California cargo congestion stealing retailers' Christmas
By Anne D'Innocenzio
Associated Press
NEW YORK — With the start of holiday shopping just weeks away, toy companies and other purveyors of seasonal merchandise are living through a nightmare — their merchandise is stranded aboard cargo ships amid the gridlock at two West Coast ports.
Damian Dovarganes • Associated Press
"This is terrible. There are a lot of order cancellations" from retailers tired of waiting for their deliveries, said Isaac Larian, president and chief executive officer of MGA Entertainment Inc., maker of the popular Bratz dolls.
Toys are unloaded from a shipping container at the Megatoys warehouse in Los Angeles. About 20 percent of the company's holiday merchandise is stuck on the port's backlogged ships or docks.
The backlog — the result of an ever-growing flood of cargo from Asia into the twin ports of Los Angeles and Long Beach — means some toys and other merchandise will be in short supply this season, even as manufacturers and retailers take steps to ease the problem.
Larian said some retailers have canceled orders with MGA Entertainment over the past month because his company missed delivery deadlines, and he predicted that MGA Entertainment's fourth-quarter results will suffer.
MGA Entertainment and other companies, including Spin Master Ltd., are resorting to such strategies as flying in hot products from Asia, but that won't make up for all the merchandise tied up at the docks. And so some retailers are just giving up.
"If stores can't get it in the right place and at the right time, they would rather do without," said John Taylor, toy analyst at Arcadia Investment Corp., based in Portland, Oregon.
The twin ports have become the nation's main entry point for cargo containers. About 43 percent of all 20-foot containers from the Far East arrive at these ports, according to Peter Powell, chairman of the National Customs Brokers and Forwarders Association of America, which oversees activities at the nation's ports. He estimates that this season the cargo volume to the West Coast ports has increased 10 percent to 13 percent from a year ago — when congestion was already a problem.
More dock workers are being hired, allowing the ports to become 24-hour operations, but there's still a labor shortage, and some ships wait at least a week to be unloaded. Powell said the workforce increase will help, but it's a temporary solution that doesn't take into account future growth in imports.
The congestion affects companies across the economy, but the toy business is taking a particular hard blow because 80 percent of its products sold in the United States are made in Asia. And holiday sales account for up to 60 percent of toy makers' annual sales.
Because the problem is unlikely to be resolved anytime soon, retailers might need to consider other long-term options besides the Los Angeles-area ports. Alternatives include ordering goods earlier next year, or rerouting cargo to other U.S. ports.
They also have the option of flying merchandise in, but Larian noted that airlifting the season's most popular toys from Hong Kong and China wipes away 10 percent to 20 percent of the products' profit margins.
