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From Home Furnishing Business

Snap! - It Broke

When the International Longshore and Warehouse Union and the Pacific Maritime Association reached a tentative labor agreement covering 29 West Coast ports last month, everyone affected breathed a collective sigh of relief.

Unfortunately, that breath was shallow and short-lived.

 

It Ain’t Over

The reality is, along with getting all that cargo where it needs to go, other critical short- and long-term operations and logistics problems must be addressed for the future.

The agreement enabled the ports to avoid a complete shutdown, which could have cost the U.S. economy as much as $2 billion a day. However, the contract hasn’t yet been ratified. Any number of issues could surface or reappear before the vote this month, causing many of the employers or the 20,000 union members to reject the contract.

A Forbes article in February casts a dim light on the process reporting that if the agreement is approved, the two sides have damaged their working relationship. That damage could create future issues for shippers throwing the supply chain—including the furniture vendors—into another chaotic state.

The article called for a major change in the way the industry approaches its contract negotiations.

Workers at the Port of Oakland (California) seem to be the most unhappy with the agreement, and almost before the ink was dry caused a shutdown. The Pacific Maritime Association released a terse statement: “…ILWU Local 10 has repeatedly engaged in illegal work stoppages at the Port of Oakland, bringing operations to a standstill at Oakland International Container Terminal. ILWU Local 10 has repeatedly refused to allow yard crane operators to work as directed…and has also refused to allow longshore utility workers to lock and unlock connecting devices between chassis and containers. These repeated work stoppages by Local 10—which run counter to the tentative agreement reached after more than nine months of negotiations—are the sort of counterproductive activity that has become commonplace in Oakland over the years. Local 10’s current actions are damaging to the PMA member companies, to the shippers whose containers are idled, and to the reputation and future of the Port of Oakland.”

The strife at the port continued at press time with a significant amount of cargo remaining on ships waiting to be unloaded. Unions and management cannot continue to hold the economy hostage during contract negotiations. Something must change in the way discussions are handled.

 

It’s Somewhere in Long Beach

Workers elsewhere began digging out from under the massive pileup of cargo that accumulated during the nine months of contract negotiations. Estimates vary on the length of time it will take to get operations back to normal, but the average is three months.

Don Essenberg, president of case goods supplier Legacy Classic, said the company was “impacted, but not devastated” by the West Coast port slowdown.

“We’ve got containers on the West Coast waiting to be unloaded,” he said last month. “Product is being held up. Most of our customers are east of the Mississippi, and we bring those things through the Panama Canal.”

When ports are operating on schedule without labor disputes, Legacy can get product from its Asian facilities into its warehouse in six weeks, and sometimes quicker. Now, with the logjam in the West Coast ports, Essenberg said it could be several months before containers that were there when the slowdown started make it to their destination.

“We ship 90 percent of our sales line to North America from three factories in China,” said Dwight Hardison, vice president of marketing for upholstery supplier Simon Li Furniture. “Naturally, it affected our container-direct customers who deal with their own freight forwarders and ocean carriers. They were all having trouble getting products through the West Coast ports.”

For retailers, that delay can result in lost sales or substantial markdowns.

“We’re waiting on three containers of outdoor furniture for summer promotion, and we’re ready to go great guns with it, but it’s still ‘somewhere in Long Beach,’” said Tom Olinde, president of Olinde’s Furniture in Baton Rouge, La. “We really don’t know when it will be unloaded and delivered.”

Home furnishings retailer Schneiderman’s Furniture in Lakeville, Minn., tells its customers that product delivery will take three weeks, according to Larry Schneiderman, president.

“Now, we’re guessing eight to 10 weeks, but we can’t even say that for certain,” he said. “We don’t want to lose any orders, but when the customer says, ‘when will I get it?’ I have to tell them I basically have no idea. I’ve had to reward many of my customers for waiting.”

Consumers have a hard time grasping the impact of the slowdown on manufacturers and retailers. Few have even paid attention to news stories.

“We had one customer whose (upholstery from) Albany order had been greatly delayed,” said Schneiderman. “She couldn’t understand why the slowdown on the West Coast affected her order, when the vendor is in Mississippi.”

Suppliers who rely on off-shore production or supplies have been hit the hardest.

“Since the first of December it’s been a grind on the operations side,” Hardison said. “We have a contract factory in Morristown, Tenn., that produces the product for us. We had a container of (cut-and-sew) kits ordered for them that was a month late.

“I feel bad for the brokers that we deal with because they only have a finite number of vessels,” he said. “Customers are begging them for help because their regular brokers can’t accommodate them.”

Stakeholders at all points on the supply chain¾ even those who didn’t cause the problem ¾have lost some amount of credibility.

 

Paying More, Getting Less

In November, many carriers reinstated port congestion surcharges averaging about $800 per 20-foot containers going into the West Coast. Some commanded much higher premiums.

“About 80 percent of what I sell in the warehouse programs comes through Savannah, (Ga.), but the congestion and slowdown on the West Coast affected the East Coast as well,” Hardison said. “Mass merchants booked most of the available vessels going into the East Coast ports so they could bypass the West Coast. Starting in late December, we couldn’t get space on vessels. When we finally did find space we had to pay a 50 percent premium—$2,100 extra per container. I’ve been out of inventory for a lot of our better sellers because I couldn’t get our normal flow in available space on our regular vessels.

“Of course, this affected sales and cash flow,” he said. “Right now I have 22 containers running six weeks behind in delivery to a warehouse in North Carolina. A lot of our retailers have orders from customers that they can’t deliver until we get it to them.”

Hardison said while Simon LI still hasn’t recovered completely, the shipping surcharges have now eased and the company is able to ship on its regular vessels at normal prices. He continues to negotiate with the company’s ocean carriers to keep the surcharges at bay.

City Furniture in Fort Lauderdale, Fla., was impacted by the shutdown when the East Coast port capacity became crowded.

“We don’t bring any goods into Long Beach, (Calif.), but big suppliers moved their transport to the East Coast so capacity was substantially affected,” said Keith Koenig, president of City Furniture. “We lost some shipping ability and that pushed us back. Our suppliers felt it.”

Like Hardison, Koenig said shipping companies were increasing prices significantly.

“As a direct or indirect result of the port slowdown, pretty much all of our shipping companies told us they were raising prices overall by several hundred dollars,” he said. “Whether that will stick is yet to be determined.”

Even the Chinese New Year impacted costs. Many suppliers paid surcharges to get product out of China prior to the February 19 start of the New Year. Those goods then languished on ships that could not be unloaded once they reached the West Coast.

“The combination of the shutdown and increased cargo from China created a perfect storm in getting product into the U.S.,” Essenberg said. “It reminds us that logistics are more important in this industry than they’ve ever been.”

A New Normal

Even before contract negotiations went south, productivity at West Coast ports was slowing. Ships are getting bigger and bigger to cut costs per container. The sheer volume of these behemoths can slow productivity to a crawl at ports without adequate space or systems for processing. It’s time for major upgrades in facilities and processes.

Short-term issues, such as chassis shortages, must be anticipated before they become obstacles to productivity.

Port authorities must upgrade processes, facilities and technology to aid, instead of hinder, the flow of goods.

 

Planes, Trains and Trucks

Intermodal transportation is getting busier as the flow of goods increases from the ports. Also at issue here is the shortage of truck drivers in Southern California. Efforts are underway in many ports to speed the process of container transfer, but many truckers still wait in long pick-up queues. Some have stopped doing this kind of work altogether because they can’t move enough containers to make a living.

“The railroads, yards, and trucks got backed up,” Schneiderman said. “The driver shortage affected the whole thing, too. It got pretty frustrating.”

Expect premium pricing for expedited intermodal delivery, as trucking providers and railways get even more backed up with shipments.

 

What if it Happens Again?

The question should probably be, “…when it happens again.”

No matter how well you plan, stuff happens. You may be an innocent victim, but that doesn’t mean you can’t learn from the experience and try to plan for the next one.

Very few companies have the clout of Target or Walmart, with the ability to carry millions in extra inventory, lock down vessels on either coast, or even invest in port equipment such as proprietary chassis.

Realistically, though, there isn’t much optimism that the furniture industry will be able to weather another slowdown any better.

“Five years from now, you would hope that we’d learn from this and be able to avoid it,” said Essenberg, adding that the negotiations between the union and port managers seemed stalled worse than in years past.

Schneiderman echoed that sentiment.

“My stance is that none of us will learn anything by this,” he said.

Well, the National Retail Federation is predicting a 4 percent increase in retail sales this year, so let’s hope all remains stable for a while. It would certainly be a breath of fresh air.

Plan now to take advantage of an improving economy.

 

 

 



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