CE Supplier Workarounds Persist as 'Full-Blown' West Coast Port Shutdowns Loom

LG is "focusing on areas where we have more control, such as diverting shipments to other ports of entry and tightly managing our internal logistics and inventory processes to do our best to assure a steady supply of goods to our customers,” John Taylor, vice president-public affairs, told us. Dealers are “understandably” concerned, said Taylor, adding that LG is working with retailers to “manage expectations and keep them in the loop” about plans to address inventory shortages, “if any.” LG’s import team is working “around the clock” collecting intelligence, communicating with domestic and factory teams, and “identifying opportunities for creative solutions and coordinating inter-team activities to help make sure that inventory continues to flow on time,” he said.

Taylor estimated “there likely will be tens of millions of dollars” in lost sales opportunities for the CE industry in February due to shutdowns and slowdowns at 29 ports along the West Coast. But for competitive reasons, "I can’t size the impact on LG for you," he said.

Manufacturers have had time to develop workarounds, because the dispute dates back to June when the previous ILWU contract expired, Taylor said. “For months, we’ve been actively identifying alternative routes and working with our third-party logistics experts and steamship line to prioritize our containers,” said Taylor.

For Sharp, "This issue has been ongoing for quite some time and it has lengthened the time to bring in components,” said a spokeswoman. It's been “managing with minimal delays” in supplying accounts, she said. “We hope this issue is resolved soon, so as to not continue to disrupt importation.”

The financial fallout from the weekend won’t be felt immediately because of existing inventories, said NPD analyst Stephen Baker. “There’s probably a few weeks involved there,” he said, citing the typical course to a distribution centers, warehouses and stores. “It’s not an immediate impact,” he said, and there are alternatives if it comes to that. If necessary, “just about everything except televisions can be shipped by air,” said Baker.

Heavier products -- including TVs and appliances -- are the exception, said Baker. Smartphones have high value and fit into a small case cube for shipping and storage, he noted. “You just put them in a belly of a plane and they get to where they need to be pretty quick.” A 65-inch TV “is a different story,” he said. In the past, manufacturers were protected from those concerns when a lot of assembly was done in Mexico, “but I don’t know that there’s as much of that as there used to be,” said Baker. So far, effects of the operations slowdown related to the labor negotiations have been minimal. ”We don’t tend to see too much in fluctuation at the end of the supply line in terms of sales,” he said. That’s not the consensus everywhere, however, as retailers report feeling the pinch.

The “operations slowdown” at the West Coast ports “is weighing heavily on businesses throughout the country,” and CE companies are “no exception,” SVS President Gary Yacoubian said Thursday in a CEA blog post. “We’re now at the mercy of an unpredictable supply chain that’s disrupting imports and exports, customer relationships and, most importantly, sales!” said Yacoubian, who is on CEA's executive board.

SVS recently sold out its inventories of new speakers and subwoofers before the first shipments of both series even arrived, Yacoubian said. Normally, that would be “a cause for celebration,” he said. With second and third production runs delayed to market by the ports slowdown, “our customers and partners had to wait on what would have been record-setting product launches,” he said. “Now, they succeed in only fits and starts because of the supply constraints. Just recently, our top-selling product was out of stock for two weeks, as containers that arrived weeks ago waited to be unloaded from ships.”

Because of the ongoing ports issue, and the threat of a total shutdown, “it’s impossible for us to say with any real accuracy when products might be available,” Yacoubian said. “That’s a major problem for CE manufacturers and countless other sectors -- agriculture, apparel, automobile -- that help drive the U.S. economy.”

There are few reasonable “options” for a supply-chain workaround if the crisis at the West Coast ports isn't resolved soon, Yacoubian said. “Longer transit times with higher shipping costs to the East Coast or other, overcrowded ports introduce another layer of uncertainty as products may just sit on a ship accruing additional mandatory holding charges. There’s always air freight, but unless you have a high-margin product, it’s not always feasible due to the expense, and at the end of the supply chain, the consumer eventually pays for it.”

CEA launched a grassroots letter campaign Thursday warning that West Coast ports have “been temporarily shut down through Monday” and that the threat of a “full shutdown” looms “if West Coast labor negotiations collapse between dockworkers and port terminal operators” (see 1502120065). Actually, the ports were open Friday, though they were closed Thursday and were due to shut down again Saturday, Sunday and Monday, according to a Feb. 11 announcement from PMA.

On Friday, CEA President Gary Shapiro tried to turn up the heat on President Barack Obama, urging the president to visit the Oakland or San Francisco ports while he was in the Bay Area Friday for his cybersecurity summit at Stanford University in Palo Alto, California. By visiting those ports, Obama would "see for himself the immense backup of goods caused by the current labor slowdown," Shapiro said in a statement. "These are just two of the 29 West Coast ports now on the verge of a full-blown shutdown -- one that would hurt the U.S. economy, countless businesses and middle-class American workers. We need the president and Congress to do everything in their power to help conclude these negotiations and make sure the U.S. economy doesn’t suffer an estimated $2 billion a day in shutdown damage.”

Like CEA, Yacoubian urged CEA members to email Congress and the White House to “put pressure on the parties involved to complete the negotiations without further impacting the U.S. economy.” If negotiations break down, Obama should “invoke Taft-Hartley to get the parties back to the table and the ports operating again,” Yacoubian said. Such emergency measures have been invoked only twice since 1971, he said. “The last time, in 2002, it took almost two weeks to re-open ports. It would likely take more time now -- a disaster for our company and the economy as a whole.” SVS as a company “has grown phenomenally in an ever-changing market landscape,” he said. “It never occurred to me that supply chain issues that are completely beyond our control would be given the ability to impede an American success story. The time to act is now!”

CEA has quoted estimates that “an actual ports shutdown” would cost the U.S. economy $2 billion a day. Roughly those same estimates were contained in a report published jointly by the National Association of Manufacturers and the National Retail Federation in June, around the time the ILWU contract expired and labor slowdowns at the 29 West Coast ports began. It said the daily cost of a West Coast ports “disruption” would amount to $1.9 billion in lost GDP if that disruption lasted five days. However, the daily cost would rise to $2.1 billion over 10 days and $2.5 billion a day over 20 days, the report said. “A widespread interruption of this magnitude would negatively affect economic activity and jobs through three main channels: export loss, import delay and higher costs, and reduced purchasing power for consumers.”

If export shipments are delayed or disrupted for an extended period, "jobs at factories that manufacture such exports would be threatened, even if temporarily," the report said. "If imports are interrupted, supply chains across the economy might shut down due to the loss of critical inputs, or consumer goods might not make it to store shelves. In any case, the delay and logistics expenses for exports and imports would rise, harming the cost structure of U.S. industries. Moreover, consumers and purchasers of capital equipment would see similar cost increases for imported goods. Ultimately, businesses, consumers and governments would experience a loss of buying power because of lower incomes and higher prices."

The report suggested the impact of a West Coast ports shutdown on CE imports would be profound. Using a long-term interindustry forecasting tool (LIFT) analysis developed at the University of Maryland-College Park, the report estimated that between 2010 and 2013, in value terms, 41 percent of CE imports to the U.S. -- classified as TVs, VCRs, radios and phonographs -- flowed through the 29 West Coast ports that would be affected by a shutdown. Of the 50 or so trade commodities tracked under the LIFT analysis for imports to the U.S. between 2010 and 2013, only shoes and leather (61 percent), special industry machinery (46.4 percent) and apparel and household textiles (45.7 percent) had higher proportions of U.S. imports flow through the affected West Coast ports, the report said.