Supply Chains at Risk from West Coast Ports Crisis

By John Hall

February 20, 2015 at 4:42 AM

An epic long-standing feud between dockworkers and shippers continued threatening to cripple all 29 West Coast ports this week, putting as much as $1 trillion in annual cargo shipments at risk. 

More than 70% of Asian imports enter the U.S. through these ports and are now in jeopardy. Disruptions already are threatening to disrupt supply chains for consumer goods, electronics and auto parts and produce – disruptions that aren’t likely to be keenly felt for months to come.

Off the coasts of Long Beach and near Los Angeles, meanwhile, 1,000-foot-long behemoths are stacked like planes on a runway, burning fuel as they sit idle from ongoing work slowdowns and stoppages.

The ports have a troubled and stormy history dating back to 1971, when a massive dockworker strike nearly crippled the economy and choked supply chains serving 56 west coast ports used in the Vietnam war effort. The strike, fueled by technological improvements that threatened jobs, was later quelled after President Richard Nixon invoked the 1947 Taft-Hartley Act, which had given the government some muscle to control unions.

TANEL1.JPGOther dock disputes rattled West Coast ports in 2002, 2008 and 2012. The 2002 10-day lockout resulted in nearly $16 billion in losses to the U.S. economy, according to Reuters reports. “It took six months to return shipments to normal after that incident,” Tom Tanel, President, CATTAN Services Group, tells My Purchasing Center. CATTAN is a leading logistics and supply chain consultancy.

Shippers, Dockworkers Butt Heads

The current turmoil actually has been brewing since July 2014, when new contract negotiations between dockworkers and shippers collapsed. Butting heads now are the Pacific Maritime Association (PMA) and the 20,000 dockworkers of the International Longshore and Warehouse Union (ILWU). The PMA represents 72 terminal operators, stevedores, and shipping companies.

At issue: Wages, pension, terms of agreement, the arbitration process and how certain functions will be performed, such as truck chassis inspections, according to Reuters. IHS Maritime reports that full-time dockworkers are seeking average wages of $147,000, fully paid health care and pension increases up to $88,800 per year.

Disputes have intensified since late 2014, punctuated by union slowdowns and intermittent stoppages. Things started getting especially bad in mid-February, when the PMA suspended weekend operations at all 29 ports. As recently as this week, more than 30 cargo ships were reportedly parked in the waters off the busiest ports in Los Angeles and Long Beach.

At press time, President Obama dispatched Labor Secretary Tom Perez to mediate the dispute, but little so far has been accomplished according to published reports.. “The big question is whether the president will exercise the Taft-Hartley Act and put the dispute to bed,” Tanel observes.

PMA blames the union for the work slowdown, as well as intermittent disruptions involving equipment operators. The ILWU blames gridlock up and down the west coast on PMA members, which it claims have modified shipping practices and allowed super-sized freighters to clog the ports. 

Importers and exports, meanwhile, say they are caught in the middle, with very little workarounds or options. “American companies right now have very little alternative as far as west coast shipping,” Tanel says. “Some companies have contingencies, but there is so much that moves through those ports. Everyone has supply chain disruption contingencies, but the alternatives are kind of limited.”

The National Retail Federation has asked both sides to “stop holding the supply chain community hostage,” calling “the continued intransigence by labor and management to reach a new contract” unacceptable. 

Chassis Inspections a Sticky Point

One largely unpublicized bone of contention among union members is a new policy that took away their rights to inspect truck chassis before allowing haulers to enter ports to retrieve shipping containers. Tanel says he believes they viewed it as a threat to their jobs.

Up until 2014, shippers owned the chassis and longshoremen were responsible for doing safety inspections. Under a policy affecting ports worldwide, however, the policy changed last year, allowing drayage firms to own or lease the chassis. Many now outsource inspection work to other trucking firms, warehouses or intermodal providers, Tanel said.

“The longshoremen basically want this back,” he says, a battle that won’t put them in good stead with truckers.

“So now when the stuff comes on, the longshoremen are holding it up, not letting the truckers get their stuff. The resulting congestion is epic. You can’t even move around there,” adds Tanel, who frequently visits relatives on Terminal Island in Long Beach and has witnessed the chaos firsthand. “It’s a mess. They just don’t have room to maneuver now.”

Drayage firms say impediments to chassis inspections have increased average truck turnaround times to two to three hours at terminal gates and yards.

‘A Battle over Automation’

Experts will characterize the West Coast ports crisis a million different ways. Tanel says it boils down to “a battle over automation,” a battle dockworkers may be waging at their own peril. 

In fact, it was automation issues at the Port of Los Angeles that led to the 2002 lockout. The union took steps to delay installation of automated cranes, for example. Tanel said even today, West Coast ports may be lagging seriously behind other global terminals that have far more sophisticated automation that has significantly streamlined loading and unloading.

The Costliest ‘Last Mile’

In shipping parlance, the “last mile” refers to that point between port landing and off-loading on to trucks. It also is by far the most expensive leg of any ocean-bound cargo’s journey.

And on the West Coast, it just recently got significantly more expensive.

As if untold gallons of wasted fuel and labor aren’t enough, now the trucks offloading port cargo are getting battered with higher demurrage bills, per diem charges and hefty import surcharges as high as $1,000 per 40-foot container. Export surcharges are as high as $300 per 40-foot container, according to Tanel.

In response to the increased fees and surcharges, the Harbor Trucking Association (HTA) representing Los Angeles-area firms recently announced than more than 70 trucking companies declared “force majeure” in letters sent to the Intermodal Association of North America (IANA). The term alerts parties of inabilities to meet contractual obligations because of unforeseeable circumstances. 

‘Substantial Losses’

It may take months before the full impact of the situation is felt or measured. For now, however, importers and exporters are taking a huge hit, and supply chains serving consumer goods, auto and electronic parts and, of course, produce markets are getting disrupted and rattled. California citrus growers alone have suffered more than $500 million in export business, according to New York Times reports.

Ports in Washington state, including Tacoma and Seattle, are getting hammered by productivity losses exceeding 60%; one Seattle Times blog postulated the crisis would long tarnish the ports’ reputations “as difficult places to do business and unreliable for customers.”

According to Tanel, 15 cargo shippers surveyed by the Transpacific Stabilization Agreement (TSA) reported “incurring substantial losses from blanked sailings, skipped port calls and speedup of existing vessels or chartering of added ships and equipment to maintain schedules, not to mention untold amounts of fuel spent idling in the harbors."

Meanwhile, the impact to the U.S. economy could be anywhere between a hiccup and borderline catastrophe, depending on the length and severity of the gridlock. Some Wall Street analysts say a one-week strike could carve close to 0.1% of the nation’s GDP the first quarter of this year alone.

According to Kurt Salmon analysts interviewed by NBC News, the nation’s retailers could lose as much as $7 billion in 2015 from lost sales and higher carrying costs. When rate increases from import growth are factored in, that figure could hit $36.9 billion more in 2016. A NRF report concludes that a 10-day port shutdown could cost as much as $2 billion a day.

“Down the road, this will definitely be a perfect reason to raise prices,” says Tanel, adding he believes the impact could be felt most keenly by manufacturers of consumer products, “anything agricultural” and manufacturing imports (mostly components and parts).

One supply chain consultancy reports that supply chain disruptions could be significant in terms of:

  • Imports at sea being backed up offshore without access causing increased carrying costs;
  • Food and consumer goods inventories being rapidly depleted;
  • Production disrupted at manufacturing plants due to lack of components; and
  • Lost sales (and possibly customers) through a lack of materials, supplies or goods.

New Shipping Alternatives on Horizon?

Meanwhile, there are new possible “threats” to West Coast shipping businesses in the form of planned widening of the Panama Canal (to be completed by 2017), shifting supply sources in the Far East that promise to make the Suez Canal an attractive route, and development of transshipment Caribbean hubs – all of which would provide viable oceanic shipping options should the West Coast port crises endure, according to Tanel. In addition, infrastructure improvements in East Coast and Gulf ports could open alternatives as well, he adds.

“If this situation has achieved anything, it’s opened these kinds of options down the road,” Tanel says. “The industry is going to get fed up with this ongoing problem that seems to crop every few years out there.”




Tags: purchasing logistics Supply chain management Procurement sourcing
Category: News Article

John Hall

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John Hall is a freelance writer who reports on commodities markets and procurement and supply management topics for My Purchasing Center. His website is jhallmedia.com


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