Another recent development has many importers and shippers concerned that more goods will become stuck at ports — putting the flow of goods at risk and delaying shipments just as retailers are trying to recover from very challenging pandemic supply chain disruptions.
August 2022 - The global supply chain has been extraordinarily constrained since 2020.
Another recent development has many importers and shippers concerned that more goods will become stuck at ports — putting the flow of goods at risk and delaying shipments just as retailers are trying to recover from very challenging pandemic supply chain disruptions.
The controversy surrounds the U.S. West Coast Port Labor Contract.
Background
The International Longshore and Warehouse Union (ILWU), representing more than 22,000 West Coast port workers, has been in ongoing labor contract negotiations with the Pacific Maritime Association (PMA) since May 10, 2022. The PMA consists of about 70 employers.
The previous agreement between the organizations expired on July 1, 2022; however, both sides have indicated multiple times that they were not preparing for a strike or lockout and that operations would continue during ongoing negotiations.
The lack of consensus puts the situation even more at risk. Because now, there is no governing body to unite many trade union factions, which means smaller groups can stage a walkout or strike on their own.
What is at Stake?
A shutdown would mean significant disruptions for the supply chains of companies that rely on west coast ports to move their goods.
In 2014-2015, the ILWU-PMA labor dispute resulted in delays and disruptions that lasted nearly nine months after the dispute was resolved.
Suppose the current ILWU-PMA negotiations result in a strike or lockout. In that case, the resulting impacts could be more significant than in 2014-2015, given the existing supply chain pressures that have continued since early 2020. The West Coast ports are a critical part of the supply chain for many industries, including retail, agriculture, and automotive. A prolonged shutdown would have a ripple effect on the U.S. economy and could lead to higher consumer prices on a wide range of goods.
Negotiations Continue with Some Progress
The two sides have been meeting regularly since May, and there have been reports of some progress. But the issues at stake are complex, and with the expiration of the previous agreement, there is now no governing body to keep the union factions together.
On July 27, the ILWU announced it had reached a preliminary agreement on health benefits with port terminals, an important step toward agreeing on a new contract.
However, recent reporting suggests that negotiations may have hit an impasse due to an operating issue at a specific port while some significant issues – like automation – remain outstanding.
What about Automation?
One of the key issues in the negotiations is the role of automation in west coast ports. The ILWU has opposed increased automation, arguing that it would lead to job losses. However, the PMA has argued that increased automation is necessary to improve efficiency and remain competitive with other ports worldwide. The reality is that automation has historically been an inexorable force in every global industry. Its expansion into ports and terminals over the next 5-10 years seems inevitable.
As contract negotiations continue, optimism about a smooth and disruption-free settlement appears to be waning. Both sides continue to exchange proposals related to expanded ports automation, but no real progress has been made.
Meanwhile, signs of unrest began to appear among the dock workers.
For example, The Wall Street Journal recently reported that workers at the Port of Los Angeles refused to allow ships to enter the automated section of the Pier 400 terminal for security reasons.
On the other hand, a Matson vessel at the Port of Tacoma was recently idled because union members demanded CPR training for mechanics. Management is not authorized to hire an arbitrator to decide such matters without a valid contract.
How to Prepare for Potential Supply Chain Disruptions
Although it's still unclear what the outcome of the negotiations will be, companies that rely on West Coast ports should begin preparing for potential disruptions to their supply chains.
Here are a few steps you can take to prepare.
1. Establish Contracts with Alternative Suppliers.
Identify alternative suppliers that could provide products. Contact the suppliers in your region to discuss the possibility of establishing an agreement for products and placing emergency orders in the future if needed. Establishing contracts with multiple suppliers can enhance your resilience to obtain products during any future supply shortages. · Work with your logistics provider to develop contingency plans in case West Coast ports are shut down. It might include rerouting shipments through East Coast or Gulf Coast ports or using airfreight to transport goods.
2. Develop a Contingency Plan
3. Review your Supplier Contracts
4. Take Inventory
The Bottom Line
The West Coast ports are a critical part of the supply chain for many industries, and a prolonged shutdown would have a ripple effect on the U.S. economy.
While it's impossible to predict the outcome of the negotiations, companies should be prepared for potential disruptions to their supply chains.
Companies can do a few things to prepare, such as reviewing contracts with suppliers, contingency planning with logistics providers, and stocking up on inventory. By taking some proactive steps now, businesses can minimize the impact of west coast port disruptions.
Before the latest development, analysts had predicted that a new contract could be finalized in August or September with minimal disruption to U.S. supply chains.
The Biden administration continues to monitor the negotiations closely. U.S Labor Secretary Marty Walsh informed negotiators that negotiations must be completed by October, before the midterm elections.
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Do you think west coast port labor negotiations will lead to a shutdown? What steps are you taking to prepare?
