WASHINGTON, D.C. — A prolonged shutdown of West Coast ports could lead to empty store shelves, quiet factories and a global economic crisis, the Associated Press reported.
“The collateral damage is huge,” said Stephen Cohen, a regional planning professor at the University of California at Berkeley. “We’ve never had anything like this. This affects the entire economy.”
Millions of dollars in cargo sat idle for a second day at the 29 major Pacific ports. West Coast shipping lines said they will keep the ports closed until the longshoremen agree to extend their expired contract. But the 10,500-member union said it will not budge until the lockout is ended.
A stalemate could be disastrous for the U.S. economy, which already is teetering between recovery and recession. The cost has been pegged at $1-billion a day.
“It’s just massive,” said John Martin, president of Martin Associates, a Lancaster, Pa., economic consulting firm.
The problems could snowball quickly, according to his study conducted for the Pacific Maritime Association, which represents shipping lines and sea terminal operators. A 10-day shutdown could cost the country $19.4 billion.
American manufacturers increasingly rely on imported components and materials, and the dependence of giant retailers, such as Wal-Mart and Target, on imported merchandise has soared. The containers handled by the West Coast ports include toys from China, computers from Taiwan, lamb from Australia and fruit from Chile. U.S. foreign trade has quadrupled in the last 20 years and now accounts for 20 percent of the nation’s economic activity. Trade through West Coast Customs districts reached $567 billion in 2000, accounting for almost a third of the nation’s international trade, according to Cohen’s study.
Factories and retailers are more vulnerable than ever to supply disruptions. Cargo no longer sits in warehouses as it once did. Containers are moved from the ships directly to distribution centers tied to the ports, where they are broken down, repacked and sent to final destinations within hours instead of days or weeks.
“This has permitted radical reductions in inventories and much improved matching of supply to final demand,” the study said.
Federal Reserve Chairman Alan Greenspan has said the logistics changes contributed greatly to the economic boom of the late 1990s.
The downside is that manufacturers and retailers no longer stock large quantities of parts and merchandise and rely on frequent shipments to sustain production flows and inventory.
“After awhile, they start to run out of stuff,” Mr. Cohen said. “That hurts earnings and may lead to layoffs.”
Manufacturers and retailers have been preparing for possible slowdowns or a strike by ordering extra inventory. That should sustain the national economy for a few days or weeks, said Mark Zandi, chief economist with Economy.com.
“If it extends for a month or two, it will affect sales, production and economic activity at a vulnerable time for the economy,” he said.
Analysts also worry that a prolonged lockout could trigger a crisis in international financial markets, especially in Asia, which is heavily dependent on massive volumes of exports to the United States, and Mexico, which relies on imported components for re-export.
“A few days or couple of weeks — most retailers and businesses are prepared for that,” Mr. Zandi said. “But a month or two — that becomes a significant global economic problem.”