VIEWPOINT: Port shutdown fears add to US apparel headwinds
Shipments are facing delays of two weeks or more just to get through the ports
US businesses are urging the government to intervene in the ongoing dispute at US west coast ports, amid worsening delays on shipments of holiday merchandise and fears a total shutdown may be imminent.
Concerns over the "rampant" and "untenable" congestion at Los Angeles and Long Beach ports were voiced this week by the American Apparel & Footwear Association (AAFA), with worries over the delays experienced on incoming apparel and footwear shipments as the holiday season nears its peak.
"Our members are commonly experiencing delays of two weeks or more just to get product through the ports," complained AAFA president and CEO Juanita Duggan.
"If the most severe causes of delays are not addressed within the next two weeks, many of our members will see a substantial portion of their products delayed through the holiday season," she added.
Retailer Ann Inc has already issued a warning that the additional costs associated with air freight to combat delays at the ports will put pressure on gross margin.
"Sales during the first half of the [third] quarter were negatively impacted by product shipment delays related to labour uncertainty at the west coast ports, which were mitigated by the use of air freight later in the quarter," the company's president and CEO Kay Krill said yesterday (6 November).
She added: "Looking ahead to the fourth quarter, our outlook anticipates continued challenges in the overall retail environment, a highly promotional holiday selling season and incremental air freight costs associated with our contingency plans to mitigate the impact of the west coast port labour uncertainty."
Uptick in tensions
The nation's importers and exporters are now saying that on top of "crisis-level congestion" they have also seen a noticeable uptick in rhetoric and tensions between the Pacific Maritime Association and the International Longshore and Warehouse Union (ILWU) - which is adding to their anxiety and alarm.
The two groups have been negotiating for the past six months over a new contract covering nearly 13,600 workers at 29 west coast ports.
The old contract expired on 1 July, but normal operations had continued as talks went on - until now. Recent slowdowns initiated by the ILWU at major Pacific north-west ports Seattle and Tacoma - which are responsible for some 16% of containerised west coast cargoes - have prompted claims from the PMA that the ILWU has "reneged" on that agreement.
According to the PMA, the slowdowns have resulted in terminal productivity down on average by 40-60%, along with labour shortages.
The fallout between the two sides is also raising the spectre that "a full shutdown of every West Coast port may be imminent."
In a letter sent yesterday to President Obama, a coalition of 105 organisations including retailers, manufacturers and other supply chain stakeholders urged the government to step in to resolve the dispute.
The coalition, led by the National Retail Federation (NRF), said a port shutdown would have "catastrophic" consequences, not only for the viability of the west coast ports but in terms of supply chain disruptions. The group published an economic analysis in June that found a port shutdown would cost the economy approximately $2bn a day.
The letter calls for the use of a federal mediator to forestall any threat of a management-directed lockout or labor-initiated strike.
Another issue that seems to be compounding the problem is the increasing use of mega-ships with longer discharge times.
The annual Textile & Apparel Importer Trade and Transportation Conference organised by the United States Fashion Industry Association (USFIA) this week heard that wait times to unload cargo have risen as much as 61.7% over the past year as cargo ships themselves become larger, necessitating more cargo lifts for each vessel and posing a problem for unautomated merchant ports.
Major carriers reported 10,180 unloading moves per vessel call as of 2013, up from 2009's 7,809. This west coast backlog is also being driven by the rise in US-Asia trade.
In another effort to cut costs, carriers are also increasingly divesting ownership of chassis - the trailers that attach to trucks and are used to load and unload cargo containers - leading to bottlenecks when it comes to moving cargo during peak hours.
Fourth quarter headwind
Stifel Research analyst Richard Jaffe has described the port crisis as an added headwind for the fourth quarter.
"As congestion worsens at the nation's busiest ports - Los Angeles/Long Beach, which handle approximately 40% of US imports - retailers are rerouting merchandise to other ports, switching to expedited trucking and flying in goods in order to limit delays, resulting in additional costs," he explains.
"We believe that the port crisis will primarily be a cost issue for our retailers (due to having to use expedited transportation modes) as opposed to a product availably issue (no merchandise on shelves). However, were the crisis to worsen, delayed shipments could result in missed sales and increased markdowns, further negatively impacting sales and margins in 4Q."
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