West Coast Ports Shut Down As Slowdown Escalates

Negotiations over the U.S.’s West Coast ports have hit a new snag.

The Pacific Maritime Association announced closures for today, this weekend and Monday, citing the expense of paying holiday and weekend overtime.

It’s the latest move in what has been a drawn-out and contentious dispute between the International Longshore & Warehouse Union and employers at the 29 West Coast ports that run from California to Washington. Since last summer, union members have been working without contract and have slowed down work, citing safety and other regulatory reasons.

“I really see this as four to six months to clear up the ports, even after they sign an agreement — and I think four months is an aggressive timeline,” said Frank Layo, a retail supply-chain expert at Kurt Salmon.

Shoe brands and industry watchers have said that they’ve already felt significant impact from the conflict at West Coast ports, but the implications reach far beyond footwear. Trucking companies are seeing a slowdown, rail companies are running at reduced capacity and the agricultural industry is watching food spoil at the ports.

The longer the slowdown continues, the more expensive the alternatives become and the greater their impact. Air freight costs are increasing rapidly as demand for air cargo rises, and the expense of shipping to alternative ports and backtracking to Western warehouses is putting significant pressure on margins.

“In August, we really saw this deteriorate, so I think a lot of the industry-leading retailers and manufacturers sensed trouble and diversified,” said Layo. “Looking at our model for retailers that are seeing a delay of up to 10 days, it’s going to cost them $3.8 billion in the year for inventory that isn’t on shelves and not sold.”

Layo said he expects the cost of the various shipping alternatives to reach as high as an additional $7 billion.

The need for those ports won’t be going away anytime soon. The National Retail Federation released a report on Wednesday announcing that traffic at the ports is expected to increase 10.1 percent over the same month a year ago.

“With cargo volume growing as the economy continues to recover, the last thing we need is a port shutdown that would bring billions of dollars of economic activity to a halt,” National Retail Federation VP Jonathan Gold said in a statement. “Whether it’s in retail, manufacturing, agriculture or other industries, there are too many jobs that rely on the ports to let that happen. Labor and management need to do whatever it takes to reach an agreement and do it today.”

Brands ranging from Steve Madden Inc. to Skechers USA Inc. have been feeling the pressure of increased shipping costs to air-freight product or the growing expense of cancelled orders at retail due to the delay. It remains to be seen who will ultimately absorb the impact of these higher shipping costs, though experts expect both manufacturers and consumers to take the hit.

“We’re no different than anybody else. It’s slow,” said David Weinberg, CFO of Skechers during its fourth-quarter conference call on Feb. 11. “We’re hoping for a resolution as quickly as possible and that’s certainly what I would like to see happen. Right now, we’re making do, but we have no more insight than anybody else into what will happen over the next couple of weeks.”

East Coast and Gulf Coast ports stand to gain a bit from some shift of cargo to their shores — until they reach capacity and run out of options.

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