New Year Could Bring Repeat of Port Strikes

As the crucial labor deal that has kept East Coast and Gulf port operations steady is about to end, the worry of renewed strikes poses a substantial threat to supply chain stability. The current agreement, negotiated between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX), is set to expire on January 15, 2025. Without a new accord, we could witness a repeat of supply chain disruptions. 

Historical Context and Recent Developments

Just earlier this quarter, the East Coast port strikes led to a tentative agreement to increase wage demands. The ILA and USMX settled on 61.5% wage increase over the life of the six-year contract. The recent truce and labor stability were hard-won, but the underlying issues that prompt such conflicts—wages, working conditions, and automation—remain contentious.

Impactful Numbers

According to data cited by the National Association of Manufacturers, nearly 70% of U.S. exports and 56% of containerized U.S. imports come through East Coast and Gulf Coast ports. Moreover,

• More than 68% of all containerized exports and more than 56% of containerized imports flow through East and Gulf Coast ports, representing an average daily trade value of more than $2.1 billion.
• They handle more than 91% of containerized imports and 69% of containerized exports of pharmaceutical products.
• They also process more than 76% of containerized vehicle exports and more than 54% of containerized vehicle imports.
• For air and spacecraft, more than 77% of containerized exports and more than 51% of containerized imports go through these ports.

Potential Impact on the Supply Chain

1. Port Congestion and Delays: Any halt or slowdown in operations can create a significant backlog. This congestion not only delays shipments but also increases demurrage fees and other costs associated with storage and late deliveries.
2. Inventory Management: Businesses reliant on just-in-time inventory strategies may face stockouts, leading to lost sales and customer dissatisfaction. Conversely, those with high inventory levels may incur additional holding costs, tightening their cash flows. The ripple effects could impair production schedules and lead to inefficiencies.
3. Cost Increases: Transportation costs could increase due to rerouting cargo through alternative ports or expedited shipping services. These additional expenses are likely to be passed down to consumers, contributing to inflationary pressures.
4. Global Trade Disruptions: With the East Coast ports serving as major gateways for international trade, global supply chains could face disarray. The ramifications would extend beyond the United States, affecting suppliers and manufacturers worldwide. Import-export activities could slow down considerably, impacting trade balances and foreign relations.

Mitigation Strategies for Businesses

Supply chain leaders must focus on enhancing the resilience of their networks to better manage such uncertainties. Gartner identifies several key strategies for mitigating the potential impact of port strikes:

1. Diversification of Supply Routes: Businesses should evaluate and establish alternative shipping routes, including other ports or even overland transport options where feasible. Diversification of logistics providers can ensure continuity in case of disruptions.
2. Enhanced Inventory Buffers: Increasing safety stock levels can buffer against potential delays, though this comes with higher holding costs. A strategic approach to inventory management balances the trade-offs between inventory costs and service levels.
3. Supplier Relationships: Strengthening relationships with multiple suppliers can reduce dependency on a single source and provide flexibility in procurement. Collaborative partnerships and multi-sourcing strategies can protect supply chains against disruptions.
4. Advanced Planning and Communication: Transparent communication with stakeholders and customers about potential delays and proactive planning for inventory and sales can mitigate the negative impact of supply disruptions. Gartner emphasizes the importance of dynamic supply chain planning and scenario analysis to anticipate and respond to disruptions effectively.
5. Technology Integration: Leveraging technology for real-time tracking and inventory management can enhance visibility and responsiveness, helping businesses adapt quickly to changing conditions. Digital supply chain capabilities, such as predictive analytics and AI-driven insights, are critical enablers of resilience.

The Role of Government and Negotiators

The onus of averting a crisis does not rest solely on businesses. Government intervention can play a pivotal role in facilitating negotiations. The Biden administration’s proactive involvement, as urged by the coalition of trade associations, could provide the necessary impetus for a timely and amicable resolution. Additionally, both the ILA and the USMX must approach negotiations with a collaborative mindset, prioritizing long-term stability over short-term gains.

Looking Ahead

As the current labor agreement nears its expiration, the threat of renewed port strikes poses a significant risk to supply chain stability. East and Gulf Coast ports, crucial for U.S. imports and exports, face potential disruptions that could lead to congestion, inventory issues, cost increases, and global trade impacts. Businesses must proactively adopt strategies like diversifying supply routes, enhancing inventory buffers, strengthening supplier relationships, advanced planning, and leveraging technology to build resilience. Government intervention and collaborative negotiations are also essential to avoid a crisis.

In summary, prompt collective action from businesses, the government, and labor organizations is vital to ensure continuity and stability in the supply chain, preventing a repeat of past disruptions and safeguarding global trade.

References:

• Sourcing Journal. (2023). “East Coast, Gulf Port Strike Looms as New Deal Expiring Jan. 15.” Retrieved from https://sourcingjournal.com/topics/logistics/nrf-ila-usmx-east-coast-gulf-port-strike-jan-15-2025-coalition-letter-aafa-rila-contract-negotiations-biden-trump-1234726544/
• https://www.gartner.com/document-reader/document/5289363?ref=solrResearch&refval=443210239
• https://advocacy.calchamber.com/2024/12/10/calchamber-joins-effort-to-prevent-supply-chain-ports-disruption-in-new-year/
• https://nam.org/mapping-the-impact-of-a-port-strike-32072/?stream=business-operations

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