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What Peak Season Port Disruptions Really Mean for Holiday

Instead of the standard two-day Thanksgiving break, the International Longshore and Warehouse Union (ILWU) has decided to take 12 days off from contract negotiations with the Pacific Maritime Association (PMA), all the while maintaining slowdowns in the face of peak season shipping.

For the last three weeks, the ILWU has orchestrated slowdowns at the Seattle, Tacoma, Oakland, Long Beach and Los Angeles ports, and now that they won’t be talking over the extended Thanksgiving, slowdowns are showing no signs of stopping. According to a PMA statement, productivity in some ports remains at least 30 percent below normal.

But in the frenzy that is holiday shipping and shopping, the real question is how exactly these port problems will impact the sacrosanct season.

Frank Layo, partner at Kurt Salmon global management consulting firm, polled some of the retailers, brands and importers the company works with to uncover what this West Coast mess is doing for holiday. Layo found that some of those polled sent goods to the East Coast, or to Portland, and some shipped product early, which helped them save the holiday season.

Ann Inc., however, parent company for the Ann Taylor and LOFT brands, said in its third quarter report Friday that its under par performance was owed in part to “the impact of labor uncertainty at the West Coast ports, which resulted in product shipment delays in the first half of the quarter and higher air freight expense later in the period.” The company reported a 1.6% decline in net sales to $646.8 million, and comparable sales for the quarter were down 4.3% compared to a 3.7% increase in the prior year period.

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Some brands began diverting any goods that weren’t loaded at a port of entry from the beginning of October to East Coast ports to avoid any potential setbacks, but because shipping through the east can cost more and take longer, airfreight at times became a necessary option. “It’s going to be interesting to see how retailers deal with that from an increase in air freight spent,” Layo said.

Transparency along the supply chain has proved another problem. Brands that don’t have good visibility at all points of their supply chain, can’t really tell how things are going with goods until it’s likely too late to make adjustments. For example, Layo said, “If I am a retailer and I know the ship left Bangladesh on time, then I think I am OK. It may be in LA at a port of anchor, but I don’t know. There may be things stranded on ships right now and retailers are thinking they’re OK but they are really not.”

Since most holiday product has already shipped though, the real problem, Layo said, will be replenishment.

“Black Friday and Cyber Monday shouldn’t be affected—what is at risk is the replenishment, so filling back in after those sales is what will be a problem,” Layo said. “Seeing how people are able to fill back in after the Black Friday sales is going to be pretty telling. Just seeing how full or empty the shelves are is going to be interesting.”

The National Retail Federation (NRF) and fed up retailers sent a letter to President Obama early this month expressing concern for the ongoing interruptions and imploring the president to “ensure the situation does not escalate to a complete shutdown of West Coast ports.”

The ILWU and PMA have been negotiating since May over a new coast-wide labor contract that covers up to 20,000 workers at 29 ports. The projected impact of a shutdown at the ports—which some are concerned could happen if negotiations don’t soon come to a head—increases as the duration of the interruption increases. A 5-day stoppage could cost the national economy $3.4 billion, or roughly $688 million per day. A 20-day shutdown would cost the U.S. an estimated $2 billion per day.

On hearing the news of the ILWU’s 12-day break, the NRF said last week that it is disappointed in the decision and that little progress has been made over the six months of negotiations. The organization reiterated its call on the president to act to end the port issues.

Layo said, “The fact that retailers are pushing those organizations to lobby makes me worry more about the long-term effects.”