U.S. Importers Are Trying to Ship Around Potential Labor Disruption

Date: Monday, March 21, 2022
Source: The Wall Street Journal

U.S. importers are already starting to reset their supply chains to avoid disruptions ahead of potentially contentious contract talks this summer between West Coast dockworkers and the companies that manage the flow of goods through ports.

Some shippers are pulling forward their holiday-season orders to get them into domestic networks early, logistics operators said, and many are diverting cargo that normally moves through the West Coast to East Coast and Gulf Coast ports. Shipping executives said that is helping spread congestion that has gripped California’s ports of Los Angeles and Long Beach, underscoring the difficulty importers face in reconfiguring supply chains built around the dominant West Coast gateways.

“There are limited options available and that’s why a lot of them still pray and hope they can get a lot of their product through L.A.-Long Beach,” said Sidney Brown, chief executive of NFI Industries Inc., a third-party logistics operator based in Camden, N.J.

Labor talks on the West Coast—covering 22,400 dockworkers at 29 ports from Washington state to Southern California—are expected to begin in the coming months, though no formal start date has been set. The sides will be seeking to replace an agreement that expires July 1. In past years, labor talks have taken months to resolve. During combative negotiations that ran from 2014 to 2015, slowdowns at the ports caused lengthy backups in ships off the Southern California coast.

“It does have our attention and we are considering the impact it would have on our supply chain,” said Jon Cargill, senior vice president and chief financial officer of Hobby Lobby Stores Inc.

This year’s talks will take place as dozens of ships are already backed up in the Pacific Ocean because of pandemic-triggered supply-chain congestion. Efforts to get around that bottleneck by routing cargo elsewhere have led to backlogs from the Port of Houston in the Gulf to the ports of Savannah, Ga., and Charleston, S.C.

David Arsenault, president of GSC Logistics Inc., a third-party services company that specializes in moving cargo through Northern California and the Pacific Northwest, said some shippers agreed to contracts earlier than usual in the annual shipping cycle this year to ensure space on alternate routes.

Other gateways would be hard-pressed to process much of the cargo from the ports of Los Angeles and Long Beach, which together handle nearly 40% of U.S. container imports, Mr. Arsenault said.

“Big retailers understood the limit to how much East Coast capacity they could secure, and if they waited too late, that space could have already been spoken for,” he said.

Small to medium-size importers, which tend to book cargo last-minute rather than on long-term contracts, say they have contingency plans, but will wait and see how bad any disruption might be.

Mark Riskowitz, head of operations at Caraway Home Inc., an almost three-year-old kitchenware company, said he is considering diverting cargo from California to the Port of New York and New Jersey, and to Prince Rupert, a port in British Columbia, Canada, that has rail connections to Chicago.

Roel Dekkers, director of supply chain at an aftermarket automotive filtration supplier, Premium Guard Inc., said he is considering shifting time-critical goods to East Coast ports while continuing to send less time-sensitive shipments to the West Coast.

Container volumes through East Coast ports have been growing faster in recent months than those through the West Coast, though it isn’t clear how much of the gap is because congestion has slowed the handling of volumes at the California gateways and how much is because cargo has been diverted to other gateways.

Overall imports into major West Coast ports declined 14% in December, from the year before, according to the Pacific Merchant Shipping Association, while East Coast volumes rose nearly 13% and Gulf Coast imports increased almost 14%.

In February, the National Retail Federation urged the dockworkers union and port terminal employers to begin talks early to allay shipper concerns. The two sides have a lot to discuss: from work rules at West Coast facilities to more thorny issues such as automation, pay and benefits.

The Pacific Maritime Association, which represents terminal employers, on Wednesday said it is prepared to begin negotiations immediately. The International Longshore and Warehouse Union, which represents dockworkers, said it won’t be ready until May.

Jonathan Gold, vice president for supply chain at the retail federation, said shippers don’t expect the talks to conclude before the contract expires. But they would like to see signals from both sides that there won’t be any disruption.

“Many shippers are waiting to get that kind of a signal, and they haven’t seen it just yet,” he said.

 

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