With congestion at the ports of Los Angeles and Long Beach expected to continue for the next several months, pressure to deliver holiday stock to increasingly nervous retailers is forcing some shippers to divert vessels to other ports.
The immediate effect of the diversions, which come despite efforts to bring on more dock and rail workers to clear the backlog, is a loss of revenue for the ports and added costs to merchants forced to foot higher bills to bring goods to regional stores and warehouses.
“It will mean some increased costs as retailers have to look for alternative ways to manage their supply chains,” said Erik Autor, international trade counsel for the National Retail Federation. “In some cases, the retailer will have to eat the cost and in other cases pass some or all of it onto the customers.”
Since July, at least 26 ships have been diverted to other ports eight in the first week of October alone from their original L.A. or Long Beach destinations, according to the Marine Exchange of Southern California, which handles traffic control for the two local ports.
Steamship lines are not required to notify the Marine Exchange or the ports when they decide to call on a different port, so the actual number of diverted ships could be higher, maritime officials said.
Diversions were so uncommon that the Marine Exchange didn’t even keep records of them until July of this year. “We don’t take great note of them because there aren’t that many,” said Dick McKenna, deputy executive director of the Marine Exchange.
Not since the steamship lines locked out unionized longshoremen for 10 days in the fall 2002, leaving 129 vessels idling at or off the shores, have the diversions been as great. In that case, it took more than four months before container traffic flow returned to normal.
As many as 80 ships were being docked or anchored just outside the breakwater of the two ports last week, more than twice the usual number, according the Marine Exchange.
Dubious savings
The logjam comes even as the Pacific Maritime Association and the International Longshore and Warehouse Union agreed to hire 3,000 non-unionized casual longshore workers during the summer and as many as 2,000 more late last month.
So far, only 1,400 of the workers have been trained and added to the workforce, with 300 more people joining the employment rolls each week, according to Jim McKenna, president and chief executive of the PMA. (Jim McKenna is not related to Dick McKenna.)
As a result, Jim McKenna predicted the congestion could be eliminated in five to seven weeks as long as there are no breaks in other parts of the supply chain.
“We jointly agreed that taking on additional people was the right thing to do both for the short-term and the long-term benefit of the port and its customers,” he said. “It takes a long time to work out of these things. But you’re seeing it slowly come down.”
Christopher Thornberg, senior economist with the UCLA Anderson Forecast, expected some losses, “but it’s not like port traffic is being cut off. If people want that ‘Elmo the Talking Elephant’ and it’s made in China, if the demand is great enough, retailers will find a way to get it here. Where there is a buck, there is a way.”
The delays started during the summer and were exacerbated when, as reported earlier, Wal-Mart Stores Inc. decided to move a record amount of holiday cargo in September and October rather than the traditional early summer season.
“Wal-Mart is moving the importing of their Christmas business a little closer to the holiday instead of smoothing the flow over a longer period of time,” said Steve Harrington, chairman of the Distribution Management Association of Southern California, a logistics trade group. “That added to capacity constraints at the port.”
The company was expected to move 470,000 TEUs through the ports of L.A. and Long Beach this year. At a capacity of 5,000 to 6,000 20-foot equivalent units per ship, that represents a sizeable share of the ports’ volume.
Wal-Mart officials did not return calls.
Extra costs
While diverting to ports in Oakland, Manzanillo, Mexico, and in some cases the East Coast can save time, the added costs are significant.
Rancho Dominguez-based Transport Express offered Bay Area trucking companies $1,400 per truck per day, $400 more than it normally charges importers, to haul containers for two of its biggest clients that diverted cargo to Oakland. There were no takers.
“All of us are behind in orders one to five days already,” said Patty Senecal, vice president of sales and marketing for Transport Express. “The companies I called said they didn’t have capacity to bring trucks south. It’s a mess.”
In many cases, importers are telling customers they have little choice but to wait out the delays and expect additional costs when the products do come in.
And the ports themselves are losers. Both facilities charge between $35 to $50 in docking fees for each 40-foot-long box (depending on the value of the cargo), plus additional dockage and demurrage charges the ports generate when they store the containers.
Though Long Beach and L.A.’s container counts are up 19.4 and 4.5 percent, respectively, compared to the year earlier, port officials are not sneezing at the loss of revenues.
“The revenue could stay over here and benefit the local economy instead of going over to Oakland,” said Tony Urrutia, assistant director of finance for the Long Beach port, which generated $249.5 million in gross revenues last year. “We don’t want it to occur (because) every little bit helps. But if it occurs, we will deal with it. It’s not going to stop us from continuing our operations.”
Others have to grin and bear it.
Santa Monica furniture shop Dolche Dormire has had to tell customers who selected made-to-order pieces ordered from Italy nine to 12 weeks ago that they have to wait at least another week beyond the expected delivery date.
“Sometimes they get upset,” said Francesca Bianchi, the store’s owner. “They say, ‘The furniture is supposed to be here and it’s not here and why is that?’ That’s how the business is, importing from Europe. We need to be patient.”
