Debacle. Quagmire. Headache. The descriptors (or expletives) that can be used to describe the man-made disaster that befell the West Coast ports this year and led to a widespread slowdown along the waterfront are as varied as the longer-term business implications.
This story first appeared in the July 15, 2015 issue of WWD. Subscribe Today.
“It was not a joke,” said Denise Cox, senior vice president of production and sourcing at Los Angeles-based retailer Bebe, of the nine-monthlong disruption.
No joke, indeed. The National Retail Federation and National Association of Manufacturers estimated in a study released last year that a port shutdown of 20 days could cost the U.S. economy $2.5 billion a day.
While the yearlong dispute was more of a slowdown than an absolute stoppage, companies sometimes saw three- to five-week delays and many industries lost — on average — $15 million to $20 million in sales, according to Nate Herman, vice president of international trade at the American Apparel and Footwear Association.
And it wasn’t just hurting companies with stores on the West Coast. The shutdown affected sales and earnings of any company sourcing goods from China and Asia — which means just about everyone.
In its first-quarter conference call, Macy’s Inc. said port-related issues slowed the flow of goods to stores and “restrained business.” Perry Ellis International said it missed $23 million in sales due to the shutdown. Nike Inc. said in its first quarter alone, it experienced a 230 basis-point decline in merchandise margins, while Ann Inc. said it lost a whopping 11 cents a share on earnings because of incremental freight costs due to the port issues.
Port operations are only just now beginning to normalize and it’s likely lingering issues will have a slight effect on second-quarter results, though the impact on balance sheets is receding, according to Herman. “Bottom line: It was just a big mess,” he said.
A recent report released by the Council of Supply Chain Management Professionals and Penske Logistics estimated a loss of some 150,000 20-foot equivalents, a cargo unit using 20-foot containers, because of the slowdown. But the labor dispute only exacerbated long-standing infrastructure issues, the report pointed out. Ports are not yet
equipped to handle megaships. A key piece of equipment for transporting containers by truck, called chassis, is hard to come by and truckers end up having to wait for it.
One- or two-day shipment delays are not uncommon. But weeks? No amount of preplanning can serve as sufficient salve and that’s what left businesses exposed during the standoff. “I was just surprised and disappointed that it went on for as long as it did,” Cox said. “You’re always going to have a slight delay. It’s never been to this effect.”
The delays forced some companies, such as Bebe, to fly product in — a transportation mode that can sometimes be three to five times more expensive than by boat. Items such as chunky sweaters and denim can send costs up even more, but there were few alternatives.
“We ship weekly here to our stores,” Cox explained. “We change our windows every two
weeks, so if I don’t have the product, everything gets affected — our sales, our windows.”
Some companies have the luxury of elongating production cycles, but that’s not an option for Bebe and many others that employ the just-in-time model and are based on the West Coast.
Even companies that make most of their product in the U.S. couldn’t avoid the impact of the port showdown. Groceries Apparel, a basics line based out of Los Angeles, makes its clothing in Vernon, Calif., but brings in dye lots and some fabrics from overseas.
The company saw some delays in February shipments, although hardly to the extent of some of its peers, according to founder and executive director Robert Lohman.
The widespread impact explains the collective sigh of relief when the International Longshore and Warehouse Union and Pacific Maritime Association in late May ratified a new labor contract, retroactive to July 2014 and good through June 2019.
But not so fast, say some supply-chain executives, lest the industry wants to continue placing a bandage on a dysfunctional system some have simply grown accustomed to every few years when supply-chain disruption occurs while a new labor contract gets hashed out.
“It’s crazy. It’s absolutely insane to me that this creeps up on everyone every couple of years,” said J Spencer, president of Dragon Crowd.
The manufacturing company — with offices in Costa Mesa, Calif., New York and China — works with a number of young men’s and women’s brands in the U.S., including Quiksilver and its stable of brands: Billabong, Volcom and Vans. It also works with retailers such as Belk Inc., Pacific Sunwear of California Inc. and The Wet Seal Inc.
The company can sometimes expedite ship dates because it owns its factories. That, in turn, pushes product onto boats earlier to help offset the time ships sit out on the water. Still, that doesn’t make a company immune to port labor issues, especially when about 90 percent of Dragon Crowd’s product comes through the West Coast ports.
“It’s an incredible headache because you’ve been planning for months in advance on when you’re going to receive fabrications, planning for months on when you’re going to receive the hardware and trims,” a frustrated Spencer said. “And so when you have to maneuver, change and revise your production schedules, it all rolls downhill because then you have to go back to your trading partners and say, ‘I need to adjust this.’ And so they’re having to manage their [production] lines as well.”
Regarding other options, some have said the Panama Canal’s expansion (set to be completed over the next six months) could offer an alternative route to the ports of Los Angeles and Long Beach — the busiest port in North America. In the meantime, shipping volumes continue to expand.
CBRE released its first Ports and Logistics Annual Report earlier this year, in which it reported faster 2014 growth, based on container volume, at East Coast ports (up 7.6 percent) than their West Coast counterparts (3.2 percent).
That growth was largely an anomaly, though, due to port congestion on the West Coast, pointed out Kurt Strasmann, senior managing director at CBRE Group Inc. But is the East Coast a sustainable, long-term option?
“All the companies have very, very sophisticated supply-chain models and they all have their own market and operate differently,” Strasmann explained. “But no matter how you look at product coming in from Asia to the United States, [the West Coast] is still the most effective, fastest and least costly.” Still, research firm Alphaliner noted that several shipping alliances were set on expanding service to the East Coast through the next year, and many have contracts in place — even as West Coast issues have cleared up.
Relief could come in the form of legislation (S. 1298), introduced in May and approved by the Senate Committee on Commerce, Science and Transportation in late June. The law would make it easier for companies to track product movement using real-time data from the ports.
“It won’t necessarily prevent [a slowdown],” the AAFA’s Herman said. “It has the potential to show and shine a light right away.”