Thursday, June 28, 2012

Discontent within US Ports

A rise in work stoppages and slowdowns threatens supply chains throughout the world as the economy struggles to maintain growth. US ports are not immune to the slowing economy as labor unions seek job security for workers.

A rise in work stoppages and slowdowns throughout the world are having a significant impact on supply chains and as noted in a recent Loadstar article, this poses a real threat to economic growth. The ports at Antwerp and Rotterdam, Frankfurt International Airport, Brazilian customs agents, Costa Rican port workers and Korean truck drivers are all either currently on strike or have been on strike at some point in 2012.

North America is not immune to this, as noted in May with the Canadian Pacific strike that lasted a week and resulted in  cargo piled up at Canadian ports. Currently, the Port of Portland is under pressure as two unions, the International Longshore and Warehouse Union, and the International Brotherhood of Electrical Workers are in involved in a dispute regarding jobs related to operating refrigeration systems at the Port’s Terminal 6. As a result of this dispute, Hapag-Lloyd AG and South Korea’s Hanjin Shipping have diverted their weekly ships to Seattle and a third carrier is also expected to divert its ships to Seattle if the dispute is not resolved soon.  The dispute has resulted in higher shipping costs for at least 1,000 regional businesses as many have had to seek alternative export solutions, such as to the Ports of Seattle and Tacoma. Discussions are underway to resolve the work stoppage however; damage has been done as businesses have had to re-adjust their supply chains in response.

Another potential hit to the US port system is on the horizon as contract negotiations between the International Longshoremen’s Association (ILA) and United States Maritime Alliance stalled in May, but are set to resume June 27 - 29. At issue is automation at the East Coast and Gulf Coast ports, which according to the union, threatens jobs.  Many shippers are preparing for the worst this fall when the contract expires September 30. According to an online poll by The Journal of Commerce, more than 75% of respondents consider labor disruption at East and Gulf Coast ports likely, and 68.1% have contingency plans in place to divert cargo.

Based on the results of the online poll, it looks as if many shippers learned a valuable lesson from the crippling US West Coast port strike in the early 2000’s which had a negative impact of over $1bn to the US economy. As a result of that strike, many shippers spread their shipments across several ports, so as not to be caught in such a bind again. If there is indeed a strike or slowdown among the East and Gulf coast ports, while it will have a negative impact, particularly to local and state economies, freight will more than likely be shifted to West Coast ports as well as to Canadian and Mexican ports which are linked to the US heartland via a growing rail and intermodal system.

As noted in the Loadstar article, work stoppages or slowdowns are among the most important risks within supply chains that companies need to account for and manage accordingly. However, with the growing economic uncertainty throughout the world, this will prove difficult as labor unions fight to maintain existing jobs in ports and other transportation points. This will likely create a viscous cycle though as strikes, as seen in the past, can easily cripple an economy – thus further exasperating an already difficult situation.