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Importers Scramble To Protect Against West Coast Port Labor Strikes

Written by Ken Gaebler
Published: 7/18/2014

Retailers are preparing for the worst as truck drivers threaten to go on strike indefinitely and a potential work stoppage threatens the Ports of Los Angeles and Long Beach.

As contract negotiations between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) continue, retailers are preparing to make alternative logistics and shipping arrangements.

West Coast Port Strikes

The issues being discussed include the maintenance and repair of truck chassis (no longer provided by shipping lines), access to the docks by rival unions (particularly the International Association of Machinists and Aerospace Workers and the International Brotherhood of Electrical Workers), and aspects of the Affordable Care Act. ILWU members reportedly are refusing to pay the new law's "Cadillac tax" on the most generous health plans, which could amount to $150 million a year.

If the ILWU and the PMA don't come to an agreement soon, retailers will be deeply affected by the lack of workers to load and unload cargo from container ships, since the port complex handles roughly 40 percent of the goods imported to the U.S., according to Forbes.

The National Retail Federation (NRF) and Hackett Associates said a five-day stoppage would reduce U.S. GDP by $1.9 billion a day and disrupt 73,000 jobs. West Coast ports handle more than two-thirds of U.S. containerized cargo, which is valued at 12.5% percent of GDP, according to Jay Timmons, president and CEO of the National Association of Manufacturers.

"Any supply-chain disruption, whether it's a port shutdown or outright stoppage, would cripple international trade, stymie supply chains and hurt domestic employment and consumer spending," said Matthew Shay, NRF president and CEO.

But according to industry experts, as long as the strike or lockout doesn't last more than a few days, it will have minimal impact on store inventories. "There'll be enough goods in inventory supply chains to keep stores stocked with merchandise," economist Jack O'Connell told KPCC. "Wal-Mart is not going to run out of clothing. Home Depot is not going to run out of housing repair equipment."

Inland Ports Protect Against Coast Port Supply Chain Issues

One reason companies such as Wal-Mart and Home Depot will not run out of supplies may be that both companies have built massive distribution centers in the Midwest region. Retailers are starting to lean on distribution operations in the Midwest to minimize reliance on any one port. By shipping from a location in the middle of the country, flexibility increases within the supply chain. For example, in anticipation of West Coast work stoppages, shipments can be routed through East Coast ports and then shipped to Midwest distribution centers with minimal impact on transportation costs.

Leading this trend, Wal-Mart and Home Depot both have a large presence in the CenterPoint Intermodal Center, the nation's largest inland port and the third-busiest port in the U.S. This inland port, developed by CenterPoint Properties, is located 40 miles southwest of downtown Chicago in Will County. In addition to Wal-Mart and Home Depot, many other corporations attuned to creating the most efficient supply chain for their companies have located their facilities within this fast-growing inland port.

Brian McKiernan, senior vice president of CenterPoint, manages the site and said Will County is an ideal location due to its efficiency. The inland port is adjacent to the I-55/I-80 interchange and anchored by the BNSF Logistics Park-Chicago and Union Pacific-Joliet Intermodal Terminal, CIC - Joliet/Elwood. According to McKiernan, prior to the creation of the intermodal center, it took 70 to 100 hours for freight to travel from the West Coast to rail facilities on the western edge of Chicago and another 70 to 100 hours to travel to the eastern edge of Chicago. CenterPoint's location, just outside of Chicago, allows intermodal shipments to bypass Chicago's congestion.

Retailers Hope for the Best, Prepare for the Worst

With the peak holiday season approaching quickly, many retailers are taking precautionary measures to ensure they aren't left with empty shelves in the coming months, which could be the case if the strike lasts three or more weeks.

"We're still hoping to get through this without any significant disruptions, but retailers aren't taking any chances," said Jonathan Gold, NRF's vice president for supply chain and customs policy. "Retailers have been bringing merchandise in early for months now and will do what it takes to make sure shelves are stocked for their customers regardless of what happens during the negotiations."

For small retailers, it's important to take steps now to prepare for the possibility of a long-term strike. Whether it's shipping sooner to avoid peak season, finding new forms of shipment or looking into another port for distribution, the primary concern is to find ways to streamline the shipping process and insulate the business from supply chain disruptions.

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