Just six months after the last round of unrest, another strike affects Southern California ports. Is your supply chain at risk?
Photo courtesy: Jonathan Gilbert
The new normal for LA-area ports?
Once again, labor issues at Long Beach and Los Angeles are interrupting supply chains. The strike, first announced on Monday October 26th, is protesting the characterization of some truck drivers as independent contractors instead of employees. For the third time this year, shipping delays at Long Beach and Los Angeles ports are causing headaches for supply chain managers.
So far in 2015 alone, we have seen an International Longshore and Warehouse Union (ILW) slowdown/lockout issue in February, an April strike, and another strike in October. Maybe this is just the new normal for Southern California.
Exploiting a vulnerability
Why strike the Ports of Los Angeles and Long Beach? Simply put, the Teamsters know where to apply pressure. The independent contractor issue has been an ongoing battle for over a decade, with recent skirmishes being fought by FedEx, UPS, Amazon, and other prominent logistics services providers (LSPs). From the Teamsters' point of view, job actions at LA-area ports are highly visible and potentially the most disruptive to the entire US supply chain.
Drivers who wear uniforms, operate on company schedules, and meet other criteria maintain that their work is indistinguishable from that of employees. Employers are able to avoid paying minimum wage, overtime, and other benefits by classifying workers as independent contractors.
Whatever your view of this situation, you need to plan on continued conflict and manage your supply chain accordingly.
Understanding supply chain risk
Even without considering the Teamsters' actions, supply chain risk related to LA-area ports should still be of concern to most US importers. These two facilities have regained most of the market share they lost earlier in 2015 as shippers move containerized freight back from East Coast ports. West Coast ports now handle 50% of US import containers, up from 45% earlier this year. Without large scale disruptions, I expect that this trend will continue.
With this concentration of demand comes risk. Labor actions, weather, natural disasters, and other events occur from time to time, and it is prudent to diversify when possible. Force majeure clauses are in your transportation contracts for a reason.
What should a responsible shipper to do?
Strategies that diversify supplier locations, spread freight across multiple ports and modes, and shorten supply chains are all great ways to mitigate risk. Beyond that, consider the potential benefit of inventory and determine if there is case to be made for holding additional safety stock for critical components. Hard to source and long lead time items are of particular interest in these analyses.
Nearshoring is another excellent approach, and we still see a lot of interest and activity in this area.
We still believe that diversification is the best way to mitigate risk. Find alternatives; not just for transport, but in manufacturing, supplier and DC locations too.
Smart supply chain managers should be thinking strategically. Start with these questions:
- Have you recently assessed the risk inherent in your current supply chain?
- What modes do you rely on most?
- Which shipping lanes and ports figure most prominently in your network?
- Are you using LSPs that are vulnerable to crippling labor actions?
- What contingency plans do you have in place today?
- Do you include contingency planning when introducing new suppliers and new production locations into your network?
We would like to know more about your thoughts on the strikes. Please share your ideas with other EBN readers through a comment below.