Port Strike Threat Adds to Supply Chain Risk

Shippers have accelerated the pace of imports from Asia, to avoid the risk of a dockworkers' strike at 29 West Coast ports in the U.S. and Canada.

While the end of this story has not yet been written, 3PLs will likely be asked to help their customers develop -- and perhaps implement -- plans to prevent massive supply chain disruption in the event of a strike.

A strike doesn't seem inevitable now, but cautious shippers might still be looking at one of these alternatives:

  1. Bring shipments in early, and/or divert ships to Canada. Some shippers appear to have done exactly that. In addition to elevated traffic in L.A. and Long Beach, the Canadian ports of Vancouver and Prince Rupert experienced double-digit increases in container volume in May, compared to 2013. Dockworkers in Canada also belong to ILWU, and they might strike alongside the union's U.S. membership, but 25% of shippers surveyed last spring planned to divert shipments to the Canadian ports.
  2. Ship to Mexico, and move containers by rail to Texas. The largest cargo ships can dock at the Mexican port of Lazaro Cardenas and move freight by rail to the U.S. by way of Laredo, TX. Kansas City Southern is a part owner of the Mexican national railroad, and the joint venture offers direct transportation, reduced tariffs and minimal delays for sealed cargo containers.
  3. Ship to Panama, and move cargo via the Gulf of Mexico. Even before the Panama Canal project is completed, all but the largest ships can transport containers to U.S. ports on the Gulf or on the Atlantic. If the canal is not practical, container freight can also be moved across Panama by rail or truck, and continue by ship to the U.S.

Shippers brought Asian imports to the U.S. ahead of schedule, to avoid risk of a strike or slowdown at West Coast ports. The threat of a strike was anticipated because the dockworkers' union contract expired on June 30. Alternative routes for cargo included (1) Canadian ports, including Vancouver and Prince Rupert; (2) Lazaro-Cardenas, on Mexico's Pacific Coast, with rail intermodal transportation to Laredo, TX; and, (3) Panama's Pacific Coast, with transportation to U.S. ports on the Gulf or Atlantic Coasts, either via the Panama Canal or by land.

Some of these contingency plans are already in play. According to a report from the National Retail Federation, 6.6% more containers arrived in May, and 7.6% in June (estimated) compared to the same months in 2013.

Container volume was elevated in the first four months of the year, as well, but the year-over-year increases were closer to 2% or 3% per month, according to NRF.

A long-term labor agreement expired June 30th between port management and the International Longshore and Warehouse Union (ILWU.) The ports are operating normally for now, as the deadline was extended and negotiations continue on the new contract.

The mere threat of a strike made shippers jittery, because a prolonged work stoppage would wreak havoc on the supply chain and could cost as much as $2 billion per day for the U.S. economy as a whole.

A new twist came last week, when about 120 drivers walked out to protest labor practices at three drayage companies that service the Ports of Los Angeles and Long Beach. Some dockworkers joined the picket lines on Tuesday, closing down four terminals for a few hours. The twin ports handle about 40% of freight imported to the U.S.

Port operations continue, at "near normal levels" meanwhile, as they have during other targeted actions at individual ports in recent years. The worst disruption to West Coast port operations resulted from a 10-day lockout in October 2002, which was ended by a Federal court order.

If you are working with shippers to develop alternative routes, DAT can help you to analyze some of the important trade-offs, especially the cost and capacity of domestic surface transportation modes and routes, as well as transportation costs associated with distribution center and warehouse locations. Ask your account manager about custom reports, or fill out this form to request a phone call from us.

Peggy Dorf

Peggy joined DAT in 2008 as a writer and market analyst. She was instrumental in developing DAT Trendlines, and she writes extensively about the impact of economic trends on companies and individuals in transportation and logistics. Peggy is a Certified Transportation Broker with decades of experience in technology marketing and an MBA from the Wharton School.