March 05, 2015
A tentative agreement was reached this past week between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA), thus ending the 9-month standoff between the parties operating the US West Coast ports.
This is great news, but we must temper our excitement, as most estimates are that it will take several months to have the backlog cleared at the ports before they get back to “normal” operations. Also, the tentative contract must be ratified by both parties, which will take several weeks.
In past contract situations that involved work slowdowns, normal productivity levels were not reached immediately. However, both the PMA and ILWU have committed to return to full productivity levels immediately. We will know more as we go along.
Supply chains today need to be able to withstand disruptions of this sort, whether they are short-lived impacts (traffic gridlock in Chicago) or longer-standing issues like the port strike. In order to mitigate risk, companies must have a deep understanding of the impacts caused by bottlenecks or congestion in the supply chain.
Companies should be asking themselves, “What did we learn from this?”, and “What strategies should be put in place to protect the business from being crippled going forward?”
First, let’s step back and look at the magnitude of the recent port slow down. Who was impacted and how?
Small imports resellers: I recently heard of an Easter basket distributer that imports baskets. It is possible that some of those baskets may still be floating on the Pacific come Easter Sunday. The financial loss is huge for such a small business.
Retail chains: For hard goods, soft lines, toys, and electronics being imported for sale, companies were not able to run some of the Christmas product line promotions they had planned 11 months earlier.
Agriculture: The impact of the port slowdown was particularly hard on the perishable growers that export their produce, as any deceleration means product loss. This isn’t just an impact for inbound deliveries to the U.S., but also for those growers and producers trying to export out of the U.S.
Production: Parts, parts, and more parts come from all over the world to supply manufacturers. No parts = no finished products, period.
- Transportation: Ocean carrier Maersk Line has canceled sailings, while China Ocean Shipping (Group) Co. said it will skip at least one port. Truckers that normally haul an average of five containers a day away from the Port of Oakland, Calif., are lucky to haul one. A West Coast customs broker said that her customers are being assessed as much as $300 a day for containers that sit too long on the docks, though the containers are trapped there, and it is out of the control of the customer.
This list could go on. The ripple effect is deep, wide, and almost no one is immune to the consequences from a disruption in the supply chain of the West Coast ports slow down. This ripple effect is why disruptions must be anticipated and planned for.
What should be considered going forward for dealing with the West Coast ports? Many shippers are realizing there are alternatives that, although not in the original plan, allow their supply chain to continue to move. Here are some of the tactics that are being used to work around the slowdown:
Redirect to alternate ports: Obviously, rerouting to alternate ports, such as Houston or Jacksonville, becomes the logical next step for ocean freight. Some shippers are going as far as the East coast ports. The positives are that containers are available for transport as scheduled with minimal delays. The negatives are the increased costs and increased transit time (up to an additional 14 days).
Air Freight: For those that have more time-sensitive freight, I’m seeing an increase in air freight, as many shippers are trying to increase buffer stock to shoulder them through the whiplash effect from the West Coast ports. The positives are that air transport has high availability, with the downside being the extremely high cost and lower overall shipment volume. Ultimately, it will impact the cost to serve many customers.
- Reshoring: In a 2013 SCM World report, 57% of respondents were planning on reshoring some, if not all, of their manufacturing. At the time, the reasons were centered on cost, risk, and market responsiveness. For those that made good on this goal, the West Coast ports were less of an impact, but for the 43% that weren’t planning to reshore, they’re probably rethinking it now.
So, is it over? Can we expect to go back to business as normal? The announcement of the port strike’s resolution is definitely a step in the right direction, but it reminds me of the time the Teamsters shutdown Detroit some 50 years ago.
While the immediate result was a ratified contract with higher wages, job security, and better benefits for the union employees, the real impact began to unfold over the next several years and even decades later. The automakers were forced to develop strategies to protect themselves from future shutdowns. Detroit would no longer be the only place that made cars, and soon we saw outsourcing to new suppliers.
This affected local businesses that thrived on the auto industry, both directly and indirectly. Ultimately, the city of Detroit was left behind the wake of business. In the end many parts of the city were left in ruin, and the city filed for bankruptcy. To survive, we need to remain agile.
Examples like the port slowdown show us that supply chains are never fully insulated to disruptions but can be adequately prepared to reduce or counteract those disruptions. As supply chain planning becomes more sophisticated and takes into account risks like the West Coast ports, we’ll find that we’re ultimately reducing costs and building a better supply chain in the process.
Related: How the West Coast Ports Chaos WILL Impact Your Supply Chain