Tensions between the port operators and unions boiled over in a weekend shutdown, and any hope for a speedy resolution after the federal mediator’s intervention is feeling farther away.
The Pacific Maritime Association closed the Los Angeles and Long Beach ports Saturday and Sunday, saying in a statement it “will no longer continue to pay workers premium pay for diminished productivity.”
Market watchers and industry groups have reacted swiftly to the recent breakdown of the talks. According to the Pacific Maritime Association, roughly 40 percent of the U.S. trade takes place in the ports, and most Asian trade goes through the ports, making the issue one of great concern for the shoe business.
“It becomes more dire by the day, in all honesty,” said Matt Priest, president of the Footwear Distributors and Retailers Association. “Almost 100 percent of the shoes sold in the U.S. are imported. To bring in product efficiently and effectively is something that sustains so many jobs in our industry. When you take away the efficiency of a key tool we use to get product to our consumers, then it’s very challenging.”
Last week the Pacific Maritime Association presented what it called its “all-in” offer to the International Longshore and Warehouse Union. The deal would increase the workers’ wages by 3 percent a year, maintain their premium healthcare benefits, increase the ILWU pension and allow workers to manage the maintenance and repair of truck chassis. The union did say that while a settlement was within reach, it also called the closure “reckless.” The move over the weekend was one of the most drastic since the federal mediator came on in January and put added pressure on both the union and operators to make a deal.
“The entire supply chain — from agriculture to manufacturing and retail to transportation — [has] been dealing with the lack of a West Coast port contract for the last nine months,” said National Retail Federation VP Jonathan Gold in a release. “Enough is enough. The escalating rhetoric, the threats, the dueling press releases and the inability to find common ground between the two sides are simply driving up the cost of products, jeopardizing American jobs and threatening the long-term viability of businesses large and small.”
While many shoe brands have sacrificed profit to pay for on-time deliveries through either the Houston ports or air freight, the stalemate is affecting everyone in the business. In a note, Cowen and Company analyst Oliver Chen said the port situation would impact fashion specialty retail first.
“We believe potential event puts fashion-driven specialty and broad lines given vendor lag as most vulnerable. Cowen view is full-blown strike remains unlikely as would be detrimental to all stakeholders involved and potential political blunder,” wrote Chen.
While many retailers have declined to go into specifics on the impact of the port slowdown, Michael Kors Holdings did allude to the potential pressure of higher shipping costs in its third-quarter-earnings conference call last week. In the past, other companies including DSW Inc. and Steve Madden Inc. have made comments about the negotiations.
“Everyone here is impacted. About 70 percent of shoes come in and out of the Los Angeles and Long Beach ports,” said Priest. “This affects small business, medium-sized ones and the big guys, too.”