Manufacturers and retailers are stockpiling goods and taking steps to bypass West Coast ports amid a labor dispute that the facilities’ operators say threatens a shutdown disrupting more than 40 percent of U.S. trade.
Cargo piling up amid stalled talks with the International Longshore and Warehouse Union pushed the 29 ports to the brink of a “coast-wide meltdown,” said James McKenna, president of the Pacific Maritime Association, the trade group of shippers and terminal operators. ILWU President Robert McEllrath said management was responsible for the congestion crisis and that the parties are close to a settlement.
Users of the biggest U.S. container ports have faced slowdowns and backups since mid-2014, with congestion worsening in November as unionized dockworkers reduced productivity at several locations, according to the maritime association. With prospects growing of a coastwide shutdown, some shippers say they’re shifting to backup plans.
“A lot of the suppliers will stop putting any sort of inventory on a ship now,” said Neel Jones-Shah, president of JS Aviation Consulting and chief commercial officer for Los Angeles-based forwarder Able Freight. “They know it’s going to get stuck at sea for weeks before it gets unloaded.”
Japanese carmakers including Honda Motor Co. and Fuji Heavy Industries Ltd.’s Subaru are already sending some parts to the U.S. by air to bypass the slowdown. Airlifts began late last month on concern that the stalled labor negotiations could slow deliveries enough to hurt production, the companies said.
Air shipments are 15 to 20 times more expensive than by sea, said Satish Jindel, founder of SJ Consulting Group Inc., a Sewickley, Pennsylvania-based shipping consultant.
“Everything that is going by ocean isn’t going to convert to air,” Jindel said. “But if they were sending four containers by ocean and they know they’re going to get delayed by two weeks, they may send half a container by air to have something in the stores while the other 3 1/2 containers come by ocean.”
McKenna, in his first conference call with reporters since negotiations for a new longshore contract began in May, said Feb. 4 that management isn’t looking to lock out the 20,000 dockworkers. The association shut down the ports in 2002 after union-led slowdowns choked off the flow of goods.
“What I’m really saying is that this system will bring it to a stop,” McKenna said. “Once that happens, we really don’t have a choice.”
In a statement responding to McKenna on Thursday in San Francisco, union chief McEllrath said an escalation of rhetoric by port operators was “totally unnecessary and counterproductive.”
The union disputed the idea that a pile-up of goods amid a labor slowdown was creating congestion that would choke off future traffic, releasing photos of Southern California terminals showing “large tracts of space that would easily fit thousands of containers.”
Retailers and manufacturers are making other plans. Jonathan Gold, the National Retail Federation’s vice president of supply chain and customs policy, said companies have been stockpiling seasonal merchandise in warehouses, moving some goods via air and shifting to East and Gulf coast ports.
“They’re doing everything they can to ensure that there’s still product on the shelves,” Gold said.
Manufacturers may be increasing inventory to brace for a disruption at the ports, which would crimp the efficiency of just-in-time supply chains, said Bruce Carlton, president of the National Industrial Transportation League, a shipper trade group based in Arlington, Virginia.
“They may be turning ‘just in time’ into ‘just in case,’” he said.
The West Coast ports handled 43.5 percent of containerized cargo in the U.S. in 2013, according to the maritime association’s annual report. Cargo moving through the ports accounts for about 12.5 percent of U.S. gross domestic product, the association said.
The White House said Thursday that negotiations, not more federal intervention, would be the right course for settling the standoff between the maritime association and the union.
“This dispute is up to the two parties to resolve at the bargaining table, and we urge them to do so as expeditiously as possible,” said Frank Benenati, a White House spokesman. “We continue to closely monitor the situation.”
The maritime association locked out workers for 10 days amid slowdowns in 2002 during contract talks. That stoppage, which ended when then-President George W. Bush invoked the Taft-Hartley Act, cost the U.S. economy $1 billion a day, the maritime association said.
A 20-day lockout now would cost more than $2 billion a day, the association said in a report last year, including losses to railroads, ocean carriers and the broader economy.
Twenty-four ships were queued up Thursday at the harbor shared by the Los Angeles and Long Beach ports, up from as few as four in mid-December, according to the Marine Exchange of Southern California, in one measure of the backups confronting shippers.
A union spokesman, Craig Merrilees, attributed the congestion to several reasons, including larger cargo vessels, a shortage of truck chassis used to transport containers from ships, and noncompetitive alliances among ocean carriers.
Transportation companies serving the Los Angeles and Long Beach ports, such as BNSF Railway Co., have been adapting to the slower movement of goods. Since late 2014, the Fort Worth, Texas-based railroad has periodically limited the flow of trains to keep cars from stacking up, said Mike Trevino, a spokesman.
If there’s a shutdown, “we’ll look at our operation and evaluate what’s the best course of action for us and our customers,” Trevino said in a telephone interview.