The first quarter numbers are in, and many retailers treaded water during the period despite a wave of economic optimism heading into the year.
It’s always convenient to chalk up weak sales to lousy weather, and this past winter provided plenty of inclement excuses. The disappointing Q1 reports reveal another common thread— sales lost at sea, so to speak, because of the West Coast port slowdown.
With a new port labor agreement in place and the backlog clearing, second-half retail sales projections generally anticipate back-to-normal throughput at the cargo ship entry points in Long Beach and Los Angeles. So it’s full steam ahead for back-half shipments.
Not so fast, perhaps.
Just when everyone thought is was safe to go back in the water, a report surfaces that a coalition of container carriers under the Transpacific Stabilization Agreement (TSA), which routinely sets shipping rates from Asia to the West Coast, wants to hike rates by as much as $1,600 for each 40-foot container. TSA bases the proposed hikes— including a separate $600 general rate increase effective June 1 and July 1 and a $400 peak season surcharge— on the likelihood of surging shipments and service costs. It still takes plenty of nerve for TSA to suggest rate hikes so soon after the recent port debacle.
This proposed rate increase on goods bound for the big West Coast ports likely wouldn’t stick in an over-capacity cargo ship industry scrambling to fill boats. Even so, it is another reminder of the volatility surrounding congested, undermanned West Coast ports so critical to supplying U.S. retail shelves.
This could be a pivotal moment for retailers and vendors to optimize supply chain diversification.
Major East and Gulf Coast ports might lack the infrastructure now to handle the largest container ships, but they are priming for a bigger share of inbound cargo, especially with the Panama Canal expansion promising capabilities to double ship traffic from western to eastern waters by 2016.
Some wonder if retailers stung by the West Coast port slowdown might throttle back a bit on direct imports, shifting even more responsibility to vendors to fulfill orders on time and complete from domestic warehousing. The call for U.S.-made goods also should be further amplified in the aftermath of the port impasse.
West Coast ports, with support from the adjoining distribution infrastructure, are too anchored to relinquish their command over imports from Asia. But just as rising manufacturing costs in China in recent years spurred the exploration of alternative, low-cost production locales, retailers and vendors would be wise to act now to explore options available to ease their reliance on West Coast ports that suddenly seems less reliable.