West Coast Ports Whats Next for Retailers?

Last weekend, the labor dispute between the Pacific Maritime Association International Longshore and Warehouse Union, which has slowed the Los Angeles and Long Beach ports for several months and crippled them in the past few weeks, came to a close with an inked five-year labor deal. The deal was hard-fought, with pressure from the nation’s largest retail and manufacturing associations, as well as the Secretary of Labor Thomas Perez, who met with parties last week and threatened to send them to Washington if they couldn’t resolve their issues quickly.

While the disputes are over, the potential issues for U.S. retailers are not. Now, retailers must dig out of a backlog that will take months to fully resolve. At the same time, many businesses are also considering other port and transportation options to reduce exposures in the future.

What’s Next for West Coast Ports?

Labor issues aside, the West Coast ports still have structural challenges with which they must contend. Notably, 2014 was the third-busiest year on record for the Los Angeles port, and according to the Associated Press, West Coast ports are responsible for roughly one-quarter of U.S. international trade, totaling about $1 trillion annually. As imports rise, there is a growing tension between the ports’ available space and the growing size and number of cargo ships. Moreover, some analysts are already speculating that we could hit these same slowdowns and work stoppages again in five years when this new contract expires.

Should Retailers be Considering Alternatives?

While most retailers avoided major issues with the slowdown during the holidays, Q1 is likely to see some impact. Indeed, Macy’s CFO Karen Hoguet said this week that because of the port issue, “inventory levels have been negatively impacted, particularly in apparel and accessories. Approximately 12 percent of our first-quarter merchandise receipts are being delayed, and this will have some impact on our sales, gross margin, and expense in the first few months of the year.” The problem for retailers is that other import options, including East Coast ports and air transportation, can be more expensive.  At a time when margins are already compressed due to deal-hungry consumers and slower growth in the industry, increased costs may be a nonstarter.

Still, ahead of the next peak season and back-to-school rush, retailers would be wise to consider their exposures and explore opportunities to diversify their import locations. Our recent survey of 100 CFOs found that retailers may already be taking action. Results due out next week suggest that more retailers may be exploring nearsourcing, or even looking for opportunities to produce more in the U.S.

Stay tuned to the blog next week for more on what sourcing and supply chain options retail CFOs are considering.