Businesses Feel Pressure as Cargo Sits on Water
The lockout at West Coast ports caused ripples through the global economy Monday as businesses from Hong Kong to Los Angeles scrambled to reroute shipments, find backup supplies and figure out who may be left holding the bag for delays that may quickly mount into the billions of dollars.
So far, the lockout has stranded at least 125 cargo ships loaded with half a million shipping containers outside ports from San Diego to Seattle.
Produce suppliers already are losing money as their vegetables shrivel on the docks. A Los Angeles recycler figures he has two more days, tops, before unshipped trash makes his refuse yard immovable. Some toy makers are worried that Christmas won’t be coming if they can’t get their shipments from the Far East.
“This is like being in the middle of a hurricane,” said Charlie Woo, president of Megatoys, a Los Angeles toy importer that has containers of Christmas toys stranded on the water. “You know it is coming, and there’s nothing you can do about it.”
Indeed, the labor strife was not wholly unexpected, which gave many companies time to plan. Some shipped goods early or stocked up on inventory. But for most, the clock is ticking.
The West Coast’s 29 ports handle about half of the nation’s waterborne cargo and are the primary gateway for America’s booming trade with Asia. There are limited sea-based alternatives in North America.
The port of Vancouver in British Columbia, Canada, is already operating at capacity, while the Mexican ports are small and ill-equipped to handle large vessels. In fact, many modern cargo freighters cannot fit through the Panama Canal to reach U.S. ports on the East Coast.
Air cargo is an option. But logistics experts say it is simply too expensive for heavy or low-margin goods such as toys, apparel, furniture or agricultural commodities.
“You can’t take a container load and switch it over to air freight,” said Guy Fox, an executive vice president with the Redondo Beach office of Global Transportation Services Inc., an international logistics firm. “The cost will go up 100 times.”
The West Coast ports shutdown is the latest in a string of developments weighing on the U.S. economy. Analysts worry that a prolonged lockout or strike could quash the fledgling recovery, particularly in California which is heavily dependent on international trade.
“Obviously, it isn’t good either for the economy of California or the United States,” said Gary Hufbauer, a senior fellow at the Washington-based Institute for International Economics. “It’s one more hammer blow. The big question is how long it will last before one side or the other gives.”
With West Coast ports refusing to accept cargo, the nation’s railroads already are struggling to prevent gridlock on the rails. Union Pacific Railroad, which handles about 32,000 containers a week from the West Coast, stopped accepting westbound export containers Saturday and has started parking them in rail yards across the country, said John Bromley, a railroad spokesman. The Burlington Northern Santa Fe Railroad, Norfolk Southern and CSX railroads are taking similar measures, he said.
Although some businesses will be able to withstand the effects of a port shutdown for several weeks, others are feeling the economic pain.
Since Friday, Los Angeles produce supplier Dave Bouton has been unable to ship three containers of tomatoes, lettuce and other produce to Hawaii. He was forced to dump the week-old produce back on the local market, costing him $30,000 in lost profit.
Bouton said he could air-freight some of his produce, but it would cost his Hawaiian buyers more, and ultimately that would slash the amount of business he does there.
Meanwhile, Bouton said, he was quickly exhausting the supply of Ecuadorean bananas he brought in from the port last week. If he can’t retrieve his shipment later this week, he won’t be able to supply his local customers.
“If this lasts a week or more, we’ll start seeing some damaging [losses],” Bouton said.
Time also is running out for David Lee, general manager of Bestway Recycling Co., which retrieves, sorts, bales and ships thousands of tons of wastepaper from its four Los Angeles-area recycling centers. About 90% of his refuse goes by cargo ship to China, where it is recycled into corrugated boxes and other products.
With nothing moving through the ports, Lee said, wastepaper already is piling up at his facilities. He said that if the ports aren’t opened within a couple of days, he would be forced to convert one of his facilities into a storage center, or search for a local buyer, most likely at reduced prices.
“We’re not panicking yet, but it’s getting tense,” Lee said.
Other industries face less time pressure. Southern California is the U.S. headquarters for nearly all the leading Asian automakers, and they all depend on the West Coast ports for delivery of cars and parts from Japan and South Korea.
But the top three Japanese automakers--Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co.--make so many vehicles in the U.S. now that a prolonged dock shutdown, they said, would not be catastrophic. Hyundai Motor Co. and its Kia affiliate of South Korea are the only significant players entirely dependent on imports.
Typically, automakers try to have at least a 30-day supply of vehicles “on the ground” in dealerships and at preparation facilities. However, companies with hot-selling new vehicles that are made overseas could develop spot shortages rather quickly. Nissan’s just-released 305Z sports car, for instance, is sold out at most dealerships and buyers who have plunked down thousands of dollars in deposits are anxiously awaiting cars that could be delayed for weeks if the dock shutdowns continue.
Parts are not as crucial an issue because, unlike cars, they can be airlifted if necessary--although the costs would be staggering. Honda, for instance, air-shipped tons of special high-strength steel from Japan to manufacturing plants in Ohio and Alabama earlier this year when U.S. supplies ran short. The company said it was still cheaper to pay to fly the steel in than to idle its U.S. plants. Honda said it buys 95% of the parts it uses for manufacturing cars and trucks in the United States from U.S. suppliers and is not terribly dependent on ocean shipping.
John Carlsen, a director with Portland-based Cargo Claims Management Systems, said his phone was ringing off the hook with retailers, shipping lines and freight forwarders worried about who would be responsible for paying for any losses related to the port lockout. He said it would depend on how the contracts were written and warned that there would be many months of legal wrangling ahead.
“It’s all going to come down to the fine print,” he said.
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Times staff writers Melinda Fulmer, John O’Dell and Abigail Goldman contributed to this report.
