Cargo backlog could take one to two months to clear out.
Up until the last minute before Friday’s labor settlement at West Coast ports, shippers were publicly decrying being pawns in an economic struggle between dockworkers and management. Many face continued hardship because the cargo backlog is so severe that it will take weeks, and in some cases months, for ports and inland transport providers to work it off, experts say.
With a tentative agreement in place, the International Longshore and Warehouse Union is expected to call off the work slowdown that heavily contributed to containers piling up in storage yards and forced dozens of vessels to wait at sea for a berth, but uncertainty remains about whether there will be full labor cooperation because it will take at least a month before the ILWU membership has an opportunity to ratify the agreement.
No details about the voting timetable have been released yet.
The congestion has caused importers and exporters billions of dollars in extra transportation expenses for rerouting shipments, using more expensive modes, and storage, as well as lost revenue associated with factory slowdowns, cancelled orders and lost sales. Those costs could continue to mount until terminals and longshoremen get back to full speed and clear the cargo for delivery to warehouses across the nation.
It could take six-to-eight weeks for the Port of Oakland and other West Coast ports to recover from the cargo backlog, the Oakland port authority said in a notice posted on its website on Saturday.
The Port of Long Beach, which is at more than 90 percent capacity, will need four to six weeks to dig out and get operations back to normal, Chief Executive Officer Jon Slangerup said late last month in a podcast interview with Michael Regan, founder of TranzAct Technologies, a freight audit and payment service provider. That projection has likely increased due to worsening of conditions since then.
“We have hundreds of thousands of containers stacked up on top of each other, five high, occupying hundreds of acres of land where typically we are just moving that stuff through. And we have those acres to maneuver the containers, bring the truckers onto the terminal grounds and move them out very quickly,” he said.
A critical part of the relief operation will be rail transport, but a BNSF Railway official recently said it would take several weeks to retrieve additional locomotives stored across its western network and re-position them at the ports.
Meat industry officials say it could take three to four months to get supply chains for frozen products working normally.
Expect spot rates for truck transportation to temporarily skyrocket, Larry Gross, a senior consultant with FTR Associates, warned in the freight forecasting firm’s recent newsletter.
On the positive side, factories are closed now for a week or two in China because of Chinese New Year. That means the flow of inbound cargo will temporarily subside and give terminals time to concentrate on processing the containers that have already arrived.
Small businesses, lacking the resources to utilize alternative routes and avoid West Coast ports, have been especially hard hit by the port disruption and several voiced their frustration Friday during San Francisco radio station KQED’s morning talk show “Forum.”
“I’m trying to be calm about this, but the two guys at the head of the table that are quibbling over [things], I don’t know how they sleep at night realizing that they are putting people out of business right and left and causing so much pain across the country. It’s just mindboggling,” one caller said before the labor deal was reached, referring to ILWU President Robert McEllrath and Pacific Maritime Association President James McKenna.
The Burlingame, Calif.-based owner said she does about 60 percent to 70 percent of her annual sales in the spring, but has been told to expect the shipment between mid-March and sometime in April. The cargo was shipped in December and normally takes 17 days by ocean.
Other apparel importers said they too are holding their breath.
One woman said a container with her entire spring collection of children’s clothing has been sitting on a vessel since mid-January and can’t be delivered until the middle of March. The wholesale value of the container’s contents is $800,000, which equates to about $3 million in retail sales.
“It’s very frustrating. I really don’t understand why they can’t make an agreement and move forward because they really are hurting small businesses. We sell mainly to mom-and-pop stores and none of the 3,000 independent stores have our merchandise. It means they can’t pay the bills, their employees. It’s just tough,” the caller said.
The head of a small apparel distributor said he can’t get spring products. “It makes it very scary because as time goes on customers don’t want their goods anymore because it’s too late and then they cancel the order and we get stuck with the merchandise.”
Larger buyers and retailers are also being negatively impacted by the port gridlock. Perry Ellis, for example, said last week that the situation reduced its fourth quarter revenue by $23 million
“When you’re talking about a wholesaler that sells to department stores, once those goods miss the shipping window the department stores are already feeling weakness, so they just cancel the goods,” Liz Dunn, founder and CEO of Talmage Advisors, said on CNBC. “So that sort of company has to eat the profits.”
Telebrands, a marketer of infomercial products seen on TV, has more than 200 containers with millions of dollars of inventory stuck in ports or offshore and is losing $400,000 per day in sales, A.J. Khubani, the company’s president and CEO, said during an appearance on the cable news network last week.
Telebrands sells about 80 products, including as the Ped Egg Power (a callous remover), the Pocket Hose and the Hurricane Spin Mop. It lost $5 million in sales during the Christmas season “that we’ll never make up,” he said.
The Pocket Hose is a seasonal product that needs to be on store shelves next month.
Air freight is not an option because the products are low in value.
“The cost by sea is 10 cents a unit. The cost by airfreight is $2. Now this is a product that retails for $15. So you can see it’s a huge percentage of the selling price,” Khubani said. All-water transport via the Panama Canal costs about $3,000 more per container than shipping through the West Coast because higher demand has pushed up rates, he added.
Dunn predicted that retailers will offer sales discounts to move merchandise in a shorter window of time once it is received.
