As the end of September nears, another labor strike in the transportation sector looms with huge potential for economic disruption. International Longshoremen’s Association (ILA) members from Maine to Texas, covering East Coast and Gulf Coast ports, are prepared to stop work if new contract terms are not reached. Master contract bargaining has been underway since May. The strike deadline is October 1.
A strike would affect approximately 36 port locations and 45,000 workers which handle nearly one-half of U.S. ocean imports, according to Reuters. Talks between the ILA and the U.S. Maritime Alliance (USMX) are at an impasse, and President Biden has stated that he will not invoke the provisions of the Taft-Hartley Act to order strikers back to work for an 80-day cooling off period. A walkout would be the first East Coast dock strike since 1977, per CBS News.
Key issues separating the parties are pay, automation at the terminals, and healthcare and retirement benefits. Parties to the talks indicate that there is still time to reach a deal but note that even a brief strike of one week’s duration will take months to clear the backlog, ahead of the Christmas holiday rush. JPMorgan transportation analysts estimate the economic loss at $5 billion per day.
Imports to U.S. ports are running 10% ahead of last year, indicating products have been brought in earlier in anticipation of a strike. Military cargo and passenger cruise vessels will continue to be handled in the event of a strike.
Some shipments have been diverted to the West Coast, carrying higher costs and longer shipping times. Other workarounds include the use of Canadian ports, air freight solutions, temporary warehouse leasing for anticipated safety stocks, and delaying planned shipments. Some businesses have been able to piggyback on multimodal transportation networks, where capacity exists and has been made available to others.
The USMX has indicated an openness to federal mediation. Last month, both sides submitted forms to the Federal Mediation and Conciliation Service. No talks are currently scheduled. Contingency plans and strike prep guidance have been issued at the ports. As of Thursday afternoon, USMX filed an unfair labor practice charge with the NLRB alleging that the ILA is not bargaining in good faith.
How can businesses prepare? Businesses can prepare for future disruptions by using advanced planning – for example, allowing for longer lead times – and maintaining accurate end-to-end supply chain data. With technology and accurate data, businesses can maintain responsiveness and agility to meet customer demands and remain nimble amid supply chain uncertainty.
Allowing for flexibility in your supply chain contracts to provide for alternative routes and sourcing, without penalties from existing sources, can be helpful in dealing with unanticipated market circumstances. For example, it may be beneficial to amend vendor exclusivity language, as well as the obligation as a purchaser to buy all requirements for a product from a certain vendor, which limit flexible responses in critical situations. In addition, adding contract language that permits order cancellation for product that is not special order and has not been shipped can provide flexibility for a buyer to meet unanticipated market conditions. Furthermore, options to lease unused warehouse space until needed, if available, can also add flexibility in responding to changed circumstances.
Careful and thorough risk management analysis with experienced counsel, conducted on a scheduled basis, and flexibility for protection in your supply chain agreements can provide assurance that you have considered changed conditions and examined alternatives that can ultimately help alleviate potential disastrous effects on your business in the event of supply chain disruptions.
We will continue to monitor and provide updates as the situation develops. If if you have any questions about your supply chain contracts or what this potential strike could mean for your business, please reach out to David Confer, chair of the Barley Snyder Transportation, Logistics, and Trade Industry Group.
