Cutting the Cord

To maintain its supply of merchandise, the U.S. gift industry depends on free movement of a caravan of seagoing vessels stacked with colorful containers, stretching from China to the America. The slightest disruption in that line could create tremendous havoc. In the event of such disruption — be it an act of nature or backups caused by the Homeland Security Department or picketing longshoremen — it's essential for companies to have a “Plan B.”

Anyone active in importing in the last few years knows of the serious backups that have occurred at California's Port of Long Beach. In fall and winter 2004, importers held their collective breath, sweating out late shipments that might not arrive to meet customer deadlines. And that was without an act of nature or a longshoreman's strike to exacerbate the situation.

Companies that ship through Gulf Coast ports also had crucial merchandise delayed by last year's Hurricanes Katrina and Rita. In the end, merchandise was delivered too late to meet the fourth quarter window of retailers stocking up for Christmas.

But recent experience may be nothing compared with the coming crunch at U.S. ports. “Freight demand on North America's West Coast has been growing at a rate equivalent to one Port of Vancouver per year,” wrote George Stalk Jr. in the May issue of Supply Chain Management Review. “And a rapid expansion of port and rail capacity would be difficult given political pressures and environmental resistance.”

Dr. Robert Hormats, vice chairman of Goldman Sachs (International) and managing director of Goldman Sachs & Co., sees the Chinese manufacturing dynamo continuing to grow while an equally voracious American consumer continues to seek low-priced foreign goods. Add to this phenomenon that there are few plans for improved U.S. port development, railroad infrastructure or other logistics improvements, and you've got the potential for a real logjam.

According to Hormats, not only is the status quo a problem, but the ramifications of a serious terrorist attack would be significant. He noted that even a small bomb at the Port of Long Beach could cause backups that would dwarf the havoc wreaked by the 10-day longshoremen's strike three years ago.

Less than 100 years ago, the U.S. toy market was, like today, largely dominated by imports. At that time, however, the imports came from Germany rather than China. With the advent of World War I, U.S. ports were cut off from German imports and domestic toy manufacturing tripled in six years. It never looked back — well, at least for several decades it didn't. We may, in a few years — if not sooner — be facing a similar watershed. We may speculate on why there are no major plans for import infrastructure development. Perhaps it's a quiet way for the U.S. government to limit imports without the use of tariffs. Perhaps it comes from a lack of vision.

Whatever the reason, U.S. importers are advised not to wait for the roof to fall in and then figure out what to do. There are things that can be done today to mitigate the ever-increasing risk of shipment delays.

No one is suggesting a large shift in imports from Asia to North America; that's not likely to happen, nor, perhaps, should it. Too many U.S. businesses have established infrastructure in Asia.

What we can do, however, prepare for the “unthinkable”— whatever that happens to be — and make sure that contingency plans and relationships are in place so that remedial action can be prompt. Companies may want to sit down with experts who are versed in logistics emergencies and get them to ask you the tough questions. If you don't have answers, or don't like the answers you have, it might be time to consider taking action to mitigate exposure.