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CE Suppliers, Dealers Worried About Prolonged Port Shutdown

New York – As the West Coast port shutdown marked its eighth day consumer electronics manufacturers and retailers are increasingly concerned that the longer the dispute the greater chance vital product shortages will occur during the critical holiday selling season.

Suppliers and dealers report that the current effects of the shutdown vary from manufacturer to manufacturer and category to category. Finished goods shipped directly through those ports are directly affected, but the industry said that vital components for HDTV and other products manufactured here or in Mexico may soon be hurt, as well.

According to CEA, nine of ten of its members surveyed support President George W. Bush in exercising his authority under the Taft-Hartley Act to declare a cooling off period and bring an end to the shutdown. So far the White House said it is closely watching the situation, but had not acted as of Friday afternoon.

Based on CEA information gathered by its members and analysis by the association’s market research department, it estimates that 70 percent of imported consumer technology products enter the United States through West Coast ports. In terms of dollar sales, 56 percent of all consumer technology products sold through the U.S. enters through ports on the West Coast. CEA claims that $22 billion in CE sales are in jeopardy if this shutdown drags on indefinitely.

In a prepared statement CEA president Gary Shapiro said, “The distribution chain for many products runs from the container ships all the way to the store shelves. All parties with an interest in consumer electronics – retailers, manufacturers and American consumers – will feel undesirable effects if the ports remain shut down.

Rick Clancy, senior VP/communications for Sony Electronics, said, “First we’d like to see this resolved quickly. Here at Sony we have some products and components that come through the Long Beach [California] port.” He noted that while Sony has U.S. and Mexican manufacturing plants up and running, they are effected too. “Some plants making certain types of products need components from Asia. We can airship these components and some smaller-sized finished goods, but at a higher cost.”

He noted that the situation for Sony is “not critical yet, but its impact will be felt if the dispute continues.”

In a prepared statement Philips said that its CE, lighting and Oral Healthcare units are affected by the strike, and like other CEA members it backs President Bush’s use of the Taft-Hartley Act, but “as yet [Philips] cannot determine the degree to which this strike will impact our operations.”

Dave Arland, Thomson‘s government and public relations director, said that his company is being affected in finished CE goods, raw materials and, through its Technicolor tape duplication operation. “We have 400 containers stopped. It is a big deal for television, DVD, accessories, and blank videotape for Technicolor. Our fourth quarter is on the water.”

He agreed with Shapiro’s comment that since today’s supply chains are so tight, with little in inventory and shipments sometimes going direct from the dock to retailers, the situation is bad and getting worse. “It’s estimated that for every day the ports are shut down it will take two days to catch up.”

Harry Elias, JVC Company of America executive VP/COO, said his company has had little effect from the shutdown, but “should the shutdown continue for another week, we might begin to see some effect.”

Peter Ildau, corporate communications VP for Recoton, said that the company has 45 to 60 days in inventories “with other products in transit.” Some manufacturers could use other ports, such as New Orleans and Florida, Ildau suggested, but many of those ships are too big to navigate the Panama Canal. “Many consumer electronics products are lightweight and could be flown in,” he noted.

On the retail side, the Wall Street Journal reported earlier this week that Sears has been preparing for five months and taking inventory earlier than usual, shipping some products by air and diverting shipments to Mexico and other ports.

Retail analyst Dan Wewer of CIBC World Markets told TWICE that the impact on CE retailers will begin if the shut down stretches beyond two weeks. He also suggested that four of the biggest specialty chains, Best Buy, Circuit City, Radio Shack and Tweeter, have taken steps to guarantee supply.

Best Buy and Circuit City took products earlier and are having manufacturers hold safety stock for them in the U.S. If there is a prolonged strike, they will share the cost with vendors to airship critical, big ticket items, Wewer said. RadioShack has already received the bulk of its holiday shipments and is making plans to use airfreight and East Coast ports if necessary. And Tweeter has been “buying heavier and has enough inventory on hand through at least October,” the analyst said. Wewer added, “They’re at less risk than others because their product mix is largely TV, much of which is assembled in the U.S. and Mexico, and audio, for which the largest vendors are U.S. based.”

Bill Trawick, president & executive director of the NATM Buying Corp., said his members have not seen any problems so far. “We’re not seeing any problems out there at this point, and we think we have enough inventory to be okay for the fourth quarter.”

He added, “No one has a real good handle on what’s there. If there were any issues the manufacturers would let us know. We haven’t gotten any calls, so we think it will be okay.”

Working in the industry favor in this situation is the slowdown of retail sales, Trawick said. “Last year there were 30 to 40 percent increases in many categories going into the holiday season, and retailers stocked early in anticipation of shortages. But those spikes have leveled off,” Trawick said, and he hasn’t seen any early inventory loading going on prior to the fourth quarter. – Additional reporting by Alan Wolf.