market crashed.

The past several years, Havertys has sharply increased the quantities of dining room and bedroom sets from China, Vietnam and Indonesia it brings through Savannah. The port is its principal East Coast gateway for supplying consumers in 17 states.

"Our business has been affected. Our shipments are down. We're controlling our inventory," says Steve Burdette, 47, Havertys executive vice president of stores.

As deliveries slid, the company, which began life in the 19th century delivering goods on horse-drawn wagons, reined in expenses. Fewer boxes to load meant pink slips for more than half of the company's 1,170 warehouse and delivery personnel, according to filings with the Securities and Exchange Commission.

The big question

One measure of trade activity is the Baltic Dry Index, which measures the cost of shipping commodities. It hit an all-time high of 11,793 on May 20 before plummeting to 663 on Dec. 5 — a drop of more than 94%. The index has rebounded a bit from that historic low but remains more than 85% below its zenith.

As trade sags, pressure to cut costs ripples through the entire economic chain. Shipping lines that are slashing rates in the face of evaporating transoceanic demand are pressuring terminal operators to cut their fees.

Seattle-based SSA Marine, for example, provides the stevedores who choreograph the work of longshoring crews and manage other terminal operations in Savannah. The bulk of SSA Marine's costs are labor rates, which are fixed by its contract with the International Longshoremen's Association. "So we have to reduce our indirect costs or take it out of profits, and profits are thin to begin with in our industry. We're looking at cost savings everywhere we can," says Jake Coakley, the company's regional vice president.

That's meant tightening up on the use of company vehicles and equipment such as printers, even eliminating bottled water. Coakley didn't replace a couple of people who left, spreading their responsibilities among the remaining staff. When he found out the satellite dish on the roof of the company's new building was for a $75-a-month service that provided Muzak to callers waiting on hold, he axed it.

The big question is whether the current downturn reflects a temporary dip in a long-term trend of ever-increasing trade or a fundamental break with a hyperconsumption era fueled by cheap credit. Savannah prospered thanks to its big bet on big retailers from Wal-Mart to Ikea.

As a share of gross domestic product, consumer spending may fall 10% from peak to trough, says Rogoff, the former IMF chief economist now teaching at Harvard University. That would mean a drop of about $1.4 trillion in annual consumption leading to far fewer goods flowing through the port to department stores and do-it-yourself outlets across the Southeast.

Savannah in recent years has counted on continual expansion, setting a goal of handling 6.5 million shipping containers by 2017. Eager developers at the height of the boom erected warehouses as speculative ventures. Today, the unused storage space is equivalent to 69 football fields.

Marchand says the port itself isn't overbuilt and is positioned for eventual recovery. Savannah in February received four of the industry's most modern cranes, capable of hefting 65 tons of cargo from ship to shore. Ample empty space surrounds the main terminal, and plans for expansion already have been drawn.

As he awaits the first glimmers of an economic dawn, Marchand is shrinking costs by reducing gate opening hours, eliminating overtime and deferring non-essential maintenance and travel.

"We've managed to weather this thing so far," Marchand says. "Certainly, we all hope it doesn't get any worse."