Toys Tied Up on Two West Coast Shipping Docks

With the start of holiday shopping just weeks away, toy companies and other purveyors of seasonal merchandise are living through a nightmare – merchandise that’s stranded aboard cargo ships amid the gridlock at two West Coast ports.“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.The backlog – the result of an ever-growing flood of cargo from Asia into the twin ports of Los Angeles and Long Beach – means that some toys and other merchandise will be in short supply this season, even as manufacturers and retailers take steps to ease the problem.Mr. Larian said some retailers have canceled orders with MGA Entertainment over the last 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 still 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 a toy analyst at Arcadia Investment Corp., based in Portland, Ore., John Taylor.The twin ports have become the nation’s main entry point for cargo containers. About 43% of all 20-foot containers from the Far East arrive at these ports, according to Peter H. 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% to 13% from a year ago – when congestion was already a problem.It’s not just imported goods that are causing the pileup. With American ex ports increasing – they reached a record $97.5 billion in September, the Commerce Department reported Wednesday – there’s more outbound cargo for the ports to handle.More dockworkers 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 work force 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% of its products sold in the America are made in Asia. And holiday sales account for up to 60% of toy makers’ annual sales.Since 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 American ports.They also have the option of flying merchandise in, but Mr. Larian noted that airlifting the season’s most popular toys from Hong Kong and China wipes away 10% to 20% of the products’ profit margins.Charlie Woo, CEO of Megatoys Inc. – a Los Angeles-based toy company that makes baby dolls, dollhouses, and radio-controlled cars – is in a similar predicament, as the backup of his merchandise has worsened over the last few days. About 20% of the company’s holiday merchandise is either on the ships or sitting on the docks.“I have been talking to [stores],” he said, hoping to forestall cancellations, but he fears a 5% to 10% drop in holiday sales this year.Companies need to “be thinking now” about long-term solutions, according to Ken Walker, principal at Kurt Salmon Associates, a retail consulting company, who is working with various retail clients on ways to solve the problem.But every alternative comes with risks. For example, ordering merchandise earlier adds to inventory costs.And if companies decide to reroute their products to eastern ports like New Orleans, New York, and Norfolk Va., they have to add another seven to 10 days to their timetable, Mr. Powell said. Furthermore, companies need to find ports that will be big enough for the larger fleet of vessels that now carry 8,000 twenty-foot containers, he said, much larger than the older ships that carry 2,500 to 4,500 twenty-foot containers, Mr. Powell said.Another possibility is having toys manufactured in countries beyond Asia. But looking for new places to make products is complicated and time-consuming. Companies must develop new relationships with factories and make sure they produce high-quality products.Some retailers such as Sears, Roebuck, and Company started rethinking other alternatives months ago, after realizing that the congestion wasn’t improving. A spokesman at Sears, Chris Brathwaite, said a portion of this season’s cargo is being diverted to other ports, and that Sears has expedited truck deliveries to ensure that advertised merchandise make it to stores on time.Mr. Larian, of Van Nuys, Calif.-based MGA Entertainment, said his company is thinking about rerouting the cargo to different ports like Seattle and Vancouver next year. But that will mean downsizing three warehouses in the Los Angeles region and building others closer to the new ports, which will add costs that will have to be passed on to the consumers, he said.A spokesman at Spin Master, Harold Chizick, said that looking for other alternatives will be a top priority after the New Year, but he declined to be specific.The congestion is a “recurring problem that is happening every year that keeps getting worse,” he said.“Right now, we are in the same boat as everyone else, and we are just reacting to the situation by paying big premiums for quicker service,” he added.

Toys Tied Up on Two West Coast Shipping Docks

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