Port Lockdown: Now It's A Race Against Time For Channel

The lockdown was settled late Tuesday when the federal government invoked a law that provides for a cooling-down period of 80 days. However, at the end of that time period, the lockdown, called by port owners in response to alleged union longshoremen slowdown, could be reimposed.

Joseph Huang, general manager at Fortron/Source Technology, a Chino, Calif.-based vendor of standard and custom-built switching power supplies, said the situation is bad. He has two containers currently stuck at the port. "But the good news is, for this quarter, the economy is not so good," Huang said. "So stuff is moving more slowly [than normal. So we have some stock."

If necessary, Huang said he could have the power supplies shipped in from Asia by air, but that would mean a per-unit freight cost of about $5, compared to $1.55 per unit, if the shipment were to come by sea. Such a move would depend on how quickly customers needed the items, he said.

Unlike the automotive industry, which keeps inventory to the absolute minimum, vendors and distributors of commodity IT equipment, which are shipped from Asia in shipborne containers, said they believe they have enough stock on hand to last until their containers finally arrive, even if it takes the next one to two months to clear the port backlogs.

D&H Distributing keeps about 45 days worth of goods in stock, and vendors have two to four weeks worth, said Michael Schwab, vice president of purchasing at the Harrisburg, Pa.-based distributor. While some vendors keep stock on both the East and West Coasts, most, especially on the monitor side, have facilities only on the West Coast, he said.

D&H has 15 to 20 containers full of cases and monitors waiting to enter the country, Schwab said.

"If people are not hoarding product, the channel at this exact moment should have enough supply for the next 30 days," Schwab said. "But since we lost about eight days of in-bound time because of the lockdown, and if you add in the time needed to get goods to the trucks and across the United States, you need to add maybe another 30 days. That will be the big issue. How quickly can we fill the pipeline?"

Another distributor, SED International, is already sold out of a few types of monitors, but has others in stock, said Jonathan Elster, vice president of sales at the Atlanta-based company. "Customers understand," he added.

SED also has containers held up at the ports but has been getting monitor shipments from vendors, Elster said. The distributor does not wish to airfreight CRT monitors because of the cost. "The one good thing about the monitor business is the move to LCD monitors," he said. "So they're a lot cheaper to ship. I'm glad that's happened."

Supermicro, a San Jose, Calif.-based builder of white-box systems for the channel, has about 20 containers on the dock but is now diverting some of its containers to Canada, which results in a doubling of shipping costs, said Yung Lee, director of purchasing at the company.

"We're lucky," Lee said. "We've stocked about three weeks of inventory. But for emergencies, we are arranging a little airfreight of cases."

Because the end of the 80-day cooling-down period could see another lockdown, Lee said Supermicro will try to order some extra inventory to be safe.

The lockdown will impact retail IT sales more than the solution provider channel because of the holiday rush, said Miranda Su, vice president of sales and marketing at Iogear, an Irvine, Calif.-based vendor of peripherals.

"October is the biggest season for us [in retail because of the holiday season," Su said. "If we can't get goods, we will lose shelf space."

Iogear currently has two containers stuck at the port, as well as more on the water. Unlike most vendors, the company also has in one of those containers products, materials, and booth equipment for the upcoming Comdex Fall, and may have to build some equipment locally at a high cost to be ready for that trade show, said Su.

Using airfreight is becoming less and less an attractive alternative to sea freight because space is getting harder to book and costs have risen over 17 percent over the last couple of months, Su said.

The port lockdown is unusual in that it has not led to a price increase, Schwab said. "When we see interruptions in the supply line, like the [September 1999 earthquake in Taiwan, prices rise," he said. But we're really not seeing it this time. We have a potential for a price increase if the lockout is sustained. But in reality, since the economy is sluggish, we have a downward trend for most computer product prices. Vendors are trying to be competitive, so no one want to take the first step to raise prices."

Shortages of such items as certain brands of CD-RW drives and monitors for desktop PCs are already evident, said Stephen Monteros, general manager at GST/Micro City, a Cerritos, Calif.-based white-box solution provider.

There are substitutes for such products, Monteros said, adding that he expects some prices to rise. "It's really a question of supply and demand," he said. "That's normal. We have to look at the worst-case scenario."