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Port Contract Talks Draw Concern

Retailers and apparel brands are growing concerned about the threat of a potential East Coast port strike.

WASHINGTON — Retailers and apparel brands are growing concerned about the threat of a potential East Coast port strike that could hit at the beginning of the critical holiday selling season and cause severe disruptions in cargo shipment deliveries.

Roughly 20 percent of all apparel, textiles and footwear is shipped through East and Gulf Coast ports that are at the center of stalled contract negotiations between the International Longshoremen’s Association and the United States Maritime Alliance, representing ocean carriers. The two sides are negotiating several key issues, including a demand from the ILA that the contract protect jobs displaced by technological advances and automation, that the contract cover chassis pool operators and that it require on-dock weighing of containers to improve safety.

The master contract between the ILA and USMX covers every East and Gulf Coast port from Maine to Texas and expires at the end of September. The two sides have set a new negotiating round for Wednesday in Del Ray Beach, Fla. James A. Capo, chairman and chief executive officer of USMX, declined to comment about the ongoing negotiations, and Harold J. Daggett, ILA president, did not return a call seeking comment.

While retail and apparel trade groups are hopeful that the two sides will hash out an agreement soon, they are concerned the negotiations will continue to drag on, impacting companies that must plan delivery of shipments weeks in advance to ensure the retail shelves are stocked. Retailers and brands have already been struggling with tepid sales and a weak economy and a port strike at the start of the holiday season would further hurt their profitability.

Rerouting cargo to the West Coast or Mexico and Canada is also a costly endeavor and if there is a lockout at the ports, inventory financing could increase if companies are forced to bring in merchandise earlier to avoid a potential port strike. The impasse between the two sides raises the specter of the 10-day lockout and work stoppage at West Coast ports, notably the twin Los Angeles-Long Beach ports, in 2002, that caused significant supply chain disruptions, and cost the economy $10 billion to $20 billion a day, according to some estimates.

While the Los Angeles-Long Beach ports handle the largest volume of apparel, textiles and footwear — $40.3 billion in 2011, accounting for 31 percent of the sector’s imports, according to U.S. Customs & Border Protection — the East Coast ports are a vital point of entry for goods coming from South and Central America, parts of Europe, India, Indonesia and Asia, according to industry officials.

The New York-Newark port complex processed $14.9 billion worth of apparel, footwear and textiles, or 11 percent of all industry imports, while the Savannah port handled $6.1 billion worth of industry imports, representing 4.6 percent of the total. The port of Charleston processed $4.5 billion worth of industry imports, or 3.4 percent of the total. Some apparel, footwear and textile imports also come through the ports of Miami and Jacksonville.

Many retailers and apparel brands have begun to make contingency plans.

“This potential disruption would be devastating to the retail industry, as it would disrupt the flow of goods resulting in lost sales and aggravated customers,” Sandy Kennedy, president of the Retail Industry Leaders Association, wrote in a letter to Capo and Daggett. “The absence of certainty over the outcome of the negotiations and facing the real possibility of a September stoppage, retailers have no choice but to continue planning for a shutdown. Indeed, some of our members advise that they are beginning to redirect their supply chains in order to allow adequate lead time to ensure that customer needs can continue to be met, regardless of whether the negotiations are successfully concluded by Sept. 30. Supply chain changes of this magnitude are not desirable to retailers because they take time both to implement and to reverse.”

Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation, said all shippers using the East Coast and Gulf Coast are looking at contingency plans.

“They have to make a decision in the next month about how they are going to get their product to the retail shelves,” Gold said. “Some might try to bring in cargo earlier so they don’t end up in a situation like the West Coast lockout.”

Nate Herman, vice president of international trade at the American Apparel & Footwear Association, said, “I don’t think anyone has gone into contingency mode and diverted cargo yet but that decision will be made probably toward the end of this month.”

Herman noted the East Coast ports have not had a labor shutdown since 1977.

Asked how far the ILA and union members will push the issue before compromising, especially in light of the presidential election, in which many labor groups are rallying to re-elect a more union-friendly ally in President Obama, Herman said it is unclear whether it is more posturing on the part of the ILA or if they will really “draw the line in the sand,” in light of the election.

One overriding factor could be the fact that East Coast ports have made a big push in the past few years to take more cargo business away from West Coast.

“With the Panama Canal expansion, they have been dredging ports for larger ships and they are making a play for significant West Coast business,” Herman added. “If you have a strike or lockout right as you are trying to build business, it doesn’t bode well.”