When dealing with maritime supply chains it is anyone’s guess how port labor negotiations will pan out or affect inbound and outbound traffic. A prime example of this was the U.S. West Coast port negotiations amongst the Pacific Maritime Association and the International Longshoremen and Warehouse Union. Imperative to evaluate your supply chain on a constant basis and introduce contingency plans to avoid potential trouble that negotiations such as these might cause.
As the dock employees and employers prepared for an intricate contract negotiation we need to be aware of the disruption to their supply chain and to the effect on the U.S. economy. The concern is well-founded. In prior negotiations the Pacific Maritime Association brought in new technology such as scanners, sensors and bar-coding system to make cargo flow more efficient. But at the same time these improvements eliminated 10 percent of longshoremen positions. Passionate talks resulted in a 10 ten lockout and only intervention by President Bush settled the lockout.
While all this occurred in 2002, a few years later, 2008 to be exact, saw another dispute cause major interruption. The Pacific Maritime Association (PMA) charged the International Longshoremen & Warehouse Union with deliberately creating work stoppages at all West Coast ports. The International Longshoremen & Warehouse Union (ILWU) counter charged that individual members were merely exercising their rights to protest the war in Iraq. Ultimately, the sides compromised agreeing to wage rates and to have automated cargo handling systems.
Once again in 2014 uncertainty reared its ugly head. The primary issues for both the ILWU and PMA were healthcare c costs, pensions, etc. Compared to past port disruptions based upon automation and wages these discussions were very time consuming.
These negotiations resulted in unpredictable work stoppages, increased costs, capacity challenges, transit time delays and lack of supply chain stability.
Not only did each of these three incidents cost the U.S. economy about $1 billion dollars per day but the resulting six months to recover deeply affected retailers, importers, manufacturers and agricultural exporters. While companies can track negotiations over time they cannot gain any certainty about the process until contracts have been signed.
The best way of protecting your business is to assess the impact of potential disruptions on the current state of the supply chain. Afterwards, create response plans to minimize the landed costs and delivery times. Be proactive and appraise potential disruptions before they occur is critical and will make a response plan.
There are three phases to this appraisal that need to be followed:
- 1- Assess the impact of disruption. Port disruptions will cause companies to deviate from their existing supply chain strategies. For example, cost-driven companies may be forced to reroute through different ocean routes which have longer transit times. This will lead to lack of product availability and lost sales.
- 2- Explore options. Form contingency plans for the affected product flows.
- a- Develop alternative sources of supply. Suppliers closer to distribution centers will avoid material movement via transportation.
- b- Build onshore inventory. Increase safety stock of materials normally routed through ports.
- c- Plan for alternate routes. Map out and assess the viability of these routes.
- d- Evaluate airfreight strategy. Examine the impact of changing modals from ocean to air by comparing costs, transit time and service.
- 3- Prioritize the response options. The building of onshore inventory and finding alternate routes require long term planning and execution perspectives. These options should be considered along with three factors: severity, occurrence and detection (SOD).
- a- Severity of impact. A contract negotiation could differ from no impact, a slowdown or a complete work stoppage. The severity depends on the duration of each scenario.
- b- Occurrence. Use a rating system of 1 to 10. More frequent occurrences will pull the scale toward a ten (most severe and occurrences).
- c- Detection. This is most difficult factor. How can one pre-judge the severity and occurrences of a work disruption? The option here is to build relationships with neutral logistical service providers.
To minimize the impact of port disruptions firms should monitor developments of the negotiations from both parties, use response planning options throughout the disruptions and find impartial logistic providers for transportation capacity, alternate routes and space for additional inventory.
The sooner planning is initiated for any and all impending disruptions; your supply chain will be able to withstand the disorder.