Overstock Fears Keep Retail Orders Holding
Severe bottlenecking is possible this fall at the Ports of Los Angeles and Long Beach, as last-minute orders by nervous retailers, uncertain about the strength of the holiday shopping season, generate a higher than usual amount of cargo late in the peak shipping season.
The resulting gridlock could create a snowball effect resulting in increased costs at cash registers and hundreds of millions of dollars in losses to retailers, buyers and transporters.
“Right about now is when all that stuff usually starts coming in,” said Alan Atkinson, a legislative representative for the West Coast Waterfront Coalition, an advocacy group for retailers, manufacturers and shippers.
The holiday shipping season, which normally runs from July to October, has been sluggish. Combined cargo volume for the two local seaports was down 7.6 percent in July from the year-ago level.
“If (buyers) push it back to late September or October, you’re going to have a big old bottleneck,” said Atkinson. “There’s only so much capacity that these ports can handle at one time. In the worst case scenario, you’ll have product that doesn’t make it to the stores on time. And Christmas is their high point. It’s make-or-break time.”
With the effects of the delay spreading industry-wide, some question the purchasing logic of the store owners they represent. “You just incur more costs,” said Atkinson. “Ultimately, the consumer has to pay for it. And in a depressed economy, it could mean less sales and lower profits. This whole bad situation gets worse.”
Retailers might be willing to live with lower sales and profits, said Scott Krugman, a spokesman for the National Retail Federation, an industry trade group, if the alternative is massive overstock that must be dumped at deep discounts.
“Basically, retailers over-ordered last year and it hurt,” he said. “It left them with more inventory to clear at the end of the year at discounted prices. This year, retailers have a better handle on inventory control and that’s a good thing for the industry. The bad news is, it might be harder to find specific items that you are looking for.”
Ports certain to benefit
From a fiscal standpoint, the ports themselves have less to worry about than any other link in the chain.
A sizeable portion of their budgets comes from wharfage fees on the $200 billion worth of cargo that is expected to move through the ports in 2001. The ports collect about $162 and $125, respectively, for an imported and exported 20-foot-equivalent (TEU) container.
With the exception of an occasional ship changing course from Southern California, those revenues are generated regardless of how long it takes the ships to load and unload once they are at the docks.
Container cargo shipments at the Port of Los Angeles increased to 452,855 TEUs last month, compared to 440,731 TEUs in July 2000, a 3 percent hike. However, shipments fell to 379,032 TEUs from 409,979 TEUs during those same periods at the Port of Long Beach.
Ironically, the decline in business at Long Beach could minimize the amount of bottlenecking. And with new technologies such as electronic dispatching making logistics operations run more efficiently, port officials downplay the prospect of gridlock.
“The Port of Los Angeles has handled increases in cargo without any problems,” said Julia Nagano, a spokeswoman for the port. “We don’t anticipate any problems in the future.”
If consumer spending remains reasonably healthy, however, late orders from major retailers like Kmart Corp., Wal-Mart Stores Inc. and Target Corp. will put the squeeze on carriers.
Shipping companies pay from $5,000 to $20,000 a day to operate their vessels, so floating idly near the docks waiting to unload cargo would mean significant losses.
Labor shortage looms
If the gridlock gets too intense, transportation and union officials will have to iron out an agreement for extended gate hours, a method commonly used during the peak shipping season.
“You have a situation where retailers don’t want to do warehousing,” said Steven Stallone, spokesman for the International Longshore and Warehouse Union. “They are into this whole concept of just-in-time delivery. Things go immediately from the dock to their distribution centers. (But) if they want to add the night shifts, our people will be there to work them.”
Bottlenecking has some operators concerned that even with the additional hours of operation, there will be a scramble to secure help.
“We all draw from the same labor pool,” said Anthony Liberatore, terminal manager for Long Beach-based Stevedoring Services of America Inc. “It could affect me being able to get labor to work my shifts. We’d have to wait until it sorts itself out. It costs our customers money.”
So will the extended gate hours, however. Laborers make time-and-a-half for overtime, and receive additional wages for nighttime shifts.
