Japan Automakers Impacted by U.S. Port Dispute

Maritime Activity Reports, Inc.

February 6, 2015

Japanese automakers are being forced to ship some car parts to U.S. plants by expensive air cargo and tweak production processes as a protracted labor dispute at U.S. West Coast ports shows no signs of letting up.

Fuji Heavy Industries Ltd's Subaru, the fastest-growing brand in the United States, said this week that it now had to shoulder an extra 7 billion yen ($60 million) in costs a month due to air freight, which has seen prices go up with the extra demand.

"It looked like the labor talks were going well at one point but in recent days the slowdown has grown quite severe," Fuji Heavy Chief Financial Officer Mitsuru Takahashi said.

He said that without the move to chartered cargo flights, the automaker's U.S. production would have come to a halt in mid-February. "I think others are in the same boat," he added.

Ports along the U.S. West Coast have been experiencing severe delays since October, due partly to lengthy labor talks between dockworkers and the group representing shippers and terminal operators - a situation reminiscent of the disruptions seen during the West Coast ports shutdown in 2002.

The chief labour negotiator for the operators this week warned ports were days away from complete gridlock. Union officials in turn played down the potential for shutdowns, suggesting management was exaggerating the situation as a negotiation tactic.

Toyota Motor Corp, which built about 2 million vehicles in North America last year, has eliminated overtime at some factories in North America, a spokeswoman said. The company declined to disclose whether it was using air freight, adding only that it expected no major change to its overall production plans.

Honda Motor Co and Nissan Motor Co said they had switched to air freight for some components, from late-January and December, respectively.

Hyundai Motor said it was seeing no impact on production so far as it had added and diversified shipping routes. Hyundai uses eastern ports more than western ones to supply its factory in Alabama, a spokesman said.

The last time dockworkers' contract negotiations led to a shutdown of West Coast ports was in 2002, when the companies imposed a lockout that was lifted 10 days later under a court order sought by President George W. Bush.

The latest dispute had also forced McDonald's Japan to offer only small-sized french fries temporarily and ship in some by air, although a spokeswoman said its menu was now back to normal. KFC Japan suspended sales of its fries last month, and it remains unclear when they would restart, a spokeswoman said.

By Chang-Ran Kim

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