Two sporting goods companies warned their U.S. Senators last week they may have to cut back hours or lay off employees if management and labor can't find a way to speed up shipments through West Coast ports.
In a letter to Sen. Maria Cantwell (D-WA), Cascade Designs Inc. Vice Chairman David Burroughs said the Seattle company is in danger of losing millions of dollars in sales due to congestion at 29 West Coast ports. About $10 million in mostly Asian bound export sales have either been permanently lost or are at significant risk of cancellation.
“Our largest distributor in Japan has had to cancel virtually all of its orders of our snowshoe products as a result of delivery delays, thereby missing the winter retail season,” wrote Burroughs, who is Cascade Designs vice chairman. “Perhaps more important is the damage to our reputation resulting from our failure to deliver product on time. Our retail partners in Japan, Korea and China, for example, lose sales when our time sensitive, seasonal products don’t arrive as promised. This leads to a loss of confidence in American supplied products. Once shelf space is lost to foreign competitors it can be lost forever or take years to regain.”
Cascade Designs has tried to minimize direct job losses in Seattle by cutting back work hours but is running out of options, Burroughs wrote.
Cantwell, who Outdoor Industry Association counts as one of its strongest advocates in Congress, serves on the Surface Transportation and Merchant Marine Infrastructure, Safety and Security Subcommittee, which held a hearing Feb. 10 dubbed “Keeping Goods Moving.”
During the hearing, fellow subcommittee member Sen. Steve Daines (R-MT) read an excerpt from an email he received from the president of an outdoor company who warned “we will have no choice but to reduce our current hiring plans and lay off some of current staff” if the port situation does not improve soon.” While Daines did not identify the executive, OIA said it came from Bozeman-based Simms Fishing Products, which exports its fly fishing gear worldwide.
A day after the hearing, the Pacific Maritime Association (PMA) announced its members would cease vessel loading and unloading Thursday through Monday to avoid paying overtime wages to union workers over the President's Day holiday weekend. The action marked the second time in less than a week that employers idled vessels to avoid paying the $54-to-$92 per hour wages dockworkers, clerks and foreman command for working weekend and holiday shifts under the International Longshore and Warehouse Union (ILWU) collective bargaining agreement with PMA.
In both instances, PMA members continued yard operations in a bid to distribute containers already in their terminals to U.S. importers. In Southern California, which handles as much as 40 percent of U.S. container imports, terminal operators will expand daytime vessel operations on non-holiday weekdays in a bid to catch up.
As supply chain backs up, options dwindle
Meanwhile, the entire supply chain continues to back up. Dozens of container ships were anchored off the coast of Southern California Friday waiting for berths at the ports of Los Angeles and Long Beach.
“I can't quite see them out of my window but there's a lot of boats out there,” said Skechers USA Inc. COO and CFO David Weinberg, who works from an office in Manhattan Beach, CA.
Like many larger companies Skechers has been importing products earlier than normal in anticipation that contract talks could collapse and lead to a complete shutdown of ports, which last occurred in 2002.
He said options are shrinking, however.
“Seattle is as backed up as we are and the boats are well up to San Francisco,” he said during SKX earnings call last week. “And the last time we tried that, it took longer because of the increased impact on places like Seattle and Vancouver and even south as you went into Mexico, because there aren't enough chassis.”
Cascade Designs has incurred hundreds of thousands of dollars in additional air and other freight expediting costs in bid to mitigate the damage, according to Burroughs' letter to Cantwell.
The situation favors larger companies, according to Jim Lillie, CEO at Jarden Corporation, which owns Coleman, K2, Rawlings and two dozen other fishing, outdoor and athletic brands.
“A benefit is our scale and our influence with those container ship companies and the truckers and the rail yards, etc. And so I would much rather be someone who has a diversified scale than a smaller company with one or two different product lines because I think we will be able to handle it.
VF Corp. Chairman, President and CEO Eric Wiseman said the company has dispatched trucks to West Coast ports to retrieve containers stranded in the ports, but has not yet incurred any material expenses due to the congestion.
“If our orders are late getting to customers, our customers don't have to take them,” he said Friday, during the company's fourth quarter earnings call. “So we bear the risk but I would tell you we have had that risk now for eight months and we have managed it really, really well.”
Negotiations also halted
Contract negotiations – now in their ninth month – have continued to deteriorate even though federal mediators joined the talks last month at the invitation of both sides. PMA declined to meet with ILWU negotiators last week after they rejected its latest offer, which included a 14 percent increase in wages over five years, fully-paid health insurance, increases in pension benefits and other concessions.
“The ILWU responded with demands they knew we could not meet, and continued slowdowns that will soon bring West Coast ports to gridlock,” said PMA spokesman Wade Gates. “What they’re doing amounts to a strike with pay, and we will reduce the extent to which we pay premium rates for such a strike.”
ILWU responded by publishing aerial photos showing the PMA's claims of congested terminals are greatly overblown. The union has long argued that congestion at Southern California ports has more to do with a failure to expand ports to handle larger and larger container ships, massive increases in trade and poor decisions by PMA's member companies.
“Don't listen the PMA bullshit,” said ILWU President Bob McEllrath in a video addressed to union members on the PMA website. “This is an effort by the employers to put economic pressure on our members and to gain leverage in contract talks. The Union is standing by ready to negotiate, as we have been for the past several days.”
The last time the parties failed to reach an agreement, which was in 2002, PMA locked out ILWU workers and effectively shut down the ports. Ten days later, President George Bush invoked emergency powers to reopen the ports and force the parties to resume negotiations alongside federal mediators. Economists estimated the lock out cost the economy $10 billion.
The cost could be much higher given the growth of trade since then.
“There's not enough port space in the rest of the United States to cover what's going to happen here,” said Skechers' Weinberg.
VFC's Wiseman added: “If it does go to a full on strike and shut down, it will be material to everybody.”
Editor's Note: While Cantwell has pushed railroads to improve their service to Washington ports years on behalf of industrial and agricultural interests, the Democratic Party's close ties to organized labor make it unlikely she will weigh in on the PMA-ILWU dispute any time soon. Seattle's outdoor industry can expect even less support from the Seattle City Council, which voted unanimously last summer to phase in a $15 minimum wage that is causing Cascade Designs to move 100 jobs to Nevada. (See related story.) In a Feb. 12 letter to PMA President and CEO James McKenna, three Seattle City Council members blamed worsening port congestion on PMA tactics. “To increase the profits of a few multinational corporations, you have cost the US economy up to $2 billion a day and made longshore workers lose wages. The PMA has blamed the International Longshore and Warehouse Union (ILWU) for the shipping backlog. If you are concerned about these delays, however, why impose these lockouts, and why were crane crews cut last month?”
