Logistics

Not enough attention is being paid to the work slowdown/stoppage going on at West Coast ports.

The last time there was a disruption was in 2002, and it ended 10 days later only after a presidential order.

The contracts expired 1 July of this year, and the unions (ILWU and PMA, who represent about 20,000 workers) have initiated a slowdown as part of their negotiating strategy, despite an agreement to keep operations flowing normally.  The port of Tacoma, for example, reports 10-18 container moves per hour, versus the normal 25-35.

This past weekend, slowdowns were reported at Los Angeles/Long Beach, combined, the 9th largest container port in the world, and the ports of entry to about 20% of entire US imports. Surcharges are being added for shipments to the West Coast that are doubling the cost of shipping, and truckers are adding additional surcharges $50-$100/per hour.

Cargo passing through West Coast ports represent about 12% of US GDP, and a 5-day shutdown, should that occur, will reduce GDP by $2 billion per day. Spot rates on the East Coast have soared versus last year (see Chart below, courtesy Merrill Lynch). There are few alternatives: the East Coast is at capacity, Canada can’t handle the flow, Mexico is three times as expensive as US West Coast, and air is 5-6 times more expensive than shipping.

Not coincidentally, this is a key Christmas-time for every retailer, with the potential to cause major disruptions, not just in the broad economy but, more importantly, for all the good children on Santa’s list.