Businesses Make Contingency Plans for Port Strike…
By DAVID GREENBERG
As a July 1 strike deadline looms at West Coast ports including Los Angeles and Long Beach, businesses are scrambling to make contingency plans to survive a work stoppage.
For the most part, the bigger they are, the easier it will be to endure.
Some larger firms are considering expensive air shipments or reversing the route of their ocean cargo from Asia by using the Suez Canal to get to East and Gulf Coast ports. Other smaller companies have no choice but to wait it out.
But sources close to the negotiations say that hopes are fading for a quick settlement between the Pacific Maritime Association, which represents the ship companies, and the International Longshoremen and Warehouse Union.
No talks on the three-year contract took place during the week of June 3, which sources said is not a good sign for an immediate settlement. Both sides have agreed to a media blackout, issuing joint statements only when progress is made.
“The big importers have options, which will keep some of the big ship lines in business,” said Stephanie Williams, vice president of legislative and regulatory affairs for the California Trucking Association, which is not involved in the negotiations. “They have more liquidity. Small companies can’t front that kind of business drop because of their overhead.”
Roughly $200 billion worth of cargo comes through the L.A.-Long Beach complex each year. Due to early ordering in anticipation of a strike, large increases in container imports were registered in April at L.A. and Long Beach.
But the cargo mostly back-to-school and holiday merchandise, as well as manufacturing parts usually ordered in July and August is saddling companies with additional overhead costs.
More warehouse space
To hold the goods, importers are paying for additional warehouse space that is usually not needed under just-in-time-delivery practices. Inventory taxes also increase the longer the merchandise remains under their ownership.
Yet those added costs pale in comparison to re-routing goods to non-West Coast ports or shipping them by air.
The 6,000 TEU (20-foot equivalent unit) container ships from Asia are too large for the Panama Canal. The only alternative to an East Coast or Gulf Coast port would be through Egypt’s Suez Canal, a process that would double the normal three-week timeline to bring goods into the U.S.
Large importers, such as Target Corp. and Wal-Mart Stores Inc., would still be able to use this method because they have large distribution and warehouse facilities nationwide and the cash flow to incur the increased sea transportation costs.
“Measuring this is very difficult because companies don’t want you to know that they paid $500,000 for contingency plans,” said Robin Lanier, executive director of the West Coast Waterfront Coalition, an importers’ trade organization also not involved in the negotiations. “It’s bad for their stock. And particularly in this market, every penny counts.”
Shipping companies would also be affected by a prolonged strike because any ships that remained anchored in a harbor would lose $35,000 in lost revenues and operating costs per day, according to the Los Angeles County Economic Development Corp.
Air freight services remain an option, but importers would have to absorb fares that Asian-based carriers have doubled or tripled since April in response to the increased demand. “There are some shippers out there for which there are no possible contingency plans,” said Lanier.
Ultimately, a work stoppage would be most damaging to local trucking and other transportation operations that would have only air freight goods to carry. Independent drivers, who number 30,000 in L.A. County alone, would get hit the hardest because they are not employees of truck companies and therefore would not even qualify for unemployment compensation.
Meanwhile, insurance companies fearing a work stoppage have refused to write strike insurance policies for truckers and union members.
“You could make the argument that they are going to be the ones that suffer the most economically,” said Ross DeVol, director of regional and demographic studies for the Milken Institute, a Santa Monica economic think thank. “If you’re a local freight forwarder, you don’t even have an interstate trucking license. So they’re not going to try to find a shipment to move to Chicago.”
Sources said that negotiations between the two sides at the ports remain tense over the PMA’s demand to implement computerized container trafficking and work assignments in the ports to make them run more efficiently a plan the union believes will eliminate jobs for the next generation of members.
The PMA has vowed this year to shut down the ports if union workers stage a “work slowdown” as the agency claims occurred during the negotiations of 1999 and 1996 charges the union has denied.