Dock backlog likely to hit Christmas sales

Despite his strategic location just one mile from the largest port in America, Hartmut Schroeder says he has had to lay off 22 workers because his assembly plant is jammed with too much finished product awaiting export.

"We only have so much space to work here." says Mr. Schroeder, CEO of Snugtop, a custom manufacturer of truck tops. "Until I can get the shipping containers to move this stuff out of here, I have to cut back assembly."

Several miles north, in the graffiti-strewn warehouse district in the shadow of LA skyscrapers, toy wholesaler Charlie Woo has the opposite problem – too much space. "I'm waiting for product to come in so my retailers can fill their orders for Halloween, Thanksgiving, and Christmas," says Mr. Woo. "Until my backlogged orders come in from the ships, I'm in trouble."

The contrasting fortunes of Woo and Schroeder reveal the exasperating fallout of the shipping shutdown that has stalled hundreds of commercial vessels up and down the US West Coast.

With no end in sight for the labor-management standoff in Pacific ports, President Bush made use of the rationale that a continued lockout by port managers could cripple the US economy. The administration won a federal court injunction Tuesday to reopen the ports and impose a pause in the costly dispute. He became the first US president in 25 years to make such a move under the Taft-Hartley Act.

The news was music to the ears of Woo, Schroeder, and thousands of US companies that depend on shipping for their products. The move may have come just in time to salvage at least some of the all-important Christmas and holiday selling/buying season, they say.

But the return to "normal" won't happen overnight, and major uncertainties lie ahead, including whether dockworkers will operate at full speed and whether the 80-day cooling-off period will help spur a settlement in the stalled wage talks.

At least four weeks of loading and unloading backlog still lie ahead, after which the movement of goods will still be crimped. The amount of available dock space, and the number of containers, ships, and personnel to process goods are all in question.

The result, for the short term of five weeks, will continue to be the stranding of both perishable foodstuffs as well as goods destined for those markets with very specific windows of salability.

"Retailers give us a shipping date and a cancel date, and if they don't get their goods in that time frame they have the right to cancel," says Ed Redding, executive vice president for importing for John Paul Richard, a women's apparelmaker that does more than $100 million in business per year. He says 120,000 clothing units are sitting on boats waiting to enter Los Angeles Harbor.

He has already been told by port authorities that maximum capacity is processing seven big container ships per day. The current backlog here is 120.

"The best way to put it is that we have pretty much written off any profit for this Christmas season," says Redding. "Even at regular capacity we have a lot of waiting to do, and even under this [Taft-Hartley] injunction, there is no guarantee work will proceed at 100 percent capacity."

Both Woo and Schroeder have sobering estimates of how much income their companies will lose in the crucial Christmas season: 10 to 20 percent.

"This has been a roller coaster ride for retailers, wholesalers, shippers of every product that Americans want just at the crucial buying season of the year," says Jack Kyser, president of the Los Angeles Economic Development Council. "The 80-day cooling off period should help clear the backlog, but it will be several weeks until things get back to normal. Until then, companies are still suffering."

Not everyone is feeling the squeeze. Some air cargo firms report a surge in demand for their services, though some have limited capacity.

"We only have 12 747s that are dedicated to cargo across the Pacific," says Northwest Airlines' Kurt Ebenhoch. "And we certainly would not be very smart businessmen if we had left a lot of room open for possible situations like this," he says.

Other firms are offering ways to circumvent shortages.

A Washington, D.C., Internet firm known as Liquidation.com is doing gangbusters business since the strike began, signing up 75 to 100 new customers a day, many searching anxiously for just those holiday products which are currently stranded on ships.

"Retailers all over America are coming to us because they are afraid of being caught short in this crucial selling season," says spokesman Bill Angrick.

Indeed, the argument of economic hardship was invoked by Justice Department officials in their petition to end the lockout.

The Bush administration is drawing the battle lines with the union in hopes of staving off any more stoppages. Analysts say administration officials admit concern over angering and galvanizing labor unions before Congressional elections which could shift party control.

But Bush may find broad public support. Many analysts say the episode has shed the spotlight on one of the more well-off segments of union workers. By most published estimates, ILWU workers average over $100,000 in annual income – not including benefits.

"It's hard for the public to have sympathy when it looks like featherbedding," says Joel Kotkin, an economist at Pepperdine University in Los Angeles.

Besides the vagaries of labor disputes, analysts say the strike spotlights decades of bad economic planning all up and down the US supply chain. "There are huge lessons for everyone in the American supply chain from this, namely the numbers of retailers across the land who have no contingency plans for much of their operations," says Sean Williams, an analyst with Optiant Inc.