A long-running labor dispute between dockworkers and operators of the big West Coast ports has snarled supply chains over the past few months. As a group, retailers have been hit hard due to their heavy reliance on goods imported from Asia. The damage to retail earnings could reach $7 billion, according to retail consulting firm Kurt Salmon.
However, the damage will not be spread equally across all retailers. In fact, off-price players like TJX (NYSE:TJX) -- which operates the T.J. Maxx, Marshalls, and HomeGoods chains -- could profit from other retailers' inventory management woes.
No end in sight
The contract between the Pacific Maritime Association (which represents West Coast port operators) and the ILWU union (which represents the dockworkers) expired on June 30, 2014. The two sides have been negotiating a new contract since last May but have still not reached an agreement.
At this point, the two sides are close on most issues. The main sticking point is the arbitration clause. The union wants for either side to be able to remove an arbitrator at the end of a contract term -- arbitrators have ruled in favor of the employers in 85% of disputes since 2008. The PMA insists on keeping the current system where both sides have to agree to remove an arbitrator.
Both sides have adopted tough negotiating tactics. The employers have accused workers of engaging in a slowdown, particularly by failing to supply enough crane operators. Meanwhile, the employers are striking back by cutting overtime work, despite the backlog of cargo.
President Obama sent U.S. Secretary of Labor Tom Perez to meet with both sides last weekend to expedite the negotiations. So far, the impasse remains. Meanwhile, the flow of goods has slowed to a crawl. Last month, imports were down 39% and exports were down 26% year-over-year at the Port of Oakland.
Retailers feel the pain
Many retailers rely on the smooth operation of the West Coast ports. For example, "just-in-time" supply chain management allows fashion retailers to stay on top of changing trends. However, it means that a port slowdown could cause inventory to arrive too late in the season.
Importers can avoid the bottlenecks by shipping goods to the Gulf or East Coasts, or by switching to air freight. However, all of these alternatives are costly, particularly if the goods are ultimately destined for the western U.S.
Why TJX could be a big winner
Off-price retailers face some of the same issues as full-line retailers, such as higher freight costs due to the slowdown. But inventory woes at department stores and specialty fashion retailers will ultimately benefit companies like TJX.
If suppliers cannot deliver products to department stores and specialty retailers on time, off-price retailers will be able to get great deals on the excess inventory that is not sold this season. During the third quarter earnings call in November, TJX CEO Carol Meyerowitz was very upbeat about the impact of the ports dispute on product availability.
This will allow TJX to pass savings along to customers later in the season. Alternatively, it can store the merchandise until the beginning of the appropriate season next year. TJX also entered the holidays with an increase in "packaways" -- goods held over from previous seasons. This will help offset any shortages from goods delayed by the port backlog.
TJX is thus well positioned to gain market share from traditional retailers over the next few quarters. Even if the ports dispute is settled in the next few weeks, it will take months for shipping times to return to normal. The release of fourth quarter results next week will provide more detail on just how big the benefit will be.
Adam Levine-Weinberg is long January 2016 $55 calls on The TJX Companies, The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.