Stranded merchandise creates pressure for companies, retailers

Some toys will be in short supply because of shipping bottleneck.
NEW YORK (AP) -- 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 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 some toys and other merchandise will be in short supply this season, even as manufacturers and retailers take steps to ease the problem.
Cancellations
Larian said some retailers have canceled orders with MGA Entertainment over the past month because his company missed delivery deadlines, and he predicted 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 John Taylor, toy analyst at Arcadia Investment Corp., based in Portland, Ore.
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 arrives 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 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.
Toy sales
The congestion affects companies across the economy, but the toy business is taking a particularly 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.
Companies need to "be thinking now" about long-term solutions, according to Ken Walker, principal at Kurt Salmon Associates, a retail consulting company. 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.
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, Powell said. Furthermore, companies need to find ports that will be big enough for the larger fleet of vessels that now carry 8,000 20-foot containers, he said, much larger than the older ships that carry 2,500 to 4,500 20-foot containers, 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.