US West Coast Port Strike: Mitigate Supply Chain Disruptions With A Contingency Plan
The International Longshore and Warehouse Union and Pacific Maritime Association have been in negotiations since May 12, 2014 over a new West Coast longshore labor contract. The current six year labor contract is slated to expire at midnight on June 30, 2014 so the ILWA and PMA are working actively to renew labor contracts by reaching an agreement on a new contract.
Potential Impact On Trade
A strike or other labor disruption would have a significant impact on the North American economy and global trade. The Global Port Tracker Report by the National Retail Federation states that the major ports of Los Angeles, Long Beach, Oakland, Portland, Seattle and Tacoma along the U.S. West Coast handled 11.2 million cargo containers in 2013, or 69 percent of the total at U.S. retail container ports.
In the event of a strike or lockout, all ports on the U.S. West Coast will be shut down and all vessels will be denied access to those U.S ports. This will result in vessels diverting to the East Coast, Mexican and Canadian ports causing large-scale congestion. Truck traffic along the U.S.-Canadian and U.S.-Mexican border is also expected to increase resulting in congestion and delays.
The expansion of the Panama Canal has given U.S.-bound shipments new arrival options causing West Coast ports to fight for market share in the Asia-Pacific sector. Shipments to the U.S. East Coast via the Suez Canal are also increasing.
Impact On Exports From And Imports To The U.S.
More than two-thirds of U.S. retail container cargo flows through the West Coast ports. This includes goods imported from Asia, with total volumes of around 20 million 20-foot equivalent units (TEUs) a year. As retailers approach the peak period for importing merchandise for the back-to-school or holiday seasons, activity is expected to be strong this summer.
- A strike this summer may result in more containers bypassing the West Coast altogether.
- If a new contract or contract extension is not in place one week prior to the current contract expiration, it is possible that the railroads will issue an embargo to/from the West Coast ports to control the flow of rail cars and avoid a backlog. Vancouver does not fall under the ILWU (they are part of the BCMEA ). Intermodal cargo that moves via the United States West Coast cannot be routed over Vancouver.
- The East Coast and Gulf systems cannot accommodate the volume for the West Coast. Importers considering East Coast/Gulf routing are advised to plan ahead and secure additional inventory in advance.
- Bracing for labor unrest or potential work stoppages at U.S. West Coast ports, some ocean carriers are announcing a precautionary Port Congestion Surcharge (PCS). The amounts of the surcharge are applicable to both dry and reefer shipments: $800 per-20 foot container (TEU) and $1,000 per-40 foot container (FEU). This surcharge will be applied to all shipments destined for or originating in the United States, including shipments to/from Canada and Mexico.
What You Can Do To Safeguard Your imports And Exports
As a majority of imported retail goods are shipped through West Coast terminals and gates, a successful contract negotiation is of critical interest to all in the supply chain. While all parties are optimistic that a new agreement will be reached with little disruption, having a contingency plan in place in case of a strike or lockout will help your business mitigate any supply chain disruptions. Below are some proactive steps you could take to safeguard your shipments.
- Scope your alternatives - Develop a backup plan with an experienced logistics provider to ensure the proper flow of merchandise.
- Ship highly predictable merchandise early - This will enable your product to arrive at destinations in a timely manner before the contract expiration is reached (June 30). Coordinate with the destination distribution centers and warehouses to ensure they have the ability to plan and receive the additional inventory.
- Choose alternate port routings - Look at routing shipments to Canadian and East Coast ports not affected by these activities.
- Consider moving products via sea-ground options and/or air freight to minimize the impact of increased costs. Air might be a good choice for critical time-sensitive products.
- Transload, truck, and intermodal - Be prepared to consider multiple means of transportation, utilizing truck and intermodal as needed to keep products moving.
- Prepare for likely delays and stoppages at the ports around contract signing time.
- Stay updated on the status of the negotiations - Pacific Customs Brokers is monitoring the situation and will continue to post updates to the Trade News section of our website as they become available.
How Pacific Customs Brokers Can Help
Additionally, we can help you devise a customized backup plan. We offer solutions from cross docking and clearing your goods to transporting them down to your North American destination. U.S. exporters might look to use our bonded warehouse as a destination to ship overseas bound cargo for container loading. Contact us to learn how one of our logistics specialists can help you prepare your contingency plan.