Unintentional empty shelves are a retailer’s worst nightmare—and one that’s inching closer to reality with every passing hour.
As the clock ticks toward midnight Monday, anxiety among retailers, manufacturers, farmers and others continues to grow. That’s when the contract between shipping companies and unionized West Coast port workers is set to expire.
Failure to come to an agreement could bring repercussions that affect 30 ports from San Diego to Seattle, countless businesses, consumers—and ultimately, the country’s economic growth.
“If there’s a strike or a walkout that lasts for five days, it would be approximately a $2 billion per day loss to the economy. If it goes on longer than that, it could be as high as $2.5 billion a day,” said Matthew Shay, CEO of the National Retail Federation.
“About 12.5 percent of the nation’s GDP comes through the ports along the West Coast, so 45 percent of the container traffic either comes into or out of those ports. [A strike] would be very significant for the economy,” he said.
The International Longshore and Warehouse Union (ILWU) sits on one side of the bargaining table, representing 13,600 West Coast port workers. The Pacific Maritime Association (PMA) is on the other side, representingworkers who operate port terminals and shipping lines.
ILWU spokesman Craig Merrilees said the figures released by NRF this week are “simply a re-hash of exaggerated and discredited figures that are part of a PR effort sponsored by low-wage, anti-union companies who are hoping to generate public fear and anxiety.”
“In fact, the negotiations are proceeding normally with talks characterized by both sides as ‘positive’ and ‘productive.’ Historically, previous labor agreements between port workers and employers have not been reached prior to contract expiration dates, but agreements have always been resolved as soon as possible afterward,” Merrilees said.
The PMA told CNBC it expects talks to continue past Monday’s deadline, possibly until mid-July.
The last time the parties negotiated past the deadline was in 2008.
If workers strike, goods destined for store shelves will be stuck. The scenario puts retailers in a lurch with the all-important back-to-school, and potentially holiday merchandise, stuck between the shore and stores.
Most said a strike is unlikely at this point, but retailers aren’t taking chances.
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Home Depot, Best Buy and Target said there are always contingency plans in place to protect against possible disruptions such as a port strike or slowdown. Macy’s said it continues to monitor the situation and will make any adjustments that might be required, though it hasn’t had to do so yet.
Wal-Mart and J.C. Penney said shipping to ports around the country helps insulate from disruptions in any one area. J.C. Penney did note it has pulled forward some inventory ahead of the back-to-school season to ensure it can meet customer demand.
Shay said that retailers’ contingency plans come at a cost, and consumers may potentially end up paying more as a result.
But it’s not only retail in the crosshairs. About 30 percent of 50 shippers surveyed by Wolfe Research said they have increased the amount of goods sent through the West Coast ports in the second quarter, ahead of the deadline. Buckingham Research said rails are also seeing higher volumes, likely because of a rush of shipping ahead of a potential West Coast port disruption.
Representatives at the Port of Long Beach said the port did see “a slight increase in cargo in May, which may have been due to some shippers trying to move product before the end of June.” The cargo numbers are not yet available for June, so it’s not yet known if the trend has continued.
One truck driver at the Los Angeles port told CNBC he waited seven to eight hours last week to pick up cargo—considerably longer than he would wait during a normal pickup. He said the delay is an early sign that the union is flexing its muscles.
Kelly Kolb, vice president of government affairs at the Retail Industry Leaders Association, said, “While the retail community remains hopeful that a deal can be reached before the current contract expires, memories of the challenges from 2002 are still fresh in the minds of many. During the work stoppage of those negotiations, the American economy lost nearly a billion dollars a day, as goods passed out of season and produce rotted on the docks.”
The 10-day 2002 disruption only ended because of presidential action. President George W. Bush ordered both sides back to work under the Taft-Hartley Act.
“As both sides understand, modifications to the massive supply chain plans of the retail industry take time to implement and even longer to undo. The importance of preserving reliable channels for retail supply chains cannot be understated,” Kolb said.
—By CNBC’s Courtney Reagan