The West Coast Port Problem and How It’s Disrupting the Supply Chain

The labor negotiations (or lack thereof) and, consequently, the slowdowns in productivity at ports along the West Coast continue to have an impact on the region and beyond. They have already disrupted the supply chain in the US, and some businesses and retailers have expressed fears of those disruptions proving detrimental during the holiday season.

Negotiations between the International Longshore and Warehouse Union and the Pacific Maritime Association (which represents shipping and operations at 29 ports along the West Coast) are ongoing. The port workers’ former contract expired July 1, and no new one has been put into place. Without such a contract to govern their schedule, port workers have reportedly slowed activity – by as much as 50 percent at some locations.

What This Means for Businesses and The Supply Chain

GameStop was one company that came out recently voicing its concerns over the condition of its supply chain before Christmas. GameStop President Tony Bartel said during a conference call with analysts that the company is monitoring daily activity regarding the West Coast work stop and ensuring GameStop’s “product flow,” will continue.

Other retailers that have suppliers in Asia are also worried. A continued labor slow down at the West Coast ports could prove to be detrimental for a retailer’s performance during the end of the year and “derail” the holiday season, CNBC reported.

West Coast ports take in about 40% of all the cargo shipped to the US – clearly, the labor negotiations pose a serious issue. The National Retail Federation weighed in on the topic, with its vice president of supply chain operations saying “there may not be merchandise on shelves come the holiday.”

The biggest strain is felt by the small businesses, according to Rebecca Mond, the Toy Industry Association’s director of federal government affairs. She told MarketWatch the toy industry sees its biggest sales at this time of year, and supply chain disruptions make it hard for small businesses to stay successful.

“It’s been such a nightmare,” Brian Jablon, executive vice president of toymaker Pacific Play Tents, told MarketWatch recently about the port slowdown. “It’s killing our profit. This is the worst we’ve seen.

Exports in Danger, Too

US producers that export goods are also concerned over the West Coast port debacle. A group of 61 agricultural associations recently wrote President Barack Obama asking the administration to intervene in the port negotiations in order to help businesses avoid continuing to lose sales and revenue and be unable to move products to customers.

“The consequences are being felt throughout the country,” the associations said in its letter. “The railroads are unable to bring agricultural products from the Midwest to Pacific Northwest ports because of the labor slowdown at the ports. At the same time, the ocean carriers are passing on their increased cost by imposing draconian congestion surcharge fees on the US exporter, who cannot pass them on to the customer. It is rendering our agriculture and forest products non-competitive in the global marketplace.

Obama is deciding to leave this mess up to the workers and the port association, with the administration saying it does not plan to intervene on the issue.

Increasing Costs for Companies and Consumers

Is there a mitigation plan in place if negotiations do not move forward and activity at the ports does not pick up? Sure – companies can reroute their products to other ports or send supplies by plane instead of ship. But that increases costs for the company, which in turn, will likely trickle down to the consumer. Jonathan Gold, vice president of supply chain for the NRF, said airfreight is 10 times more expensive than ocean freight. And if a company has to send goods to a port in Canada or Mexico, or even on the East Coast, that will increase operating expenses. Retailers may try to recoup those costs by increasing the cost of products on store shelves.

Will Billy get the new video game he asked for from Santa this year? Will Sally see her most prized present waiting for her under the tree? Maybe, if the West Coast can get its act in order ... or, if Mom and Dad are willing to pay the extra price.

Spend Matters will keep you updated on this issue and how it continues to impact the supply chain. Stay tuned.

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