Economic Toll of Shutdown Spreads
Vlady Cornateanu’s Halloween sales are a bust because his witches and goblins are stuck at sea. Navy reservist Anna Weber can’t get back to her Iowa janitor job because her car is trapped inside the Port of Los Angeles. Van Nuys retailer Steven Dunn has laid off 23 employees--40% of his work force--because he can’t get his shipment of infant toys from China.
Even as the Bush administration took steps Monday to reopen West Coast ports, the economic toll of the shutdown is rising fast. The blow that initially struck truckers, shipping lines and farmers is rippling to other parts of the economy.
Analysts have estimated the losses at anywhere from $1 billion to $2 billion a day as manufacturers run low on parts, exporters lose sales and retailers watch supplies of key merchandise dwindle. No one knows for sure what the real number is or how much of those losses can be recouped. But few people question that the shutdown is entering a crucial phase for a U.S. economy that has embraced lean inventory practices that require a swift, smooth flow of goods to keep the wheels of commerce turning.
“There is a strong sense that if this continues for another week it will have a major, negative impact on manufacturing,” said William Primosch, director of international business policy for the National Assn. of Manufacturers in Washington. “Because of just-in-time production, no one has big supplies of inventory or parts on hand. It starts with an industry like autos and just goes down the line.”
Indeed, Monday brought the second announced shutdown of a U.S. auto plant since the dockworker lockout at 29 West Coast ports began Sept. 29.
Boeing Co.’s production of 767 and 777 jetliners in Seattle, made with fuselage panels, cargo doors and other parts from Asia, is beginning to be disrupted. Parts are on ships anchored off Seattle and Tacoma, Wash., forcing Boeing to juggle the order of work on some jets, spokesman Peter Conte said.
For exporters of perishable goods, the window for moving cargo is quickly closing. Dole Food Co., the world’s largest producer of fresh fruit and vegetables, sought an emergency court order that would allow it to retrieve more than 8.3 million pounds of bananas, plantains and yuccas being held in 241 refrigerated containers on the dock at the Port of Los Angeles.
Westlake Village-based Dole said in court papers it stood to lose more than $1.7 million unless it could get access to the produce, shipped last week from Ecuador. Named as defendants in the action are the Pacific Maritime Assn. and one of its members, Transpacific Container Service Corp.
Likewise, Sunkist Growers Inc. estimated that it stands to lose about $2.1 million a week in citrus export sales.
In the meantime, consumers can expect to pay more for bananas in coming weeks, the California Farm Bureau warned. In some cases, wholesale produce firms are charging double for bananas as their supplies have dwindled.
Automaker Mitsubishi Motors Corp. said it would halt production at its Normal, Ill., assembly plant Wednesday because the port closures had reduced supplies of parts from Asia needed to make passenger cars. About 3,000 employees will be offered paid training, vacation time or unpaid leave.
Other automakers are turning to expensive air freight to keep their factories running.
The New United Motor Manufacturing Inc. plant in Fremont, Calif., which shut down last week, reopened its passenger car assembly line Monday after receiving two shipments of parts, including heavy transmissions, flown from Japan on chartered 747 jets. The plant is a joint venture of General Motors Corp. and Toyota Motor Corp.
Still, the airlifts are too costly to provide more than a stopgap alternative to ocean freight.
Production has been slashed at many of the nation’s beef and pork plants, in some cases by as much as half, as cold storage facilities fill up with expensive cuts bound for Asian markets, the American Farm Bureau Federation said.
Minneapolis-based meat producer Cargill Inc. said its Excel beef unit has gone from a typically six-day plant schedule down to five in the last two weeks and the company has had to pay extra to haul its beef to outside cold storage since its own facilities are full.
Large corporations aren’t the only ones feeling the pain from the port shutdown. Small-business owners nationwide say they are caught in the middle.
Commercial photographer Joe Atlas stands to lose one of his biggest jobs of the year shooting photos of furniture for a major trade show this week in North Carolina. With their goods bobbing on the water somewhere in the Pacific, several of his furniture clients probably will cancel all or part of their contracts, Atlas said.
“You feel pretty helpless,” said Atlas, of Atwater Village. “I don’t have the ear of politicians or unions to fight for my concerns.”
Small manufacturers likewise lack deep pockets to absorb losses from canceled orders and out-of-date merchandise. Vlady Cornateanu, president of novelty clothing maker Addiction Apparel in downtown Los Angeles, said he had about $100,000 in merchandise--including men’s ties with witches and pumpkins for Halloween--waiting somewhere offshore.
Even if the dispute is settled within the next few days, Cornateanu said, untangling the mess of containers at the ports could take weeks, well after the deadline for sending Addiction’s wares to stores in time for Halloween.
“Some retailers are just looking to cancel orders. If you’re not on time, too bad,” Cornateanu said. “By the end of this week, we’ll be getting cancellation letters.”
Munchkin Inc., a Van Nuys manufacturer of infant toys and products, already has laid off 23 of its 58 employees and is looking at more pink slips for later this week or next.
To stay in customers’ good graces, the company has been shipping products by air. But unlike with a truck or passenger car, the costs can’t easily be absorbed on items that retail for just a few dollars. Munchkin’s two-packs of children’s no-spill cups, which retail at Wal-Mart for about $3.99, cost about 14 cents to bring in by boat, company President Steven Dunn said. Bringing in the same item by air costs about $2.50, he said.
“We’re losing money on every product we’re air-freighting in,” Dunn said. “We’re just eating those costs to maintain the price to our customers.”
That’s why air really isn’t an option for the majority of ocean-shipped goods, said Guy Fox, executive vice president with Global Transportation Services Inc. and chairman of the Los Angeles Air Cargo Assn.
Air-freight space is tight industrywide--this time of year normally is busy for shipments anyway--which has sent air-freight prices soaring 40% or more for those customers not under long-term contracts with carriers. “Prices are changing on a daily basis,” said United Parcel Service spokeswoman Lynette McIntire.
As for Anna Weber, she is just trying to get home to Iowa. The Navy reservist has been serving in Hawaii since January doing a voluntary tour of service after last year’s terrorist attacks. She flew to Los Angeles last week, hoping to get her car, which had been shipped ahead on a cargo vessel. Unable to retrieve it, she and her husband have been forced to bunk with a cousin in Westchester.
They both have lives and jobs to return to. They just missed a family reunion and their savings are running low.
“I feel like I’m being held hostage,” Weber said. “It’s the little people that are paying for this.”
Times staff writers Melinda Fulmer, John O’Dell, James F. Peltz and David Rosenzweig contributed to this report.
