West Coast port congestion could cost retailers $7 billion this year

New York -- West Coast port congestion issues could cost retailers as much as $7 billion this year, according to an analysis by Kurt Salmon. Work stoppage threats and major trade associations’ calls for federal intervention have retailers and consumer products companies on high alert.



But even if contract talks succeed in overcoming the stalemate between dockworkers and port terminal operators, the challenges for the retail industry are just starting, and consumers – and investors – could feel it in their wallets. The ports are simply not structured to manage the combination of large ships and high volume. Retailers need to investigate new supply chain options – fast.



“Recent earnings reports make clear that port issues are already causing headwinds for retailers, and they’re bracing for gales,” said Frank Layo, retail supply chain strategist, Kurt Salmon. “Our clients who are able have already begun to shift shipments to East Coast ports, or upgrade them to hit delivery dates. They’re laying out capital to buy and hold extra inventory to carry them through dry periods.”



But these are just short-term solutions, Layo added.



“We’re going to see more near-shoring,” he said. “We may even see more U.S. manufacturing. This congestion is a tipping point for the retail industry, and the issues are not going to go away even after labor negotiations.”



Imports and shipping delays could cost retailers up to $3.8 billion this year. When coupled with the costs of rerouting products from West Coast ports, increased cost of carry, and missed sales opportunities due to out-of-stocks, retailer cost could increase to $7 billion this year. Further combined with likely rate increases due to import growth and congestion across the nation’s ports, 2016 costs could climb to as high as $36.9 billion over last year’s baseline cost.



About 50% of international imports come in from the West Coast, and about 33% through Los Angeles and Long Beach. The backlog will take months to return to normal, even if L.A. port strike negotiations move quickly.



“We’re fast approaching a new normal in transportation, and consumers are going to feel it in the form of mass out-of-stocks and price increases if retailers don’t act quickly,” Layo said.