Problems at US West Coast ports costing retailers 7 billion dollars

Contract negotiations between West Coast dockworkers and port terminal operators are being followed quite closely by retailers of all sorts, as months of dealing, delays and other issues might cost retailers up to seven billion dollars.

According to a Kurt Salmon analysis, congestion at West Coast ports could cost retailers as much as seven billion this year, reported the CNBC. That congestion cost comes from a combination of the higher price of carrying goods and missed sales due to below optimal inventory levels, further explains this piece of research.

It is noteworthy that West Coast ports see all the imports and exports to and from Asia come in and out of the US, stress ‘Forbes’. This traffic of goods accounts up to 40 percent of US trade.

Negotiations between the International Longshore & Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) have been going on for over nine months, having 57 percent of supply chain executives polled by ‘Forbes’ planning to re-shore at least some of their manufacturing, most of them via Mexico.

Frank Layo, a retail supply chain specialist with Kurt Salmon, said a number of retailers have begun to shift shipments to East Coast ports, or are buying extra inventory in advance to mitigate inventory disruption, though those measures are only temporary.

Ralph Lauren and Michael Kors address growing costs of ports issues

Ralph Lauren and Michael Kors executives have been amongst the first in speaking up and addressing the issue. "The port congestion on the West Coast continues to pose a risk to incoming shipments," said Michael Kors CEO John Idol on the company's third-quarter conference call.

He added that “While we have not seen a material financial impact thus far, we have experienced an increase in delays, which are resulting in additional airfreight cost and other transportation fees. While we have factored these increased expenses into our fourth-quarter guidance, there is some risk of additional delays that could result in lower revenues and higher cost than what we have anticipated."

Likewise, Ralph Lauren CFO Christopher Peterson detailed how the retailer has so far dealt with the West Coast port congestion. "We did have to airfreight more product during the quarter. We also wound up routing a lot of product via water routing, so we shifted around the U.S. and received it in the East Coast ports," Peterson said.

On a more positive note, FBR Capital Markets retail analyst Susan Anderson said not all retailers have the same exposure to the West Coast ports. In a note to investors, Anderson said "we believe L Brands, Children's Place and Hanesbrand are best-positioned to weather current port congestion, as these companies either rely on airfreight (such as LB) or have advanced planning and logistical capabilities (such as PLCE and HBI)."

On the other hand, she said, "We believe that companies with prior optimistic views of congestion improvement, such as Ascena and Ann Inc. are potentially at a higher risk of additional negative exposure to supply chain disruptions, either though delayed shipments (an impact to sales) or higher-cost airfreight."

When considering which retailers might fare better than others at least in the short run, Layo said, as publishes ‘Apparel Magazine’. “Near-term winners may be fast-fashion retailers who have built the cost of airfreight into their margin structure. Over time though, expect them to face increased air rates as others need emergency capacity," he concluded.

 

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