Retailers watch West Coast ports labor talks, shift goods to other ports

Retailers from Wal-Mart to Amazon are keeping a close eye on the labor disputes that threaten to bring imports to a halt if an agreement between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) is not reached soon. 

The National Retail Federation estimates that a a 10-day strike at West Coast ports could cost the U.S. economy about $2.1 billion a day and result in the loss of 169,000 jobs.

Port and labor officials have negotiated since May 12 and dockworkers have stayed on the job since their contract expired June 30. One exception occurred Tuesday (July 8) when 1,000 dock workers in Long Beach and Los Angeles walked off the job, but they were ordered back to work by an arbitrator within two hours, according to a maritime association spokesman.

"While there will be no contract extension, cargo will keep moving and normal operations will continue at the ports until an agreement can be reached between the Pacific Maritime Association and the International Longshore & Warehouse Union," the two organizations said recently in a joint statement.

Port truck drivers from three of Los Angeles’ drayage firms began striking on Monday (July 7) from claims of unfair labor practices at ports in Los Angeles and Long Beach. The Teamsters Union is backing this strike, as they have done three other times in the past year. The prior strikes were over within a 48-hour period.

The longshoremen negotiations, which cover nearly 20,000 workers at 29 West Coast ports, are in the midst of 72-hour break through July 11. 

WAL-MART WORRIES
Michelle Gloeckler, executive vice president of consumables and U.S. manufacturing lead for Walmart, said Tuesday (July 8) that these negotiations are on upon retailers’ and suppliers’ minds as they rely heavily on these access points for imported products that takes weeks or months to get once items are ordered. 

While two-thirds of the products sold at Wal-Mart are made in the U.S. the retailer still imports billions of dollars of goods each year and domestic suppliers also rely on component parts which are imported as well. 

This uncertainty in the West Coast ports gateway has retailers making some contingency plans. Retailers are bringing holiday merchandise into the country at record levels to protect against potential supply chain disruptions, according to the monthly Global Port Tracker report released Wednesday (July 9) by the National Retail Federation and Hackett Associates.

NRF reports that import volume at major U.S. container ports is expected to total 1.5 million containers this month. That’s the highest monthly volume in five years and follows a trend of unusually high import levels that began this spring as retailers worked to import merchandise ahead of any potential problems.

“We’re still hoping to get through this without any significant disruptions but retailers aren’t taking any chances,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said in a statement. “Retailers have been bringing merchandise in early for months now and will do what it takes to make sure shelves are stocked for their customers regardless of what happens during the negotiations.”

SHIFTING IMPORTS
The NRF has urged labor and management to avoid any disruptions that could affect the flow of back-to-school or holiday merchandise. Gold said Global Port Tracker numbers show that some importers have begun shifting cargo to East Coast ports as West Coast ports handled 59% of U.S. retail container cargo in May, down from 62% in January.

Dan Sanker, CEO of CaseStack, told The City Wire he has witnessed a shift to other ports from retailers. CaseStack is a logistics solution company that helps manage supply chains in retail and other sectors.

“There has been a lot of interest in Houston and Savannah lately. Some companies are even splitting volume to send some to other ports. I don’t see it as an overwhelmingly huge phenomenon though,” Sanker said.

U.S. ports followed by Global Port Tracker handled 1.48 million 20-foot-cargo containers in May, the latest month for which after-the-fact numbers are available. That was up 3.7% from April and 6.6%  from May 2013. 

June was estimated at 1.46 million containers up 7.6% from the same month last year, and July is forecast at 1.5 million containers up 4.3% from last year. 

While the West Coast contract situation is driving the surge in early imports, Hackett Associates Founder Ben Hackett said the increases in volume also reflects an improving economy.

“The economy is on the upswing,” Hackett said. “There’s been a sharp drop in unemployment, consumer spending has seen solid growth over the last three months, and there’s a strong level of consumer confidence.”

CONSUMER IMPACT
“We don’t think the shifting of ports will have a material effect on consumers. Many of the moves that have being made in anticipation of a potential work stoppage are already built into the pricing (e.g. increased storage costs and longer inventory build to the holiday season),” said Chris Ferrell, director of Tompkins Supply Chain Consortium.

He said while the increased cost of shipping to the Eastern Ports in not insignificant in terms of both shipping rate and inventory carrying cost, for the amount of freight that is affected it is unlikely to be large enough to risk alienating web-enabled, price-sensitive consumers with increased prices. Should minor cost increases be incurred he anticipates retailers simply accepting slightly lower margins.

“Bottom line: the mere threat of a West Coast work stoppage has already been a major imposition and inconvenience to shippers but the actual risk to the 2014 Holiday season and to consumers’ wallets is much less,” Ferrell added.