Months after the West Coast port strikes have ended, Los Angeles and Long Beach are finally picking up speed. But retailers are still recovering, and it could hurt their holiday preparations.
Second quarter inventories swelled after massive gridlock forced companies to double down on production. Some major retailers disclosed they are still trying to pare down inventories from big buildups, while the West Coast ports clear backlogs of imports and exports that had piled up during the recent strikes.
Kurt Salmon research group estimated that the West Coast labor disputes and the consequential ports gridlock caused retailers around US $7B. Nike reported a 10 percent increase in year-over-year inventories at the end of August. Pier 1 Imports scaled back inventories that saw a 20 percent year-over-year expansion—in part due to the ports gridlock and the trouble it caused to the supply chain. Pier 1 chief executive Alex Smith, on an earnings call, revealed the company “...will continue to feel the effects of elevated inventory levels the remainder of this year.”2 Quicksilver even filed for bankruptcy soon after the strike ended.
Levi Strauss & Co. chief executive Chip Bergh said “The situation [had] gone from manageable to bad.” (the company imports a third of its merchandise via the West Coast) Four-day delays were stretching to two weeks, shortening the sales window for spring goods in transit that were due to be delivered in March and April. Mr. Bergh added he was considering airfreighting some goods and diverting others to the East Coast.
On top of the costs of producing extra inventory, risks of stockpiling include: product obsolescence, rising holding costs and interest rates, and problems in storage space.
The longer the products are shelved, the higher the risk of those products becoming obsolete—and products left over from the port strike have been sitting around since January. Their value has dropped significantly, and many season-specific items are just not sellable any more.
Maintenance costs add to liability, as companies have already started to pile up inventory in preparation for holiday shopping. Extra inventory costs money to hold and takes up much-needed space. Ultimately, retailers will have to take on the extra cost.
So what steps can businesses take to address the challenge of cumbersome inventories?
Rerouting is better than waiting. Businesses should opt to temporarily ship products to other ports—besides using the more costly air freight alternative—to avoid inventory buildup. This can get difficult for companies without structures and relationships in place at different ports. But that’s no excuse—companies should develop supply chains agile enough to change at a moment’s notice, and that includes rerouting shipments.
Think long-term to act short-term. Being able to react to events like strikes means considering these events before they happen. Have contingency plans in place, stay in contact with your suppliers, and always question the future of your supply chain. Are your manufacturing locations the best choice for your product? Are your suppliers keeping you up-to-date? Ask the hard questions before having to make even harder decisions.
Know what your supply chain looks like. Companies need to be able to see their supply chains more clearly. Retailers without end-to-end supply chain visibility are depriving themselves of the capability to easily reroute shipments around a port strike, or to determine where a product shipment is located in transit. Simply put, supply chain visibility technologies help in avoiding potential risks—and potential losses.