West Coast Supply Chain Managers Ramp up Ocean Cargo Orders

With the June 30 deadline for contract talks for West Coast dockworkers between the between the Pacific Maritime Association and the International Longshore and Warehouse Union (ILWU) approaching, import activity at United States-based retail container ports is expected to see earlier than usual gains for this time of year, according to the most recent edition of the Port Tracker report by the National Retail Federation and Hackett Associates.

The ports surveyed in the report include: Los Angeles/Long Beach, Oakland, Tacoma, Seattle, Houston, New York/New Jersey, Hampton Roads, Charleston, and Savannah, Miami, and Fort Lauderdale, Fla.-based Port Everglades. Authors of the report explained that cargo import numbers do not correlate directly with retail sales or employment because they count only the number of cargo containers brought into the country, not the value of the merchandise inside them, adding that the amount of merchandise imported provides a rough barometer of retailers’ expectations.

The report observed that a projected 7.5 percent annual gain in June volumes could occur due to retailers bringing in higher than usual amounts of merchandise in an effort to avoid any issues related to the ILWU and PMA negotiations, especially in the event that negotiations extend past June 30.

“We don’t want to see disruptions at the ports but retailers are making sure they are prepared in case that happens,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said in a statement. “Whether it’s bringing cargo in early or other contingency plans, retailers will keep the shelves stocked for the back-to-school and holiday seasons.”

Preparation for prolonged negotiations of a labor stoppage of any duration at West Coast ports is key. In 2002, a labor strike at West Coast ports, which handle more than two-thirds of all U.S. retail container cargo and most cargo from Asia, resulted in ports being closed for ten days and creating a backlog that took several months to be cleared and cost the U.S. economy an estimated $15 billion in reported losses.

In mid-May, a letter to ILWU President Robert McEllrath and PMA Chairman and CEO James McKenna pleaded the case for the sides to come to an agreement ahead of the June 30 contract deadline for West Coast dockworkers.

The letter was sent by more than 60 maritime and supply chain industry stakeholders, including manufacturers, farmers, wholesalers, retailers, distributors, and transportation and logistics services providers, as well as industry associations, such as the NRF and the Airforwarders Association, among others.

The letter noted that failure to reach an agreement would have serious economy-wide impacts, with the potential for disruptions in the flow of commerce at West Coast ports creating uncertainty in a fragile economic climate and forcing shippers to develop contingency plans, which are costly in terms of jobs and economic competitiveness.

The NRF’s Gold told LM if negotiations go longer than expected, Gold said one option for importers in terms of contingency plans is to ship early so there is sufficient inventory on hand, although it comes with additional costs to carry inventory longer than usual. Another option is shifting cargo to East and Gulf coast ports as well as Canada and Mexico, with air cargo as option for last minute orders, which is far more expensive.

The report said that for April (the most recent month for which data is available) was up 10.3 percent annually and 9.3 percent ahead of March at 1.43 44 million TEU (Twenty-foot Equivalent Units). May was expected to hit 1.47 million TEU for a 5.8 percent increase, and June is expected to be up 7.5 percent at 1.46 million TEU. The May and June forecasts are “unusually high” and typically are not expected until later in the summer or the fall the report said. And it added that it is an indication that retailers are actively bringing merchandise in earlier than normal because of the uncertainty regarding the West Coast labor talks.

July, August, and September are expected to come in at 1.51 million TEU, 1.52 million TEU, and 1.45 million TEU for respective annual increases of 4.4 percent, 1.9 percent, and 0.8 percent. Port Tracker said the first half of 2014 is pegged at 8.3 million TEU for a 6.5 percent annual gain.

Hackett Associates Founder Ben Hackett wrote in the report that with the winter weather now in the past, coupled with inventories coming down as consumers venture out and the PMA and ILWU negotiating, paints a picture of a strong recovery in the second quarter (coming off of the recent 1.0 percent GDP estimate) but without a major shift in upward growth as the trend remains below the historical average.

“The real question now is how long can the economic expansion continue?” wrote Hackett. “Our year-on-year quarterly growth in the Global Port Tracker report shows that we have over three years of expansion with only one negative quarter in 2013, but much of the growth has been relatively slow. Consumers remain skeptical and it remains unclear whether the economy will shift up in 2015, but growth is growth and the results are apparent in the approving unemployment figures.”

Hackett said in an interview that it is likely that the economic expansion could last as long as four quarters but added that the current uptick is slow paced and at a relatively slow growth rate.

“The West Coast port negotiations are likely to keep inventories higher than they would normally be,” he said. “And in recent months there likely has been a shift to all-water routes via the Suez Canal to the East Coast due to the uncertainty out west at this point.”

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