With an East and Gulf Coast port strike possibly imminent, most retailers seem to be in good shape—for now.
“NRF continues to encourage the [Biden] administration to immediately engage with the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMSX) to resume contract negotiations toward a new master contract for all maritime container ports along the East and Gulf coasts,” Jonathan Gold, National Retail Federation’s (NRF) vice president of supply chain and customs policy, said.
Related Stories
According to Gold, “Many retailers have already taken steps to mitigate the potential impact of a strike by bringing in products earlier or shifting products to the West Coast.” He noted that because the global supply chain is complex, “even a minor disruption would have a negative impact and cause delays at a critical time for both retailers and consumers.”
It takes about two months for goods to be shipped from China to the U.S. East Coast. The alarm was sounded back in July as the cut-off date approached for goods to ship ahead of the planned strike for Oct. 1. Retailers for their part did pull forward shipments, making this past August the busiest time for shipping volumes. August is typically when many goods come in for holiday and the fall selling seasons, but this year saw a 2.5-percent increase in imports year-over-year due to the threat of a port strike.
NRF isn’t the only trade group pushing for a speedy resolution.
“As logistics leaders, retailers have already activated contingency plans, including rerouting shipments, to ensure consumer goods reach their final destination with limited disruption or extra costs. Shoppers can rest assured holiday merchandise will be on shelves; however, the longer this work stoppage goes on, the harder it will become to shield customers from its effects,” said Brian Dodge, president of the Retail Industry Leaders Association (RILA). “Even though leading retailers have prepared for disruptions, the U.S. economy is likely to see immediate impacts from even a short-lived strike. Latest estimates suggest a strike could cost the economy over $4 billion a day.”
Dodge noted that the parties “had years of preparation to find an agreement, making the impending strike and its economic harm entirely foreseeable and avoidable.” RILA is asking the Biden administration to “stay engaged” and consider all options to keep the U.S. economy open for business.
How long a strike could go on for if one were to happen is up for debate. The two central issues are wages and automation.
Chris Krueger, a strategist at TD Cowen Washington Research Group said on Monday that a strike seems likely, noting that it would represent the first East and Gulf Coast strike since 1977. He added that Biden continues to refuse to intervene under Taft-Hartley to impose an 80-day “cooling-off period” that would get workers back at work while the unions are forced back at the bargaining table.
There’s still a chance a strike could be averted.
After no talks scheduled since June, the two unions at the 11th hour began trading counter offers related to wages 24 hours before the midnight strike deadline on Oct. 1. The USMX said it increased its wage offer by nearly 50 percent. It also offered a tripling of employer contributions to employee retirement plans, strengthened its health care options and retained the current language around automation and semi-automation, the USMX said late Monday.
Wall Street believes that a strike wouldn’t be a long one, maybe from one day to no more than two weeks. The concern centers on the aftermath, or specifically on how long it would take to catch up to speed and get back on track once the strike is over. The current Wall Street estimate is one week for every day the dockworkers are on strike.
Everstream Analytics is predicting that a seven-day strike wouldn’t see a clearing of the backlog until mid-November, at the earliest.
“A weeklong strike from Oct. 1 would thus have repercussions until after the U.S. presidential election. The compounding effects of displaced containers and equipment, disrupted schedules and vessel diversions would likely push the impacts well past the Thanksgiving holidays and potentially into December,” concluded Mirko Woitzik, Everstream’s global director of intelligence.
Because retailers had planned ahead and shipped early, retail analysts at Jefferies concluded that they, along with the majority of apparel and footwear firms, likely wouldn’t see any material impact. In addition, these firms could elect to use air or land shipping over ocean freight, according to Jefferies consumer lifestyle and growth analyst Randal Konik.
Natalie Kotlyar, assurance principal and retail and consumer products industry national practice leader at BDO, said retailers should be well-prepared if the strike lasts no more than two weeks, as they had already stockpiled goods in expectation of a possible walkout.
“2020 prompted retailers to secure inventory early, minimizing immediate disruption to holiday sales and general merchandise availability,” Kotlyar said. “However, if the strike extends beyond two weeks, retailers could face more significant challenges. Seasonal items, which are more time-sensitive, will likely be harder hit, while essential goods may still flow through alternative ports or transportation channels.”
As for fashion and footwear brands, she said they can mitigate strike impacts by exploring alternative import routes wherever possible, or by working closely with domestic transportation providers.
“Although last-minute transportation options may be limited due to already booked schedules, companies can negotiate with logistics providers for priority service or use air freight for critical shipments. Diversifying transportation plans and engaging backup logistics partners will be key to minimizing delays,” Kotlyar said.
She also said that fashion companies and retailers should stay agile by maintaining close communication with supply chain partners and monitoring strike developments closely.
“They should prioritize inventory management for high-demand, seasonal goods and consider strategic promotions to clear existing dated stock,” Kotylar said. “Additionally, retailers must assess their ability to reroute shipments or rely on domestic manufacturing where feasible to avoid prolonged shortages. Preparedness and flexibility will be essential as the strike situation evolves.”
According to Deborah Weinswig, CEO and founder of Coresight Research, most holiday goods are already in stores or in the retailers’ warehouses. “The challenge now is restocking for holiday and goods for for early 2025,” she said.
Weinswig said that there’s been a rise in shipping costs as retailers moved shipments to rail and trucks, and they’ve paid more to have shipments rerouted to the West Coast. “Logistics and supply chain companies like Maersk have already notified customers of a shipping surcharge as a result of the strike. Redirecting shipments to West Coast ports could also cause delays and shipping bottle necks if those ports get busier than usual,” she said.
That would mean that restocking popular holiday items may be impossible both logistically and from a cost perspective, Weinswig concluded.
She also said that for now, there’s no expectation of retailers passing on the increased costs to consumers. “Since retailers have been prepping for this strike for months, they’ve already built the increased cost of buying goods earlier and higher freight rates into their bottom lines,” Weinswig explained. But if the strike goes on for weeks and creates a logjam that will take months to recover, then retailers will be taking a hit on their fourth quarter earnings and price increases would likely be passed on to consumers, she concluded.
While most retailers seem as prepared as they can be, the small and medium-sized retailers may not be as lucky. They are expected to suffer disproportionately as a result of the strike relative to their larger competitors.
“Large businesses with dedicated procurement departments and considerable access to capital have been preparing for this strike for some time and many have ordered excess materials which they were able to finance with lower-cost debt. Small businesses however are less likely to have been able to order early and in bulk, and are less likely to obtain the capital required to order larger quantities of supplies in advance,” Ben Johnston, chief operating officer at Kapitus, said. His firm is a lender to small and medium-sized businesses.
“Many small businesses are now facing delays in critical goods just before the holidays. This means that many small manufacturers, wholesalers, and retailers my not have the goods required to fulfill their orders and meet customer demands going into the holiday season,” Johnston said.
He added that while the recent rate cut was a bit good news for a business looking for a loan, the strike “now threatens to drive prices of both raw materials and finished goods higher. Given the low margins of most small manufacturers, retailers and wholesalers, a strike of this nature could be the difference between turning a profit or stomaching a loss for the year.”
Over 40 percent of small businesses don’t begin to start thinking about the holidays until October, according to Dave Charest, director of small business success for digital marketing platform Constant Contact.
But he said that those who planned ahead and got a head start by reaching out to customers and ordering inventory are in a stronger position to succeed. Because they’ve planned ahead, “they’ve insulated themselves from major obstacles that are out of their control, like potential delays or shortages caused by a strike,” Charest said. “Our research shows that 78 percent of consumers plan to shop at a small business that’s new to them this holiday season.” For those that planned ahead, building loyalty and maintaining strong sales is achievable, even if logistics becomes a challenge, he concluded.
