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Averting a Repeat Supply Chain Disruption at West Coast Ports

It's been 12 years since a labor dispute shut down West Coast ports and turned supply chain operations upside down. History, if we're unlucky, might soon repeat itself. Is the electronics industry ready?

Although there's talk that port closures may be averted in the coming weeks as workers and managers negotiate a new contract, supply chain professionals across all industries will have to play the waiting game and juggle all sorts of what-if and worst-case scenarios.

(Source: Port of Stockton)

(Source: Port of Stockton)

According to recent Bloomberg and Journal of Commerce stories, talks between the workers' International Longshore and Warehouse Union and the Pacific Maritime Association, which represents the waterfront employers, could go on for weeks as they nail down terms for a new six-year collective bargaining agreement. The existing contract expired July 1, and covers activity at 29 West Coast ports, including major shipping areas in Los Angeles, Long Beach, Oakland, Portland, Seattle, and Tacoma.

Even so, there's hope that a strike and port closures could be sidestepped, with some of that optimism coming from the ILWU. The union said in a July 1 statement:

While there will be no contract extension, cargo will keep moving, and normal operations will continue at the ports until an agreement can be reached between the Pacific Maritime Association (PMA) and the International Longshore & Warehouse Union (ILWU). Both sides understand the strategic importance of the ports to the local, regional and US economies, and are mindful of the need to finalize a new coast-wide contract as soon as possible to ensure continuing confidence in the West Coast ports and avoid any disruption to the jobs and commerce they support.

But, the impact from 2002 still makes people shudder. The maritime association locked out workers for 10 days when negotiations failed. The shutdown, which ended when then-President George W. Bush invoked the Taft-Hartley Act, cost about $1 billion a day. A similar stoppage today could cost the US economy more than $2 billion a day and put 169,000 people out of work, according to a report by the National Retail Federation and the National Association of Manufacturers, the Bloomberg article points out.

However, full-on port closures aren't the only worrisome thing. Though less dramatic, other disruptions, such as picketing and sporadic work slow-downs, could throw a wrench into even the best risk-averse logistics plans and affect delivery schedules. This happened in 2008 during contract-renewal talks, notes the Journal of Commerce.

So, what are companies and shippers doing now?

Many companies have already diverted shipments to other ports or moved up order and delivery dates with the hope of avoiding impact, according to the Journal of Commerce. About two-thirds of the 221 shippers that responded to a May 12 through May 14 JOC survey said they had plans to divert shipments, and 73% of those said they will ship through East or Gulf Coast ports, 25% would route goods through Canadian ports and 2% through Mexico, according to the JOC.

The downside is that the diversions have quickly filled up the major freight routes connecting Asia and North America, leaving those looking for shipping alternatives in a rut. A recent National Retail Systems' survey indicates that besides routing goods to other areas, contingency plans have also leaned towards increasing inventory levels and using airfreight. Disconcertingly, 27% of respondents said they were not sure or did not know what their contingency plans were.

Additionally, overall companies many not be as prepared as you'd think, despite having lived through this — or some version of this — before. The NRS survey found that only 52% of the companies who responded are prepared for a possible strike or port closure situation; the logistics professionals polled hailed from manufacturing, retail and 3PL logistics providers across the US.

So, that begs the question. What does supply chain ripple effect look like for the other 48%? I hope we don't have to find out.

What's your go-to plan if there's a disruption at the West Coast ports?

4 comments on “Averting a Repeat Supply Chain Disruption at West Coast Ports

  1. Himanshugupta
    September 30, 2014

    I have not heard about any such disruption from my management so do not know what counter plans can i work on. However, i was wondering how come the contract ended on July 1 and the disruption is happening now. In most of the cases the contract renew happens well in advance.

  2. Ashu001
    September 30, 2014

    Himanshu,

    Usually such Things are delayed across the Supply Chain by 3-4 months (especially as Piled up Inventory gets cleared up).

    Its true that even in todays time of JIT[Just in Time];We have many Organizations which have some degree of Inventory stored around.

    That keeps them going in case of small emergencies.

    This though is a big one!

    A Really-Really Big one!

     

  3. Ashu001
    September 30, 2014

    Jennifer,

    Given that most Cargo that comes to the West Coast comes from Asia(especially East Asia ) Today;it could very easily be routed via ports in Canada and Mexico today.

    From there it will have to enter America via Rail and/or Road.

    I have a feeling that if the Union do push for  a strike ;they will be the Ultimate Losers as all that traffic gets routed elsewhere (some of it may move away permanently too).

    Lets face it when all those Rail-Road Cars are going back inland into America they usually run Filled with Merchandise or are Empty.

    In every Crisis there is an Equal and Greater Oppurtunity.

    This is time to find out who stands where exactly.

    I don't think Air Frieght is the solution for all Businesses in today's weak economy.

    You can't afford to pass through extra costs in today's economy.

    It will kill your Business decisively.

    Regards

    Ashish.

  4. ITempire
    September 30, 2014

    Himanshugupta

    ” In most of the cases the contract renew happens well in advance.”

    Well in case of continuing service, it often happens that formal renewal of contracts gets delayed sometimes specially in the case where there is an understanding between vendor and the client.

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