Is Your Supply Chain Prepared for a West Coast Port Shutdown?
by Nico Scopelliti
February 11, 2015
It wouldn't be the first time. In 2002, maritime shipping through West Coast ports in the US effectively came to a halt. For 10 days, containers sat on docks and container ships weren't unloaded. It cost the US economy about a $1 billion dollars a day. Were it to happen again today, it would cost the economy twice that.
That day may be approaching. As in, this weekend.
The Pacific Maritime Association, a consortium of 72 shipping lines and terminal operators, was formed in 1949 for the express purpose of managing relations with dock workers, who had begun unionizing in the 1930s. Today, the International Longshore and Warehouse Union represents over 37,000 members on the West Coast. It's easy to understand how two organizations with fundamentally opposing interests like the PMA and the ILWU would often collide, and when they do, the shockwave is felt across the nation and around the world.
During negotiations in 2002, the PMA accused the ILWU of attempting to leverage their position by means of concerted and purposeful slowdowns that throttled the throughput of ports, leading to tremendous delays and backlogs. The PMA responded by locking the dock workers out of the ports entirely. It took the President invoking the Taft-Hartley Act to get shipments flowing again.
The most recent agreed-upon contracts between the union and the association expired in 2014. Work has continued while arbitrated negotiations have been in progress—but "progress" may not be the right term to characterize these negotiations. The conflict is once again at risk of boiling over.
On February 4th, PMA President Jim McKenna released this video:
On February 5th, ILWU President Bob McEllrath struck back, accusing the PMA of misleading the public by saying that ports are too congested to unload ships as a result of ILWU actions to slow work down.
Needless to say, things aren't looking good. If the shipping slowdowns that are already occurring at the ports progress into another full shutdown, the question isn't whether or not your company will be affected; the question is, "How bad will it hurt?"
A report commissioned by the National Association of Manufacturers and the National Retail Federation, "The National Impact of a West Coast Port Stoppage," is well worth printing out in hard copy.
If you source any of your materials or products from Asia, or if anyone upstream of you does, you will have a very serious problem. That's especially the case if your manufacturing or distribution relies on Just-In-Time deliveries—you can be assured that your inventory is not going to be delivered just in time. Your operations will grind to a halt.
Do you have contingency plans in place? While absorbing the additional cost of air freight may be a temporary solution for certain shipments, it's not sustainable for any of them. What alternatives have you considered? Are there other suppliers you can rely on? Or can you coordinate with your vendors to have your freight arrive by way of other channels, like Canadian or Mexican ports?
Have you been on the phone with China recently?
I can't answer these questions for you. But I can urge you to ask them yourself and hunt down answers. In every threat lies an underlying opportunity. Not only can you reduce the impact of the shutdown, you can take advantage of your competition's lack of prudence, preparation, and forethought. Hopefully it won't happen, but this definitely is one of those times when it's a helluva lot better to be safe than sorry.
If you'd like to read more on the subject, here's a summary from Bloomberg Business.
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