Automotive importers and exporters that rely on West Coast maritime facilities could experience continued shipping delays going into the summer months in the wake of a slowdown by dockworkers at 29 American seaports.
A tentative settlement of the labor dispute has been reached between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA), yet cargo backlogs are expected to present continued logistical challenges as the ports set sail to catch up.
In late February there were 36 vessels sitting idle at anchor in the Los Angeles/Long Beach harbor – a figure that is four times the usual waiting-time rate. The impacted docks stretching from California to Washington handle 40 percent of all international imports arriving in the U.S.
“It is important to note that the slowdown at West Coast ports in the U.S. affects both imports and exports,” said Steve Handschuh, president and CEO of the Motor & Equipment Manufacturers Association (MEMA).
He points out that the members of MEMA and its divisions – the Automotive Aftermarket Suppliers Association (AASA), the Heavy Duty Manufacturers Association (HDMA), the Motor & Equipment Remanufacturers Association (MERA) and the Original Equipment Suppliers Association (OESA) – have long maintained global manufacturing footprints that depend on reliable and timely cargo flows.
Industry suppliers export $62 billion in automotive parts to Pacific countries, including South America and Asia, and import $74 billion in components from the region. Automakers export 2 million vehicles a year from the U.S. at an additional value of more than $51 billion, according to Handschuh, who in an interview on CNBC called for a swift negotiated settlement as the slowdown persisted.
“It’s playing Russian roulette with the U.S. economy,” he warned the international television network’s viewers. “It’s already costing our industry billions of dollars. Trucks are waiting for days to pick up one container.”
Several industry organizations were actively mobilizing letter-writing campaigns among their memberships to insist that the federal government put pressure on the ILWU and PMA to reach an accord.
“It’s time for the parties to come together and obtain a resolution of this matter so our distributors are not stressed by the availability of parts,” said Rodney Pierini, president and CEO of the California Automotive Wholesalers’ Association (CAWA), which represents aftermarket manufacturers, jobbers, warehouse distributors and retailers in California, Nevada and Arizona.
Stranded shipments
Vendors and customers alike have been upended by the impact. “There are relationships that are being stressed by the slowdown. They’re concerned about the availability of parts coming in from other parts of the world and shipping parts to other parts of the world,” said Pierini, adding that “they’re looking at alternative ways to get products in, but it’s expensive.”
“Ocean carriers are currently unable to provide firm commitments on delivery,” said Handschuh prior to the preliminary settlement. “Most of the members of MEMA’s divisions report resorting to air freight, which is prohibitively expensive.”
Official approval of the pact was still pending among the parties as Aftermarket Business World went to press. “MEMA continues to monitor this situation and urges quick ratification of the final agreement,” Handschuh said, adding that it could be as late as August until the pace of the ports becomes ship-shape.
Union ratification involves the contract details being voted on by a membership caucus, followed by a secret-ballot election at the individual locals. The process is expected to be completed sometime in April.
During the height of the slowdown shipping cost overruns of up to 10 percent were hitting businesses that usually route through the LA/Long Beach wharves as aircraft were utilized or detours arranged through Vancouver, B.C., Canada.
“For one of MEMA divisions’ members this equates to an additional $200,000 per month. For another, this has already cost them millions of dollars,” Handschuh said.
“One company reports that they have shipments stranded on seven vessels that cannot unload at the port, straining inventory reserves. Another company reports that their in-transit inventory has more than doubled to more than $20 million since November and now represents nearly 20 percent of their total,” he noted.
“Consumers are not feeling an immediate impact because suppliers have been preparing contingencies for close to 12 months in anticipation of the July 1, 2014 contract expiration,” said Handschuh. “Companies that kept two or three weeks of inventory in transit are now carrying four, five or six weeks of inventory.
Feeling the squeeze
The long lead-in as the dockside dispute loomed allowed logistical providers time to contemplate other transportation avenues, according to UPS spokesman Matthew O’Connor.
“We’ve been working on this for a quite a while and helping customers with alternative plans,” he said. “There are a couple of different tactics being used, and Air would be one of them. We’re helping our customers to keep their parts moving.”
Planes, trains, trucks and ships are all components of a multimodal approach being implemented within the industry. “We sit down with each company in the aftermarket, and then you figure out the solutions,” said O’Connor. The various factors to consider regarding a given load include the desired timing for initiating the shipment and its destination, time-in-transit and arrival goals, port selection, and cost concerns.
“The biggest challenge is for the companies that already put products on a ship – they’re stuck,” he said as the slowdown remained in play. “If their shipment hasn’t left they can make other arrangements” to work around a problem at a particular seaport and remedy any backlogs.
“Several months will be required to recover from the damage caused by this situation,” said Handschuh. “The slowdown has already caused millions of dollars in added costs due to expedited and freight alternatives, and has reduced U.S. exports – which will have a direct effect on the U.S. economy. The ability to import and export product is essential to a global economy and therefore to motor vehicle suppliers.”
Local economies have also been feeling the squeeze: The Bellefontaine Examiner in Logan County, Ohio was providing detailed coverage of production reductions due to critical assembly line shortages at six Honda factories in Ohio, Indiana and Canada. “While around 80 percent of parts come from 700 North American suppliers, Honda does rely on imports for critical electronics and some transmission parts,” the newspaper reported, advising concerned readers to “check the automaker’s internal communication systems for the status of their plants or departments.”
The tentative five-year contract settlement comes as welcome news; the deal was reached after President Barack Obama dispatched U.S. Secretary of Labor Tom Perez and Scot Beckenbaugh of the Federal Mediation and Conciliation Service. Details of the pact were not disclosed.
“This is now in the rear-view mirror,” Perez observed upon conclusion of the negotiations.
“After more than nine months of negotiations, we are pleased to have reached an agreement that is good for workers and for the industry,” said PMA President James McKenna and ILWU President Bob McEllrath in a joint statement. “We are also pleased that our ports can now resume full operations.”
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