What’s the Port Strike Impact on Retail?

What’s the aborted port strike impact on the retail industry? Although the strike may be over, the real battle could be beginning. Beyond the longshoremen’s passalong salary hikes, a sticking point with the union is protection against automation. They are threatened by technology that can help build a more productive and profitable business model at the expense of union jobs . Join Shelley, Jonathan and Sonja as they look at the post-port strike landscape and discuss how CEOs can stay afloat for the all-important holiday selling period and beyond. Retail businesses and brands should be prepared for the next round of challenges with forward-thinking strategies for supply chain solutions to anticipate port closures, cargo piracy,  labor disputes, and weather disruptions like hurricanes.

Special Guests

Jonathan Gold: Vice President, Supply Chain and Customs Policy, National Retail Federation

Sonja Chapman: Associate Professor International Trade and Marketing at Fashion Institute of Technology

Transcript by Descript:

The challenge we have with our infrastructure is that we can’t continue to build out with our ports. You can only build up, but you really can’t do. So we’ve got to find ways to make ourselves more efficient and more productive to handle the significant volumes. We continue to see both on import and export. The only way we can do that is through automation and technology.  Retail Unwrapped is a weekly podcast. Hosted by Shelley Kohan from The Robin Report. Each episode dives into the latest trends and developments in the retail industry. Join them as they discuss interesting topics and interview industry leaders, keeping you in the loop with everything retail.

Hi everybody and thanks for joining our weekly podcast. I’m Shelley Kohan and I’m very excited to welcome Jonathan Gold. Vice President of Supply Chain and Customs Policy at the National Retail Federation and Sonja Chapman, who’s Associate Professor of International Trade and Marketing at Fashion Institute of Technology.

I am so thrilled to have you both on Retail Unwrapped. And we’re going to be discussing the impact of the port strike and the move forward. I know everyone says, Oh, the port strikes over, but, you know, I think there’s a lot out there that we need to be talking about. So before we move into our first topic, maybe Jon, you can tell us a little bit about your role at the NRF and Sonya, you can tell us.

The areas that you specialize in at FIT, Jon, let’s start with you.  Great. Thanks, Shelley. Appreciate the opportunity to be on the podcast today. So just by way of background, NRF, we’re the world’s largest retail trade association represent everybody from the small single store operators up to the large format, big box stores, online chain restaurants, and everybody in between.

So my role here at NRF, I’m on the government affairs side of the house. I’m the vice president for supply chain and customs policy, and I handle all of our supply chain and trade related issues. Product safety, loss prevention, cargo theft, retail crime related issues. So it’s been a busy,  few years to be honest, on all these issues.

Okay.  okay. I’ll just jump in here. So, as you’ve stated, I’m a professor in the international trade and marketing department at the Baker school of business and at FIT.  my professional background is I am a licensed customs broker with a 40 year career in textiles and apparel. I specialize in international traffic management, import export regulations, and international compliance management, and I teach courses in all of these subjects.

So Jon, I may be calling on you as a guest speaker as well. Sounds good. Happy to do it. That’s great. So I first want to just kind of tell our listeners, there is this swift resolution on the port strike. You know, retailers were really bracing for a longer strike, and actually many larger retailers actually  push goods forward.

So three days, the contracts extended. So I think this is good news for retailers, consumers, holiday selling. What do you think, Jon?  No, absolutely. It’s certainly a reprieve. I think many of us were gearing in for a long, protracted strike. strike. We’re happy to see that it only lasted three days. But, you know, I think as you noted from the outset, we’re not done yet.

We still have the full contract that has to be negotiated. What was part of the deal to end the strike was a tentative agreement on a significant wage increase for the Longshoremen. But there are still a lot of big issues need to be negotiated at the table, including automation, benefits, container royalties, and some others.

So, you know, they’ve extended the contract until January 15th and until the, you know, I’s are dotted and the T’s crossed and it’s signed into, you know, into agreement, there’s still a lot of work needs to be done.  Yeah, and I think the new deadline which quite frankly I see is already approaching because it’s right after holiday It’s like january 15th, you know the negotiating points that you mentioned they’re big deals the other part I think they’re negotiating is not outsourcing some work to non union jobs But I think the biggest sticking point Jon is something you mentioned and that’s this automation and protection against automation Which we’re actually going to have a whole conversation about in a minute.

So what do you think we’re looking at for January and what should retailers and brands be thinking about?  No, I completely agree. And look, we continue to urge the parties to get back to the table ASAP and get this done. Well ahead of January 15. They’ve got them, you know, three months now to work this out.

And to be honest, we’ve been calling on the party since January to get back to the table and get these negotiations done, knowing how complicated these issues are. But that automation issue is a significant issue. It has been for quite a long time. You know, they already have protections built into the current contract with regards to Automation, semi automation and technology and the impact on the current workforce.

You know, not losing jobs and, and, you know, doing that in partnership between labor and management when automation is to be brought into the terminals. So it’s unclear what more the ILA wants as far as protections and guarantees when it comes to automation.  But it is a huge issue that again,  knowing that there’s a short timeline now for the, you know, the contract extension, they’ve got to get back to the table now and get through those issues.

So we don’t end up in a similar situation in mid January.  Right? And Sonja, what do you think? I mean, January is right around the corner. What should retailers and brands be thinking about as as they’re heading? into January.  Okay.  we have three ways to address a strike, right? There’s only three ways that you can really look at, you know, steps you can take to mitigate the impact of a strike.

And one of that is to build inventories. Which I think in this case, you know, importers were doing at, at this point. But warehouses are pretty full and that, and that has a cost of money to it. You can resort to air, but that doesn’t work for all products and all product lines. And again, that has a, a negative impact.

Cost to it. And the other opportunity that you have is diversion, right? So you can have goods that were come to New York that you could say, okay, now we’re going to divert them to the West coast boards. And I think that a date of January 15th actually makes diversion less effective than it would be right now.

Because we traditionally have a peak in shipping, right, that starts to slow down in October, meaning that there’s space availability and that there might be work,  workspace on the ports in,  L. A. and Long Beach and up and down the west coast that could take additional ships at, at this point in time.

But what happens is at the end of January, Chinese New Year comes in January 29th 2025. And that’s traditionally a time exactly when the deadline for the strike is where there will be a push to move products. And the West Coast will be inundated with freight. It’s another peak shipping for most shippers at that time, so it would be less likely that diversion would work because space wouldn’t be available in the same way.

So, I actually think it makes a lot more sense at right now  for them to wait, because I think that space availability is kind of. There right now. And it most likely won’t be at that time of the year.  the other thing that I, see is that,  that will get that,  you know, we’ll get that spike in shipping and the pricing also would be lower.

In, you know, October versus spot pricing versus what we’ll probably see, you know, come January, if they can actually get space and move it through and one of the, and we’re talking about half of the goods that come into the US. If a strike does occur at that point. So that’s my,  my take on the January 15th date.

So, I would say that  that importers should be looking at, you know, having a an inventory building up some inventories for the time being, or shipping a bit early, although it’s very difficult to do, because it’s right after our holidays.  so there’s a slow down at that point. So, to me, this actually looks like.

A smart move  on the part of the union and the, you know, the automation issue. as I know we’re gonna talk a little bit more in a, we in, in a bit, but what I did wanna say about that is that Harold Daggett, who’s the ILA President, you can go back to his, acceptance speech when he became the president of the ILA in 2011.

And in there, he’s railing against automation. So that has not changed.  but one of the things I’ve always found interesting is that he made, he flat out says, easy pass was automation. Those were union jobs. And I can’t imagine anyone who would prefer to be waiting in a line  to pay a toll taker versus driving right through with easy pass right now.

So that’s the perspective on. technological advancement that you’ve got coming from the leadership in the union. So it’s going to be quite the challenge.  And what I don’t understand is that I mean we all know we’re in retail retailers have been investing in automation for years especially on the supply chain side of the business So when we I just I can’t fathom why we wouldn’t want to move forward with automation So just want maybe Jon, you can talk a little bit about You know, we’ve seen retailers using all kinds of robotics and warehouses and virtual chat bots and stylists and fulfillment, machines that are, you know, human lists.

I, I’m just kind of baffled by this one sticking point.  Yes. I mean, obviously for, for retail and every other industry. As well, you know, they’re looking at technology and automation and how to advance, become more productive, more efficient and get the goods to consumer as quickly as possible. I mean, those advancements have  been significant, especially over the past few years, you know, post pandemic, where a lot of different technology and automations were put into the supply chain and the retail operation that, you know, hadn’t really been planned for for a while.

You know, we kind of joke that we saw, you know, Five years worth of advancement in retail and, you know, five months during the pandemic where things like, you know, buy online, pick up in store hadn’t really been thought about, but that was the only choice you had was to do that. If you’re a retailer who is deemed, you know, you know, not being, you know, not significant to, to stay open or non essential they should say to stay open, but I mean, you look at every other industry and we’ve got to have those advancements.

I think the challenge with our, our ports. You look at ports around the world. You know, we run some of the least efficient and productive ports because we don’t have a lot of technology automation tied to those boards. So  the challenge we have with our infrastructure is that we can’t continue to build out with our ports.

You can only build up, but you really can’t do. So we’ve got to find ways to make ourselves more efficient and more productive to handle the significant volumes of We continue to see both on import and export. The only way we can do that is through automation and technology. Now, look, we understand the both the I.L. A. and the L. W. The workers on both coasts.

You know, they have concerns with regards to technology and the potential for job losses. I think we all understand that. But if you look at In the bigger picture when you start implementing technology automation that can actually lead to job gains and new and different jobs that weren’t there in the past and making the system more efficient and more productive and the other part of this too that the longshoremen are looking for are, you know, what is known as the container royalties, which is kind of a piece of the pie.

They get with the number of containers that that come through the ports. If you make yourself more efficient and more productive, you’re going to have more containers coming through. That means more money for the longshoremen at the end of the day who get a piece of that puzzle  Yeah, those are all excellent points  so thank you for that and you’re right.

I mean the automation and the technology actually makes us more profitable so Yeah We’ll see what happens with that. And I know Sonja during the pandemic, you know, retailers learned, and you mentioned this, you know, diversion is one of the tactics now, but they, they’ve really moved away from this, what we would call linear supply chain, you know, chain, meaning one link breaks and the whole systems down to kind of this supply network and agility and flexibility.

But that requires, in my opinion, software and, you know, automation stuff. What are your thoughts about that?  Well, let’s put it this way, you know,  infrastructure, port infrastructure, you can’t, you know,  you can’t replicate that. That’s not something that can be developed quickly. And so, if there is a shutdown through the East Coast and the Gulf Coast ports, the options are,  are limited, you know, it’s the West Coast ports, or it’s,  potentially, Dropping in Canada or Mexico and then trying to rail and truck, all of these things add cost.

So they’re not desirable. Our best bet is that we have a well, you know, crafted contract prepared before  this happens.  I do think that companies are diversifying their supply chain base with that whole idea. I mean, Two of our biggest trading partners, which are Canada and Mexico, are not impacted by this, because most of the trade comes over land.

So it’s one of the things that importers can do is certainly diversify their production base as best that they can. They should also be diversifying their  Warehouse and port so that they have some access to the west coast if you’re shipping exclusively on the east coast And then you’re suddenly trying to get space to the west coast in a time when it’s very tight It’s not going to happen.

So you have to be diversified to to begin with  Yeah, I think the other point we should just touch upon before we leave is this and unrelated to the port strikes but certainly impacts the flow of goods is the You Impact of hurricane season on port activity, which we’re dealing with right now again. So, Sonja, do you want to start with that one?

Then we’ll turn it over to Jon.  really? Absolutely.  well, again, port infrastructure is not easily replicated. So, one, you know, if a port is shut down in a hurricane or damaged in a hurricane, We’re going to have to deal and move around that, and that is maybe what’s most helpful about not having the strike now is that some of these ports will absolutely have issues and be damaged, you know, and have to recover from that.

So there’s some flexibility for importers to move around. I think we also in the same way. That we deal with rainy seasons overseas. We know what monsoon season is. We built transit time matrixes into our plans, our time in action, and realistically, we’re going to have to make accommodations for our weather related events in our seasons, and we’re going to have to start building that into the supply chain,  and as well, we’re going to have to consider it in new construction for your attention.

You know, how, how do we storm proof our boards,  right? And our rails and our roads.  Jon, you want to add to that?  Yeah, no, I mean, absolutely. I mean, look, supply chain resiliency certainly has been kind of the big buzzword post pandemic as we saw things kind of shut down. But I think even prior to the pandemic, you know, we always, Witness supply chain disruptions, whether it was weather related or something else, retailers have always planned accordingly.

Unfortunately, the fact that we’ve now had, you know, a three day port strike, Hurricane Helene, and now Hurricane Milton bearing down on the Southeast ports,  you know, is not something anybody really kind of contemplate. But, you know, as much as retailers try to mitigate You know, as much as possible. There are just these challenges that continue to pop up.

But again, having that supply chain diversification is key. Being able to plan ahead of time is really, really important. So I mean, I guess the one benefit of the hurricanes is, you know, several days in advance that they’re coming and where they’re going to hit. So you can strategically place. Cargo or get it in or know what needs to happen at that point in time.

Because again, when you look at the hurricanes, you know, it’s not just bringing in the product that you want to go ahead and put on sale for, you know, whatever holidays coming up or just the selling cycle, but it’s critical for those who are responding to the hurricane as well. You look at some of the major retailers, how engaged they are with response and recovery, making sure the communities are.

Are taking care of with food and water or building supplies or what have you, you know, retail is a major part of whatever recovery efforts that happen within the state. So that was one of the concerns we had with the strike in Hurricane, Helene happening kind of same time was the impact on recovery efforts for, you know, North Carolina and others that were hit so hard.

You know, we know that typically a shutdown for a port, it’s, you know, three to five day recovery.  you know, the strike just kind of compounded that because you had no other options because the entire east coast gulf coast was shut down so you couldn’t go anywhere else. So, I mean, with that you’re looking at, you know, two to three weeks recovery.

Add the hurricane on top of that, you know, some of the Florida ports, you know, it’s going to take even longer.  but just again, this is all about, you know, resiliency and planning and ahead of time. And I think, you know, really the past couple of years, retailers and others have really kind of stepped up looking at that because of the ongoing challenges we’re seeing in the supply chain.

You know, we didn’t even talk about what’s happening in the Red Sea and the ongoing challenges that’s posing because you can’t utilize the Suez Canal.  So it’s okay. I hate to say it, but there’s always something happening in the supply chain and, you know,  supply chain managers really now are, you know, more than earning their keep with trying to keep things moving and get product to where it needs to be when the consumer expects it.

That’s so true. Do you think we’re going to see more sourced? Out of outside of China in other countries. Do you think retailers and brands are looking at multiple sourcing options? I mean, where’s the industry headed Jon?  No, absolutely. I think that really has started over the past You know five or six years it started with the trade war and the tariffs on china Where a lot of companies look to shift out of china  you know would have been great had we actually Passed the transatlantic partnership and made it easier for folks to get into Vietnam and other Southeast Asian countries and would have been great to, you know,  combat China on that.

I think companies are continuously looking for those options.  you know, we certainly are concerned with the ongoing use of tariffs as a hammer and not providing kind of the carrot approach either to help companies to make those shifts. To other countries. you know, getting things like the generalized system of preferences program renewed, which has been expired for 44 years now, where companies are paying millions of dollars in tariffs, not negotiating new free trade agreements with some of our allies and partners to provide some of those market opening opportunities and further tariff reductions.

So there certainly is a push and companies want to move.  we just got to find ways to help them to do that, not continuously put up barriers, to making those investments.  Yeah. Sonja, anything you want to add?  absolutely. So, first of all, agree, there has been a huge push. There’s been a huge shift if you look at, particularly in apparel and textiles,  where,  China’s dominance is, while China still remains, the largest exporter to the United States of apparel,  and in all categories, fairly, fairly much. Very much.

There have definitely been shifts in terms of other Southeast Asian countries taking over some of that production. West Asia, we’ve seen the rise in Bangladesh  and India and Pakistan as well. We’ve seen movements out in that direction. The real challenge I think is that the supply chain in many ways still relies on China for inputs.

So even though the final apparel production is coming out of other locations, at the end of the day, it, it, material supply and other inputs are coming from China.  we also haven’t spoken about, the, the direct to consumer loophole, which,  is also, Kind of known as, we call it de minimis, in the news, but for the layman, it’s basically, the e comm, you know, shippers who sell direct and,  to consumers and they don’t pay duties, they don’t pay taxes,  they take advantage of the U.S. postal system and they have very low freight rates coming in.

And we’re seeing this massive drop off in import, imports that is not  Accounted for which can only be accounted for these shipments that are coming in and as of today, there are 3 million a day. Approximately a billion a year are coming through approximately 60 percent of them come from China.

And. A huge portion of that are in our industry as well. So while there are, we’ve been trying to use tariffs as a hammer, we also have other rules and regulations within the system that allow  legitimately for companies to skirt that. It’s an open legal loophole and I think it’s slowing down that process somewhat.

Any closing thoughts, Jon?  no, I mean, look, I think again, the issue of supply chain resiliency has, has gotten critical companies have continuously looking for other options and diversification for their supply chains, unfortunately, it takes time to build your supply chain out. You can’t just, you know, open up a phone book and pick a company and say, I’m going there tomorrow.

You got to go in and make sure that the company is legitimate. They, who they are, who they say they are, can meet all of your requirements, can meet all the requirements for us testing and other requirements. But also do they have the local infrastructure needed for, you know, an increase in, in volumes and capacity?

Do they have the local, you know, the sailing, regular sailing schedules? Do they have, you know, roads and rail that work? So it’s complicated. And I think folks are really starting to learn and understand just how complicated the supply chain is. And the fact that we need to continue to work together to address some of these issues.

Jon, Sonja, awesome conversation. Thank you so much for joining today. next week, our podcast, we will have Cotton Incorporated with Zappos talking about sustainability, circularity, taking action together, and driving change through industry, so stay tuned. Collaboration. It’s a great example of the collective power of the industry.

So thank you both.  Thank you for listening to Retail Unwrapped. We’ll be back in one week with another podcast.  Please subscribe on Apple Podcasts, Spotify, or any podcast service. If you have questions, ideas for a podcast, or anything else, please contact us via therobinreport.com.