Woes Are Piling Up for Importers in the Southland
After the fallout from Sept. 11 and labor strife last year shut down West Coast ports, textile importer Firoze Fakhri thought he had seen the worst. Then came the invasion of Iraq.
Security at the ports of Los Angeles and Long Beach, tightened after the 2001 terrorist attacks, is now even tighter. Goods arriving from Fakhri’s factories in Bangladesh, a country targeted by the United States as a security risk, are getting held up for days by Customs Service inspections.
“If the container is delayed too long, I may lose the sale completely,” said Fakhri, president of Fullerton-based International Trading Co., which imports linens, gowns and other textile products for hospital chains, beauty parlors and carwashes.
Across Southern California’s trade-dependent economy, importers of everything from Japanese automobiles to Thai shrimp are feeling anxious.
Some have been walloped even harder than has Fakhri. Since the United States went on its second orange alert of the year two weeks ago -- the second-highest level on the government’s five-tier color-coded system for terrorism warnings -- at least a few importers have faced delays of up to two weeks for containers flagged for a full inspection, according to brokers in Los Angeles.
Companies “just can’t risk that kind of delay,” said Robert Krieger, president of Norman Krieger Inc., a large freight forwarder in Los Angeles, who knows of seven shipments in the last three weeks that have been held up as long as 13 days for customs inspections.
Vera Adams, interim port director for the Bureau of Customs and Border Protection at the ports of Los Angeles and Long Beach, said the vast majority of cargo is moving smoothly.
But any interruption can be a problem in today’s highly fluid economy.
“At the five-day mark, you are not meeting just-in-time inventory schedules or production schedules,” said Lee Sandler, an international trade attorney from Miami who spoke last week at an apparel conference in Long Beach. “You are no longer meeting your commercial and contractual obligations. The impact is clearly substantial.”
Importers are responsible for paying the inspection fees, which range from $20 to $300 per container, according to brokers. If a container is left in the port for more than a few days, the importer also may be responsible for storage or transport fees.
Beyond costly delays, high energy prices have brought more bad news.
In Fakhri’s case, soaring petroleum prices in the weeks before the war began have added significantly to the cost of the synthetic yarns he buys from China and India.
Meanwhile, importers say, transportation costs have gone up by as much as 25% this year. And bringing products in by plane rather than by boat isn’t a very attractive alternative because airline fuel surcharges have risen 10% to 15% in the last three weeks.
What’s more, freight forwarders are warning customers to expect delays in getting their goods onto airplanes from popular exporting regions such as southern China because cash-strapped carriers are slashing their schedules.
“We’re being hit from all over,” said Guy Fox, head of the Los Angeles Air Cargo Assn. and executive vice president of Philadelphia-based Stonepath Logistics, a customs broker and freight forwarder with an office in Redondo Beach.
Things could get worse May 1. That’s the date the international organization representing the 14 leading shipping companies operating in the Pacific Ocean has recommended that its members tack $700 onto the fees they charge for dispatching a 40-foot container from Asia to the West Coast. Fees currently range from about $1,500 to $2,000.
Beyond all that, many U.S. importers and exporters are troubled by the mysterious virus in Asia suspected of leaving more than 1,500 people ill and leading to more than 50 deaths. The outbreak of the highly contagious pneumonia has prompted U.S. companies to cancel buying trips and factory visits to Hong Kong and southern China.
On Friday, organizers of the Asia Pacific Leather Fair in Hong Kong, one of the world’s largest leather trade shows, said they would postpone the April event for several months.
“I’ve been working in this business for 25 years, and I have never seen the confluence of external unknown events come together like this,” said Rick Darling, president of the U.S. arm of Hong Kong-based Li & Fung Group, the world’s largest consumer-products trading company.
The New York-based executive said he has postponed all company trips to the region until more is known about the illness.
As war clouds gathered through the winter, some companies planned ahead. Iogear Inc. was one of them.
With the memory still fresh of the labor dispute that closed ports for 10 days last fall, wreaking havoc with the international supply chain, executives at the Irvine-based technology firm decided they couldn’t risk a repeat. So shortly before the war started, they airlifted a shipment of their most popular keyboard video mouse switches and other equipment from Asia, paying a steep 28% premium to ensure fast delivery.
They also decided to bulk up their California-based inventory by 50% in the coming month, even though that would increase warehousing costs. But the uncertainty surrounding the fighting in Iraq convinced them that there was no other choice.
“We didn’t know how long this was going to last,” explained Miranda Su, Iogear’s vice president of marketing. “It was a business decision we had to make to secure our sales.”
As for Fakhri, the increased transportation and security costs have added as much as $1,000 to the bill for shipping one container of goods from Asia. Last week, he flew to Bangladesh, where he hoped to talk his shipper into giving him a break on next year’s contract.
“Either we tell our shipper, ‘Look, we can’t pay this much,’ or we have to charge more here and the consumer has to pay a little bit more,” he said.
Some, though, question how easy it will be to pass costs along to the consumer, given the sluggish state of the economy.
“If demand is weak,” said Ali Zahedi, president of Lafayette Textile Industries, a Los Angeles fabric manufacturer and importer, “I don’t know how much room there is for prices to go up.”