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Connecting the Dots: The Perils and Opportunities of the 2014 Holiday Shopping Seasons

 -- Published: Tuesday, 9 December 2014 | Print  | Disqus 

By Tony Sagami 

For two college summers and Christmas vacations, I worked the docks at the Port of Tacoma.

The work was a little dangerous, but it wasn’t hard because everybody seemed to spend just as much time playing cards as working. And the money was fantastic: $13 an hour back in the 1970s!

As of 2013, the average longshore worker was paid $147,000, as well as benefits worth $82,000 a year!

The money was so good that I toyed with the idea of quitting college and becoming a career longshoreman. My parents, however, went berserk at the idea. My mother cried like a widow at a funeral, and my father gave me the Ward Cleaver stare and made it crystal clear that my choices were: (1) get my butt back to the University of Washington or (2) go to work on the family vegetable farm with him.

Of course, I returned to the University of Washington, but my time at the Port of Tacoma was a great education in the role of unions and the blue-collar basics of the shipping industry.

What’s that got to do with investing? Quite a bit, because the members of the International Longshore and Warehouse Union from 29 ports from San Diego to Seattle have been working without a contract since July and the flow of goods between Asia and the shelves of American retailers has been severely disrupted.

The longshoremen haven’t gone on strike but are using a work slowdown strategy to get negotiating leverage.

That’s bad news for holiday shoppers because the odds are extremely high that the contents of the beautifully wrapped gifts carefully arranged under Christmas trees were made in Asia and transported to the West Coast of the US by ship. Think about it: if you’re a Chinese manufacturer… are you going to ship your goods to California or Florida?

Two ports at Los Angeles and Long Beach handle most of the imports from Asia.

The troubles are adding weeks to deliveries and are already causing a ripple of problems throughout the economy. Truckers aren’t getting paid as much because they’re hauling fewer loads, importers are paying to store containers in dockside yards, ships are sitting idle in the bays, and railroads are seeing less freight traffic.

Union Pacific, the large rail operator, complained that the port issues “frankly, are impacting some of our transportation operations.”

Retailers, many of which depend on holiday sales for more than half of their annual sales, are already singing the blues.

  • Ann Inc., the owner of Ann Taylor and Loft brands, recently warned Wall Street to chop its Q4 sales and profits expectations. The problem? Lower shopping mall traffic, a highly promotional retail environment, and shipping delays at West Coast ports. Plus, it said it will spend an additional $8 million in airfreight costs this quarter.
  • Perry Ellis delays in shipping at West Coast ports hurt its third-quarter results, which included a 5% year-over-year drop in sales.

  • High-end ladies apparel store New York & Co. warned Santa may leave a lump of coal in its EPS stocking. CEO Gregory Scott said, “Sales were impacted by the combination of certain underperforming product categories along with shipping delays at various ports ... As we enter the fourth quarter, the current labor unrest at West Coast ports coupled with a continuation of shipping delays, could impact sales during the holiday period and we are monitoring the situation very closely.”

I have a feeling that some fashion-conscious trophy wives are going to be very unhappy on Christmas morning.

Even regular folks like us may be disappointed. Wal-Mart, with its enormous clout as the world’s largest retailer, is feeling the pain. “[There are] potential port issues on the West Coast this year,” said Duncan Mac Naughton, Wal-Mart’s chief merchandising officer.

Some retailers are getting around the shipping slowdown by having their goods delivered by air freight instead. While that bypasses the West Coast ports, it isn’t a cheap solution. According to the National Retail Federation, air delivery is 10 times more expensive that by ship.

Those extra shipping costs will clobber retailers’ already-thin profit margins so you better take a close look at any retail stocks that you own. However, there is always a silver lining in every storm cloud if you know where to look.

For example, air-freight shippers are enjoying a boost to their business. “When things get a little bit congested, it helps us,” Bruce Campbell, CEO of Forward Air Corporation.

That business boost plus lower fuel costs will translate into Q4 earnings surprises and send their stocks higher when Wall Street reacts with its usual Johnny-come-lately reaction to positive earnings surprises.

You won’t, though, because you already know more than most of the pinstriped experts in Manhattan.

30-year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here. To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.

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