Retailers expect stronger sales, but ongoing contract talks between the West Coast International Longshoremen Workers Union (ILWU) and the Pacific Maritime Association (PMA) are a concern.
Retailers that have frustrated shoppers with skimpy and out of stock shelves in the last few years owing to Asian and US West Coast port congestion, container and labor shortages are again facing another supply chain disruption if ocean carriers and longshoremen failure to agree on a new contract.
The International Longshoremen Workers (ILWU) West Coast locals have been working without a contract with the Pacific Maritime Association (PMA) and its members for months and tensions are running high, observers say.
However, the two sides are making some progress, Jon Gold, vice president of Supply Chain and Customs Policy for the National Retail Federation (NRF), a large Washington DC trade association, told the American Journal of Transportation.
“We had written to both parties last year to get together early knowing their long history and the length of time it takes to get a contract in place,” he said. “There are tough issues that need to be worked out, so they need to stay at the table with neither side engaged in any disruptive activity and a willingness to bring in outside help if needed. We applaud the fact that we haven’t seen any disruption to date.”
Gold said he “believes the (Biden) administration will step in” if necessary. During the last negotiation in 2014, he noted, the secretaries of labor and commerce were “heavily engaged” in settlement talks, along with a federal mediator. Citing President Biden’s personal involvement in heading off a crippling railroad strike recently; the NRF official said the “administration is going to do everything possible to make sure we don’t have another manmade disruption impacting the economy and the supply chain.”
Inventory Cleaned Up and Stronger Sales Expected
Meanwhile, Gold claims retailers and manufacturers are working to “diversify” their sourcing options to be much less dependent on China which continues to be roiled by COVID outbreaks and lockdowns. “The goal is to get more resiliency in the supply chain and avoid additional disruption.” However, it is not across the board and varies from retailer to retailer and product to product. At the same time, he contends “most of the transportation related problems currently worked their way out of the system.” Price reductions over the recent holiday period have helped clean up inventories and made way for newly sourced merchandise that doesn’t necessarily rely on China, according to Gold.
As this is written, the NRF official was expecting strong sales for 2023 Valentine’s Day and Super Bowl. But sales volume predictions are still questionable. While retail sales grew month after month for the past 30 months, 2022 growth fell short of its 6 percent to 8 percent forecast turning in a 5.3 percent annual gain last year over 2021. Retail sales projections for 2023 will not be available until March, Gold said, adding that first half container volumes will “continue to drop compared with what we saw in the first half of 2022.”
In January, the NRF and Hackett Associates, an international maritime consultancy, jointly announced the nation’s major container ports have fallen below the 2 million TEU mark monthly this year and should remain there most of the spring, but Gold sees a “pick-up” in the summer.
Nevertheless, Gold does not see a continuance of some high value retail cargoes shifting from ocean to air freight which earlier was spurred by a shortage of maritime capacity, with freight rates between air and sea “became almost comparable. Folks are shifting back to ocean as capacity opens up. We still have very high value and last minute (retail) shipments moving by air and that won’t change.”
The shortage of truck drivers isn’t so easily solved for retailers who haul large payloads. “It’s a continuing concern,” Gold emphasized. “The American trucking associations have talked for years about driver shortages, and it got worse through the pandemic. We certainly support efforts within Congress to get more and younger drivers into the workforce which is incredibly important to our industry.”
A major problem is a “drying up” of warehouse space that impacted retailers and shippers in 2022 when there were ongoing surplus inventories. However, Gold claims he’s “starting to see space open up once again, as you’re starting to see more consumer purchasing which began last year.” Plus, he added, as buyers continue their shift to e-commerce shopping, you’re going to need more warehousing and storage space.”
Lockout or Not?
Marine logistics economist Jock O’Connell of Sacramento, CA, is concerned that a longshoreman’s lockout could be around the corner. “I just saw posted on Twitter what was purported to be an advisory letter regarding that terminal operators are cutting back on workforce requests,” he said. “And they were trying to portray it as being a partial lockdown or lockout.”
While he hasn’t “verified it as a true document, it does suggest that the ILWU is getting a little weary not having a contract for their work,” O’Connell added. He further said it’s being used to imply that shipping is now “particularly sluggish” and there’s not the need for a flow of labor for the work gangs to handle each shift.
Looking ahead this year, O’Connell agrees with Gold and other maritime analysts who foresee fewer containers than the past few years, but he does not necessarily see a recession. Instead, he said, “A lot of retailers had to boost their inventories because they were engaging in marketing strategies that promised next day delivery. That required these retailers to carry more inventory, have more warehouses, distribution facilities and fulfillment centers next to every significantly sized town or city” in the U.S.
Moreover, the online retailers promising free returns—after pledging free next day or same day delivery—were forced to carry an “enormous amount of redundant inventory” to satisfy the ‘I’ve got to have it now’ on-line customers, O’Connell maintains. In many cases, the surge in pent-up, -pandemic buyers sitting at home, consuming household, and other goods, worked through those inventories. Restocking in the post pandemic era will require less containers through the first half of 2023, he said.
O’Connell agrees with Gold that shippers and forwarders who used air freight for high value, lighter goods and finished products to bypass port delays a year and a half ago are “probably going to shift back to maritime. You use air primarily as an emergency (mode) for high-value to weight cargoes or where there is a deadline for delivery.”
Almost half – 48% to 50% – of California export trade, however, moves by air because the state manufactures so much technology-based products, estimated O’Connell. “You want to get the goods as soon as possible. The question is how much do I want to tie up the inventory in a long term transit? The answer is ‘you don’t.’ You want to get technology goods in the hands of a manufacturer or retailer” almost immediately.