Ralph Lauren Corp. undertook some tricky logistical gymnastics to get its apparel on store shelves last quarter: The sportswear brand flew in more products from overseas, typically an expensive option. It funneled more shipments through East Coast ports and then had employees at a distribution center in Greensboro, N.C., speed up their work to handle the unusual glut of goods coming in.
The adjustments weren't cheap, but like so many other retail companies, Ralph Lauren was trying to work around an increasingly vexing problem: A slowdown at West Coast ports.
Los Angeles and Long Beach, Calif., are home to two of the nation's largest ports, but congestion there is escalating amid contentious labor negotiations between the dockworkers’ union and their employers. On Tuesday, the Marine Exchange of Southern California said some 34 ships are unable to dock, meaning goods that could potentially be on store shelves are instead idling in the Pacific Ocean.
The ripple effects for the retail industry could be expensive, experts say. Kurt Salmon, a retail consulting firm, projects that the slowdown will cost the industry $7 billion this year. Lululemon said it expected $10 million less in fourth-quarter revenue because of the port problems. Chico’s FAS, the company that owns women’s clothing stores Chico’s and White House Black Market, estimates its total sales in the most recent quarter were 1 percent lower. LeapFrog, the toy brand, said the situation delayed shipments of their tablets during the holiday season.
“It’s gotten worse over the last couple of weeks and the delays are now more volatile and unpredictable, which makes it harder for us to manage and plan our business,” said Charles Bergh, chief executive of Levi Strauss & Co., on a recent conference call with investors.
Frank Layo, a retail supply chain strategist at Kurt Salmon, said that it previously took an average of four days for a shipping container to be processed. Now, the average is up to 14 days, and Layo said that figure can sometimes stretch up to 35 days.
The National Retail Federation, the industry's largest trade association, has been urging Washington for months to use its muscle to help resolve the situation. Last weekend, the Obama administration announced that Labor Secretary Tom Perez would fly to California to meet with negotiators and try to break the gridlock. This latest move comes after the administration dispatched a federal mediator in January to help resolve their dispute.
The slowdown at the ports is taking shape in different ways for American businesses: Apparel stores are worried that merchandise may be out of season by the time it shows up. For example, it would be tough to sell a cozy wool sweater at full price if it doesn't hit stores until March. And if you had designed your floor and window displays or promotions around a certain product, you might be out of luck if it doesn't arrive in time.
All the changes that retailers are having to make to adapt to the port problems can also create challenges with inventory management, an unglamorous but essential part of the business.
"Even if you have enough inventory to support all the demand for several weeks, you very likely have it in the wrong place,” said Mike Dominy, chief of research on supply chains at Gartner.
Meanwhile, meat producers who export their goods overseas are running short on cold storage facilities because of the backup. The North American Meat Institute estimates the industry is losing $85 million a week in sales of meat, poultry, hides and skins.
As many retailers try to re-route their goods through East Coast ports or via air freight, those avenues, too, could become clogged and therefore more expensive to use.
Layo said he believes the port slowdown will prompt many in the retail industry to rethink their long-term strategies for getting their products to customers.
"The cost of overcoming this is way worse than the cost of building it in and developing a diversified strategy," Layo said.
Some retailers may consider "nearshoring," industry jargon for moving manufacturing operations to a country that is geographically close to your home turf. Others might try to re-engineer their supply chain so that it is diversified and doesn't rely too heavily on one particular channel of shipping.