Retailers and brands, spending millions of dollars in extra costs due to congestion and delays in shipments at West Coast ports, are seeking President Obama’s help to intervene in an escalating union and management dispute that could hit the economy hard during the crucial holiday season.
By industry estimates, a five-day port shutdown on the West Coast could cost the economy nearly $2 billion a day.
Even without a shutdown, severe delays at the Los Angeles and Long Beach ports already have begun to take a bite out of retailers’ and brands’ margins.
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Ann Inc. on Thursday said it expects about $5 million in incremental air-freight costs in the third quarter because of uncertainty with cargo shipments at the West Coast ports. The company also said it will rack up an additional $8 million in costs during the fourth quarter if the delays continue.
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Julia Hughes, president of the U.S. Fashion Industry Association, said one of her member companies already has paid more than $5 million in extra costs.
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“That’s not even looking at the cost associated with not getting your merchandise delivered on time [when] brands have chargebacks,” Hughes said. “We are clearly looking at millions of dollars, so far, in excess fees and charges because of delays, not to mention the impact of not having product in stores or of brands not being able to meet delivery requirements.”
Industry groups on Friday said companies have run into a “perfect storm” of issues, including the lack of a labor-management contract, that has created severe congestion at West Coast ports, a shortage of chassis since September, a shortage of truck drivers and delays associated with unloading mega-container ships.
The International Longshore and Warehouse Union, which represents nearly 20,000 dockworkers, and the Pacific Maritime Association, which includes more than 70 multinational ocean carriers and waterfront companies, have been locked in negotiations since early May but unable to reach a final deal to replace the contract that expired on July 1.
The dispute came to a head this week, when PMA accused the ILWU of slowdowns at the ports of Seattle and Tacoma that then allegedly spread to the ports of Los Angeles and Long Beach on Thursday.
At Long Beach, the second busiest port in the nation, authorities said they haven’t seen any evidence to confirm a slowdown, although they noted some cargo has been delayed for two weeks or longer due to a shortage of workers and a high volume of shipments during the peak holiday shipping season.
“There is much more cargo stacked up all over the port — more than usual — and it takes a lot of labor to move it,” said Art Wong, a spokesman for the Port of Long Beach.
Exacerbating the pileup of containers at the ports is a shortage of chassis to move and store the containers. This problem has marred activity not only at the West Coast ports but also at harbors in New York, New Jersey and Baltimore.
Long Beach is taking matters into its own hands. A month ago, it negotiated with chassis operators to add 3,000 more chassis to use in the current peak season. Two weeks later, the Port of Long Beach Harbor Commission asked its staff to develop a plan for purchasing and providing truck chassis to relieve congestion during next year’s peak periods. The findings will be presented by the end of this month. If the port proceeds with the plan, it will be able to organize its own chassis pool during the peak shipping season and potentially store those chassis on site, an official said.
On the bright side, Wong noted that the holiday shipping season is coming to an end.
“It looks like more ships are leaving than coming. So, we should see improvement here in the coming weeks,” he predicted.
Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation, said several of the association’s members have been impacted by higher transportation costs, a shortage of truck drivers and demurrage costs — that is, charges assessed for extra use of a vessel if cargo is not unloaded in a set amount of time.
Companies have been making contingency plans for months to head off potential delays on the West Coast, but they are getting caught in what appears to be an expanding dispute.
“They have been looking at other gateways: the [East] Coast, Gulf Coast, Mexico or Canada or air freight, which is eight to 10 times more expensive than ocean freight,” said Gold. “Even with the alternatives, companies still have to pay higher transportation costs to get the products where they need to be. If a company has to ship to the East Coast and get the goods back to the West Coast, where it was intended, there are higher costs associated with that.”
Kelly Kolb, vice president of government affairs at the Retail Industry Leaders Association, said retailers were concerned on Friday by public reports about the terminals at the Seattle and Tacoma ports.
She said one terminal reportedly refused to take exports, and a second terminal reportedly said it would begin to shut down on Tuesdays and Thursdays next week and operating only Mondays, Wednesdays and Fridays.
“That is pretty alarming,” Kolb said. “Some of our members started exercising contingency plans and shifted their goods out of L.A.-Long Beach, where they expected a lot of the contentious battle to take place, to ports like Seattle-Tacoma. Now, they are seeing what is happening there, and they are very concerned.
“RILA members are very sophisticated companies, and they started putting contingency plans in place and using time and resources a year before the contract [was set to expire], so these extra costs are definitely high,” Kolb said.
In a letter sent to Obama, 105 trade associations, representing retailers, manufacturers, farmers and other industries, urged the president to assist in heading off a shutdown.
“We have seen crisis levels of congestion at the ports since September. Both parties recently issued press releases accusing each other of reneging on this commitment,” the coalition of industry said in its letter. “The sudden change in tone is alarming and suggests that a full shutdown of every West Coast port may be imminent. The impact this would have on jobs, downstream consumers and the business operations of exporters, importers, retailers, transportation providers, manufacturers and other stakeholders would be catastrophic.”
The groups said uncertainty in a “fragile economic climate” has forced many companies to resort to contingency plans that come at a significant cost.
The West Coast lockout 12 years ago cost the economy an estimated $1 billion a day, and it took six months for the ports to clear the backlog, they said.
A study released in June by the National Association of Manufacturers and the National Retail Federation anticipated a much greater impact this year — $1.9 billion a day for a five-day interruption. It also looked at a 20-day shutdown, estimating the cost to the economy of $2.5 billion a day.
“We believe immediate action is necessary, and the federal government’s use of all of its available options would be helpful in heading off a shutdown and keeping the parties at the negotiating table.”
They urged Obama to press the two sides to begin working with a federal mediator through the Federal Mediation and Conciliation Service.
A spokesman at FMCS said on Friday that it will enter into negotiations only with a joint request from both parties.
The spokesman said he could not comment on whether PMA and ILWU have made a joint request, but he did note that federal officials are monitoring the situation at the West Coast ports. When asked if the association and union have reached the point where they need to call a federal mediator, a representative for the union said mediation is not necessary at this point. Moreover, both sides resumed talks last Wednesday with “renewed serious effort,” said Craig Merrilees, a spokesman for the union.
“A mediator is not a magician,” he said. “It comes down to both sides hammering out their differences.”
The Pacific Maritime Association didn’t respond to a request for comment.
If a strike or lockout occurs, the president can invoke his authority under the Taft-Hartley Act, which would lead to a string of actions, including a request in federal court for an injunction prohibiting a strike for 80 days and federal mediation for both sides.
“That is the last option that nobody wants,” Gold said. “We would rather they engage with a federal mediator who, we would hope, could broker a deal without engaging in a disruption or shutdown at the ports.”