A contract dispute that left cargo stranded on West Coast freighters over the weekend and Monday is forcing Hewlett-Packard and Gateway to consider their alternatives.
A contract dispute between the International Longshore and Warehouse Union and Pacific Maritime Association that has shuttered major seaports from Washington state to the southern tip of California extended into Tuesday, with no end in sight.
As a result, hundreds of millions of tons of cargo from Asia and other regions has been trapped in containers stacked on freighters outside the ports--and that has tech companies such as Hewlett-Packard and Gateway considering alternative routes to keep their supply chains moving.
In an age where companies pride themselves with the efficient use of a just-in-time manufacturing and delivery process, the slightest hitch can have a ripple effect. In addition to the port closures, tech companies in the past have had to contend with disruptions caused by fires and earthquakes.
"Companies that rely on just-in-time are the ones most vulnerable to the ports closure," said Jin Whang, a Stanford University professor and co-director of the university's Global Supply Chain Forum. "To make just-in-time work, you need to make several assumptions, such as, all your supply line will move smoothly."
Representatives from Hewlett-Packard and Gateway say their logistics teams had been monitoring the problem for months and have launched contingency plans to offset the lockout.
The longshoremen's union, the International Longshore and Warehouse Union and the Pacific Maritime Association, which represents the shipping companies and port operators, have been in cantankerous contract negotiations since their contract expired July 1. The talks further deteriorated Friday when the Pacific Maritime Association called for a lockout, which was lifted the following day. But the association reimposed the lockout again Sunday, and the groups were back at the negotiating table Monday afternoon.
"We want to keep the freight moving and see this thing resolved. We support the on-going negotiations and want to see the parties get things back to normal," HP spokesman Marty Nott said.
On the West Coast, the Port of Long Beach is HP's most active point of entry for shipments of desktops, monitors and components from Asia. From the port, these products and components go directly to HP facilities, resellers and other destinations, Nott said.
"Basically, we have two ways to get the products here (without use of the West Coast ports). There's air and other water routes," Nott said. HP declined to discuss the details of its contingency plans.
San Diego-based Gateway, meanwhile, receives monitors from Asia through the Pacific coast seaports, company spokeswoman Ashley Wood said.
"The majority of our products come through the Port of Long Beach, but we have other sources for monitors from within the United States," she said. Wood declined to outline the contingency plans, noting that the company is currently in a quiet period because of its pending earnings announcement.
Other companies, including Intel, however, rely on air freight to get their products to the West Coast.
"With just-in-time manufacturing and the size of the things we ship, we find its quicker to use air freight to move quickly," Intel spokesman Chuck Mulloy said.
Aside from tech manufacturers, consumers may also see problems, said analysts.
According to the National Retail Federation, West Coast ports handle about $300 billion worth of goods a year, or roughly 50 percent of the shipping cargo to and from the United States.
Electronics retailers such as Best Buy are expected to be among the most affected by the seaport shutdown. Although contingency plans are in place to deliver goods through the air, expenses are likely to rise and potentially crimp earnings, said analysts.
Lehman Brothers analyst Alan Rifkin said in a research note that Best Buy is "somewhat more exposed" to the seaport shutdown than other retailers, "given that a majority of its goods originate from international manufacturers."
Best Buy, however, has countered by working with vendors to stock up on inventory to prevent shortages. Nevertheless, a prolonged lock-out could hurt Best Buy and its main rival, Circuit City.
According to Rifkin, Best Buy would have the upper hand because it has worked out better deals with consumer-electronics vendors.
"If consumer-electronics vendors were to find themselves in short supply as a result of the port disruption, we believe Best Buy would continue to receive a superior allocation of products," said Rifkin.
Technology a key issue
Beneath all the bluster in the contract dispute, the use of technology plays a key part.
The Pacific Maritime Association is urging the use of bar codes and other technologies to track inventory and shipments. The PMA argues that the California ports are behind its Asian rivals and won't be able to handle increased volume using chalk and paper to track shipments.
The union counters that it's trying to keep jobs and its jurisdiction, especially if workers are displaced.
To try to alleviate those worries, the PMA has "guaranteed job protection for every registered worker who may be impacted by technology."
"Our ports today, though among the largest in the world, are far behind when it comes to the use of modern technology," said Tom Edwards, Northern California director of the PMA, in a statement. "We?re not talking high-tech here. We?re talking about off-the-shelf technology that our friends in Silicon Valley developed a decade ago." News.com's Larry Dignan contributed to this report.