Cargo Can't Get Through
Nester, president of Atlanta-based Build To Order Manufacturing, is not alone. The lockdown that hit all 29 seaports in the western United States,all members of the Pacific Maritime Association (PMA), which is embroiled in a feud with the International Longshore and Warehouse Union (ILWU),by some estimates is costing the U.S. economy $1 billion a day in halted shipments, lost revenue and cutbacks in services related to the import of products manufactured overseas.
The labor dispute, sparked by PMA's plans to increasingly automate the port facilities, came to a head Sept. 22, when the PMA locked workers out of the seaports for 36 hours in response to alleged work slowdowns by the ILWU. The ports briefly reopened Sept. 29, but by that evening were locked down indefinitely.
"I have to drive over the Bay Bridge every day, and the ships are lined up," said Andy Kretzer, director of sales and marketing at Bold Data Technology, a Fremont, Calif.-based white-box systems builder.
Much of the cargo in those idle ships is containers full of goods being shipped to the United States in advance of the Christmas season. But it also includes components destined for use in building PCs, servers and IT infrastructure.
Most of those components are bulky items such as CRT monitors, computer chassis, keyboards and speakers, said Paul Su, president of AOpen America, a San Jose, Calif.-based component vendor and builder of white boxes for the channel.
Other products such as notebook PCs, motherboards and add-on cards are typically brought in via air freight, as they have shorter product life cycles and prices that can fall rapidly, Su said.
Solution providers hoped for a swift resolution to the situation; otherwise, orders could be canceled.
IMPACT OF THE PORT LOCKDOWN
>> High-value components (motherboards, add-on cards): No effect in short term, as most come via air.
>> Bulky items (monitors, chassis, keyboards, speakers): Inventory varies by vendor. If lockdown lasts, expect shortages.>> Air freight of bulky items adds anywhere up to 20 percent to the cost of goods.
Because of Build To Order's focus on the government market, solving the problem quickly is essential, Nester said. "I'm on contract with the government," he said. "If I can't fulfill the order, it could be bid out to others, or could be canceled. The government does not care about why I can't fulfill."
Kretzer said the timing of the lockdown couldn't have been worse, coming only a month or so after a typhoon hit Shanghai, China, disrupting modem shipments. "I was using the articles in the newspaper to explain to customers what happened, and then this comes in," he said.
Many vendors contacted for this story expressed optimism that the impact of a limited-term lockdown would be minimal. Dell Computer, for instance, keeps an average of four days of inventory on hand but has agreements with suppliers that have flexible shipping arrangements, including trucking parts in from Mexico, a spokesperson said.
AOpen's Su said shipments of his company's speakers and keyboards come in at 10,000 to 20,000 pieces per container, and his distributors have an average of two months' to three months' inventory on hand.
AOpen air freights about half of its LCD monitors and could increase that amount if needed, which would raise its shipping costs to $10 per unit, compared with sea freight expenses of $1 or $2, Su said. However, AOpen has only two weeks of safe stock for CRT monitors. "A three-week to four-week strike is OK," he said. "If more, I'm in trouble."
Sam Tsai, president of Elitegroup Computer Systems, a Fremont-based motherboard vendor and builder of PCs and servers for solution providers, said if the lockdown lasts more than two weeks, he might be forced to use air freight for cases, which would increase costs by 20 percent. He currently pays about $1.25 per PC for sea freight, but antes up $40 per PC for air freight.
Tsai said he keeps about one week of such products in stock. "Beyond that, I may have to close some doors and ask employees to volunteer for vacation," he said.
Vendors can use Canadian and Mexican ports as alternatives, but the ports can't handle the volume. And while some vendors said they will consider rerouting orders to the East Coast, that would require more time, and many container vessels are too wide to pass through the Panama Canal.
While several vendors said they can switch to air freight to take up the slack, others said that may not be the cure-all, even on a temporary basis.
Su said the Thanksgiving and Christmas seasons, combined with a pickup in business, have caused air freight and sea freight space to tighten up. "At this moment, air freight is not a bottleneck," he said. "But if this lasts two weeks, it could get serious."