West Coast Ports Shut Down For Holiday Weekend: Supply Chain Halt Threatens Havoc On Reeling Economy

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http://www.zerohedge.com/news/2015-02-14/west-coast-ports-shut-down-holiday-weekend-supply-chain-halt-threatens-havoc-reeling

 

 

 

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West Coast Ports Shut Down For Holiday Weekend: Supply Chain Halt Threatens Havoc On Reeling Economy

Submitted by Tyler Durden on 02/14/2015 18:02 -0500

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A week ago, when we wrote "Catastrophic Shutdown Of America's Supply Chain Looms" As West Coast Port Worker Talks Break Down", few people noticed... as was to be expected: after all with January's retails sales just around the corner, retail sales that were supposed to surge after the vast December disappointment, nobody wanted reality to spoil the party.

Then, following the very disappointing January retail sales led to the worst back-to-back drop since Lehman (this time there was no polar vortex to blame), confirming the US economic situation is far worse than the panglossian cheerleaders, led by the Fed, would have you believe, people started to notice, especially when we presented dramatic footage showing that the Ports of LA and Long Beach harbor have become cargo ship and tanker parking lots.

 

 

 

 

Fast forward to today, when over the past 48 hours there has suddenly been a deluge of sellside reports, rushing to bring attention to this topic, such as the following:

• West Coast port disruptions likely to cloud outlooks as Q4 earnings approach - Goldman Sachs
• Port Slowdowns Intensifying, Risk Heightened Across Retail Space: Credit Suisse
• Further West Coast Port Disruption A Possibility - Deutsche Bank
• All's not quiet at the Western ports - Bank of America

And so on. Why the dramatic shift in attention to what as our readers knew 10 days ago, could be a crippling event to the US economy? Simple: as we again explained last Thursday, "in an economy that is desperate for any "one-time, non-recurring" item to explain what is now global secular stagnation and economic slowdown, an excuse such as a port strike, or a harsh winter, or a strong dollar, or plunging crude, may be precisely the scapegoat that the central-planning doctor ordered."

The only difference is that unlike the polar vortex which everyone blamed the atrocious Q1 2014 GDP on (after the unheard, seasonally-adjusted fact of snow in the winter), and which was nothing but a placeholder scapegoat, a looming collapse of US supply chains will truly have devastating consequences on the economy, quantified here two days ago.

Worse, the latest news out of the West Coast is not good for anyone hoping for a quick resolution to the congestion problem. According to Reuters, after the clogged ports briefly reopened on Friday after a daylong closure, "shippers planned to re-impose a partial shutdown through the holiday weekend barring a settlement in stalled labor talks with the dockworkers union."

The shipping companies and terminal operators planned to halt loading and unloading of container ships again starting Friday night and keep the suspension in place through Monday, the Presidents Day holiday, unless contract negotiators clinch a breakthrough deal. A deal which at least as of this moment, does not appear to be anywhere remotely close: "negotiators for the International Longshore and Warehouse Union, representing 20,000 dockworkers, met at union headquarters in San Francisco on Thursday with officials from management's bargaining agent, the Pacific Maritime Association, for the first face-to-face talks in nearly a week. But the session, presided over by a federal mediator, ended with no agreement reached. It was not immediately clear whether the parties would resume direct negotiations on Friday."

So while the union demands an increase to overtime comp (when as shown previously the average dockworker makes a quarter of a million per year all-in) and has thrown in some new negotiation demands as well, including changes to the system of binding arbitration and contract disputes, in the meantime, inbound cargo vessels continued to stack up at anchor, with 27 freighters left idle on Friday morning waiting for a berth outside the ports of Los Angeles and Long Beach, the nation's two busiest cargo hubs.

The numbers are likely to grow by the end of the weekend as additional vessels arrive from Asia with no place to park at the docks.

It's not just LA: according to Lloydslist, between 10 and 12 ships a day are waiting to berth in Oakland marine terminals. "Clearing the cargo backlog at US west coast ports would take two months, once a new contract with longshore workers had been reached, the Port of Oakland says in a status update as relations between employers and labour worsen." Naturally, should the standoff continue, there is no telling how substantial the supply-chain delay will be and how many months it will take to revert the system back to normal.

So while the world awaits to see if the US economy will be slammed with the estimated 3.5%, or more, growth slowdown which could well result in a recession for the US as soon as this summer (recall that the 29 affected ports handle nearly half of all U.S. maritime trade and more than 70 percent of imports from Asia) the congestion has already rippled through the U.S. commercial supply chain, disrupting deliveries of a wide range of goods, from agricultural produce to housewares and apparel.

Here are some of the ways the already reeling US retail economy is now being pummeled as a result of the collapse of this weakest chokepoint in the US supply-chain infrastructure.

• Small business owners are unable to get goods on the shelf in time for long-planned merchandising programmes. Some are paying high premiums for work-arounds such as airfreight.
• Manufacturers are at risk of closing down assembly lines because they don't receive parts shipments.
• California's Central Valley growers can't get perishable agricultural exports through the marine terminals quickly and on to ships for delivery to overseas markets.
• Thousands of independent harbour truckers are doing less business — and receiving less pay — because they're often stranded in long lines awaiting cargo.  Businesses are beginning to furlough workers because their operations are stymied by cargo delays.
• Surcharges, two week delays reported: congestion in the West Coast ports is leading to longer import lead times (up to two week delays) and increased surcharges from shippers, agents, and truckers.
• According to Credit Suisse, surcharges for transport and east coast delivery are at all-time high levels (adding 75-100% to cost of shipping in some cases.)
  • K line, the sixteenth largest container shipping company in the world has added $800 congestion surcharges in ports where slowdowns are occurring.
  • Truckers in Long Beach and Lost Angeles have recently added $50/hour to $100/hour surcharges for shipments originating from these ports.  The average cost for Asia-U.S. shipping a twenty-foot container is approximately $750.
• Rerouting to east coast ports is time-consuming and expensive: some companies have diverted shipments to the east coast to avoid congestion on the west coast, incurring additional surcharges on top of the already more expensive and time consuming journey to Atlantic ports.

Bottom line: estimated recovery is 1 week for each day the ports are closed, and the National Retail Federation estimates a 5-day shutdown on the West coast could reduce GDP by almost $2B a day. Clearly, the adverse impact on the economy from a protracted slowdown - because it is not a full-blown lockout like in 2002 preventing Obama from using the Taft-Hartley Act to forcibly reopen the ports - will be massive, especially now that the bulk of retail vendors, many of them on line, depend on Just In-Time provisioning of mission-critical products and supplies.

One thing that is not clear is, as we asked last week, a slow-burning lockout in the West is not precisely what the Fed (Ph)Doctor ordered: after all what better excuse to a rate hike which consensus now see as taking place in 4 months, than an exogenous event which the Marriner Eccles central planners had no control or visibility over. In fact, it is a perfect Fed trump card to not only delay hiking rates but potentially lower rates... as Goldman Sachs so surprisingly hinted as a distinct possibility last week.

Finally, for those curious what a worst case scenario would look like should events in the West Coast spiral out of control, we suggest rereading our article from 2012 on the topic of "Trade-Off: Financial System Supply-Chain Cross-Contagion"

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[waterman13]

Unions SUCK!

Wm13

[PD41]

I work on the rails (trains) in Long Beach (Los Angeles). The shipping companies are feeding the press a lot of BS.

 

Allmost all Overseas owned companies have gotten RICH $ in recent years since the USA does not manufacture much anymore.

The wages DO NOT Come from US Taxed Taxpayers like city, county, teachers, cops ect. 

The average day worker makes about $60,000 to $80,000 a year breathing diesel fumes all day.

 

You need to work 6 - 7 days a week to get $100,000

 

The average life expectancy of a Longshoreman after retirement is 18 months.

 

These rich mostly Chinese, Korean owners would to pay minimum wage.

 

Try to find a house near the Port of Los Angeles under $400,000 not in a gang infested neighborhood, good luck.

My mortgage is $2000 a month, $6500 a year in property taxes. 

 

This is a company created slowdown, congestion not the workers. Piles of empty containers, exports are what you see on the dock in the news.

 

 

Maersk Line books $1.5bn profit in 2013

http://www.seatrade-global.com/news/americas/maersk-line-books-$15bn-profit-in-2013-despite-lower-box-rates.html

 

“K” Line, which has subsidiaries in America, Japan, and India, posted revenues of ¥1.2 trillion at the end of fiscal year 2013, up 7.9 percent year-over-year. The company recorded a net income of ¥16.6 billion, up 56 percent from the previous year’s net income of ¥10.7 billion.

http://www.joc.com/maritime-news/container-lines/k-line

Edited February 16, 2015 by PD41

[leanonme]

Thanks Pd for your comment. Very interesting indeed.

[PD41]

The shippers love Americans buying all this Asian crap. Target, Walmart ect love cheap Chinese and other Asian products. When a container ship leaves port it may look like a loaded ship BUT the reality is that most of the containers above deck are EMPTY !

 

I see inside some US export containers sometimes and they are usually full of crushed cardboard, plastic and other recyclable product. Asian 'Slave' wage factory workers make products then ship them back to US consumers. Less US workers, more Chinese factories, more pollution.