One World, Linked by Containers

When striking dockworkers paralyzed West Coast ports in 1971, President Nixon waited three months to force them back to work. But with cargo ships backed up from San Diego to Seattle, few expect President Bush to take anywhere near that long to step in this time.

What has changed in three decades is America’s growing dependence on the swift movement of goods across international borders, and the starring role of West Coast ports in that transformation. Now the nation’s gateway for surging trade with the Pacific Rim, the West Coast’s ports handled 253 million revenue tons of cargo last year. That’s more than four times as much as those ports handled in 1970. Container volume has jumped twentyfold.

Self-sufficient in just about everything but oil in the 1970s, the United States has since embraced global commerce with a vengeance. Stop the merchandise at the water’s edge now, and repercussions ripple around the world. California broccoli bound for Japan withers on the docks. Honduran sewing machine operators sit idle waiting for material to arrive from a Los Angeles factory. Chinese manufacturers can’t retrieve the ocean shipping containers they need to send shoes and televisions to the United States.

“Thirty years ago, when we had a dock closure, foreign trade didn’t matter to our economy. It was trivial,” said economist Stephen Cohen, co-director of the Berkeley Roundtable on the International Economy. “It’s quite different now. It’s an integrated system, and if you cut the supply line, you stop the system.”

Cost cutting has driven U.S. firms to embrace “just-in-time” practices in a bid to eliminate every spare minute and wasted dollar moving products from assembly lines to store shelves. That means slashing inventories in favor of taking spot deliveries of goods only as they are needed.

Thanks to falling trade barriers, smart communications technology and cheap ocean shipping, suppliers today are much more likely to be overseas than they were in the early 1970s. Autos, for example, once a mainstay of U.S. industrial might, now arrive by the shipload from Japan.

“Whether it’s consumer goods, toys or more valuable articles, nearly everything has moved overseas in the past 30 years,” said Robert Kleist, a 55-year-veteran of the shipping industry and advisor to Taiwan-based Evergreen Shipping Lines. “It’s to the point where every citizen of the United States has become much more dependent on international business, even though they don’t think about it very much.”

Inexpensive imported consumer goods have helped tame inflation, while American companies have boosted their profits by eliminating warehouses and outsourcing manufacturing to low-wage countries. No less a luminary than Federal Reserve Chairman Alan Greenspan has credited this supply chain revolution with boosting U.S. productivity and fueling the 1990s expansion.

But the current labor strife at the West Coast ports illustrates the inherent vulnerability of this system. A major bottleneck can cripple some operations within days, as evidenced by Wednesday night’s shutdown of the Fremont, Calif., auto assembly plant owned by Toyota Motor Corp. and General Motors Corp., which ran out of imported parts less than a week after the management lockout began.

Pickups and sedans are just the beginning. A lengthy shutdown of the ports would wallop U.S. retailers, who depend on foreign suppliers to stock their shelves with everything from apparel to yo-yos. California, the nation’s largest exporter, risks losing foreign customers for its wine, almonds and high-tech equipment. The West Coast lockout has made front-page news in Asia, whose economic fate rests largely on its exports to the United States.

What was an isolated spat between port management and the unions in 1971 now strikes a vast web of interconnected players. Thus the urgency to get the ports back up running--and fast.

“It’s like dominoes,” said Guy Fox, an executive vice president with the Redondo Beach office of Global Transportation Services Inc. “Once one thing happens, it all starts to fall apart.”

In the chicken-and-egg history of globalization, it’s hard to pinpoint a single factor that has spawned the far-flung trading networks we take for granted today. But logistics experts say you couldn’t do better than the humble shipping container, those huge metal crates that allow cargo to be stacked as neatly as shoeboxes on a shelf.

In the early 1970s, “containerization” was still a novelty and seaborne cargo was still mostly handled in what was called “break bulk” style. That meant that individual pieces of cargo had to be carefully arranged in the hold of a ship, much like furniture inside a moving truck. The process was labor-intensive, slow and costly. A single ship could take as long as two weeks to load or unload.

“Businesses couldn’t afford to ship cheap products because rates were just too expensive,” said Robert Dockendorff, vice president of research for the Pacific Maritime Assn., the San Francisco-based employers group involved in the standoff with unionized dockworkers. “It’s one of the reasons why international trade wasn’t a big factor back then. But containerization changed everything.”

Containers packed at the factory or farm can be whisked to ports via rail or truck and loaded directly onto ships by giant, high-tech cranes. That efficiency helped dramatically lower shipping rates. Carriers launched a new generation of mega-ships, some the length of four football fields, to handle burgeoning trade with Asia. Major West Coast ports responded by investing billions of dollars in deep harbors, cranes and transportation links to move containers seamlessly to trucks and trains, outpacing their East Coast competition.

Those investments have paid off as the value of waterborne trade through West Coast ports reached $309 billion in 2000, a 400% increase since 1980. More than three-quarters of all containerized products on the West Coast are shipped through the ports of Long Beach, Los Angeles and Oakland alone.

The bad news for logistics specialists now trying to work around the West Coast port closures is that this specialized infrastructure is difficult to replicate. In most cases, there is no alternative.

Many modern cargo ships are too big to squeeze through the Panama Canal, and the western ports of Mexico and Canada are ill-equipped to handle extra traffic. Shipping by air is costly.

Not yet a week old, the port shutdown is already taking a toll on the apparel industry, whose far-reaching global supply chains depend on ocean shipping. It’s not unusual for a single garment to hopscotch across two or three countries on its way to retail shelves. Those logistics, complicated under any circumstances, just got worse for Los Angeles apparel maker Vera Campbell.

Unable to ship fabric from her Los Angeles facility to her sewing plant in Honduras via the ports of Long Beach or Los Angeles, Campbell is arranging to truck it to New Orleans and load it on a ship there. The trucking charges and other extras will add nearly a nickel to the price of each garment, big money in an industry with razor-thin profit margins. Even worse is the loss of precious time during the crucial holiday shipping season.

“The apparel business is horrible right now, and retailers are looking for any excuse to cancel orders,” said Campbell, whose company, Knit Works, makes juniors and children’s knitwear. “If you blow a deadline, that’s what will happen. They won’t care that it was because of a dock [shutdown].”

Calculating the collective economic fallout is impossible because the effects are so broad and unpredictable, hitting different parts of the economy with varying speed. But many economists agree that the damage already totals in the billions of dollars and would rise quickly if the shutdown were to extend beyond a week.

Extensive losses could take a toll on an already weakened U.S. economy and throw a monkey wrench in a global recovery that’s highly dependent on U.S. spending. That’s of particular concern to trade-dependent Asian economies.

“This is not what you want when you have so many uncertainties facing business,” said Connie Bolland, an economist based in Hong Kong, where the government is counting on U.S. consumers to pull its economy out of recession. “There’s a war possibly starting up in Iraq; the business recovery is stalling at the moment. These are tough times. This just adds to their business costs.”

Back in the United States, the clock is ticking for Larry Rinaldi, president of Aico, a Santa Fe Springs furniture importer. With just two weeks left before the nation’s biggest furniture show opens in High Point, N.C., his newest collections are bobbing in four containers somewhere off the Southern California coast. If he can’t get his hands on those dining room and bedroom sets by next week, he could be left with an empty space on the showroom floor. What’s worse, the goods he will need to fill orders are stuck in hundreds of containers making their way across the Pacific.

Three decades ago, domestic furniture makers barely noticed the lengthy port strike because they produced and sold almost everything within the United States.

Today, foreign-made products represent almost half of U.S. furniture sales, and it is tough to find an American furniture firm that doesn’t import at least some components from Asia. Like Aico, many of those firms have goods caught somewhere in the pipeline.

Even if the port lockdown is resolved soon, there still would be lengthy delays on the waterfront as the backed-up cargo works its way through a system that has been thrown into disarray.

“We pray for a quick solution,” Rinaldi said. “ ... I don’t think anybody wins on this.”