Note: No sooner than when we posted the below commentary comes late breaking news that longshoremen and east coast port operators have agreed to a 30 day extension for existing labor negotiations. These same reports indicate that the key sticking point, royalty bonuses paid to union workers had been “agreed upon in principle by the parties”. The current contract is now extended until midnight, February 6, 2013.
This is now a supply chain disruption scenario that we are pleased to change from moderate to lower probability. None the less, supply chain teams should continue to have contingency plans in place.
It is looking more and more likely that global supply chain teams may not have to deal with the effects of a U.S. east coast port strike next week. In early December, Supply Chain Matters noted such a dire probability regarding the west coast dockworkers work stoppage, only to report a settlement the next day. We would certainly be pleased to report a similar settlement result regarding the current east coast port situation.
As noted in our Supply Chain Matters alert on December 20th, if a work stoppage were to occur, it would present far more supply chain wide physical and economic disruption consequences. Some industry sources note that over 90 percent of containerized shipments destined for the U.S. eastern seaboard would be impacted as well as 40 percent of all container cargo entering and exiting the U.S… The threat of a work stoppage involves 36 major ports including the major container facilities of Charleston / Savannah, New York / New Jersey, Hampton Roads, Baltimore, Miami, Port Everglades, New Orleans and Houston. A labor stoppage would involve the handling of all ocean container traffic but goods not in containers and military cargo would not be impacted.
The major stumbling block in management and union negotiations remain worker royalty payments related to the total number of containers handled by ports. The U.S. Maritime Alliance, representing all port owners, wants to place an annual cap on these payments, while restricting newer workers from receiving such payments. The International Longshoremen’s Association union considers these payments a basis of essential compensation. Federal mediators remain involved but there has been no reported progress in the talks, which would indicate a continued impasse. A White House spokesperson indicates that President Obama continues to monitor this situation and urges the parties to work at the negotiating table to resolve issues as quickly as possible.
If the strike occurs, multiple industry supply chains would be impacted, not the least of which would be those involving petroleum, agriculture, automotive, retail, industrial equipment, construction and other commodities. This is the period where late winter and spring merchandise arrives at port complexes. The auto industry alone has a high dependency on new vehicles entering dealer showrooms while component parts need to maintain U.S. auto production levels.
Industry supply chains have already begun contingency planning, re-routing existing inbound or outbound ocean container shipments to either U.S. west coast or other ports. Air freight is also a consideration for certain high value, high density shipments such as electronics. An open question is whether other port or transportation unions will sympathize with east coast dock workers and slowdown existing handling and logistics operations. Supply chain teams will need to keep a keen eye toward on the ground developments and contingency movements next week and beyond.
The one thing that is certain is that a strike of this magnitude will have expensive consequences both for the U.S. economy and to specific supply chains.
We trust that this situation will resolve itself in a last-minute settlement but urge all supply chain planning and operations teams to execute all contingency scenarios.