Supply chains across America are facing up to six months’ disruption after 29 ports on the US West Coast, including the two busiest ports in the country, were partially shutdown over the weekend.
An on-going dispute between the Pacific Maritime Authority (PMA) and the International Longshore and Warehouse Union (ILWU) over contracts and working conditions, has led to major delays in the loading and unloading of cargo.
The disruption reached its peak on Sunday morning, with approximately 34 container ships anchored along the Californian coast waiting for access to the ports of Los Angeles and Long Beach.
The PMA and ILWU have been locked in contract negotiations since the end of June last year, when the previous contract ended.
Unfortunately, relations between the two parties have soured, with the PMA accusing the ILWU of a deliberate slow-down of work in recent months, something that the ILWU has attributed to changes in practices by the shipping companies. With neither side willing to back down, negotiations have stalled.
In response to the slow-down, the PMA took the decision to suspend port operations for six weekend and holiday days in February, stating that they were unwilling to pay the high overtime rates for weekends and holidays when productivity was so low.
With conservative estimates placing the cost to the US economy at $2 billion per day, President Obama has sent Labour Secretary, Tom Perez, to get negotiations back on track and a deal in place.
Supply Chain Pressures
However, even if a deal is agreed soon, it could take anywhere between two and six months for port activities to return to normal levels. This would then lead to a far greater impact on supply chains already experiencing severe delays to deliveries of a wide range of goods, including agricultural produce, car parts and clothing.
Exports of fresh produce to Asia have been heavily impacted, with many US suppliers now looking to domestic markets for sales as other customers cancel orders. There are also concerns that many retailers will be unable to stock spring clothing lines, leading to lower incomes over March and April.
In the car industry, both Nissan and Toyota have been forced to airfreight parts for US manufacturing operations due to the disruptions. Honda has also confirmed a slow-down in US production due to shortages of parts normally shipped from Asia to the West Coast.
Lack of contingency
There are concerns that many of the companies affected don’t have the necessary contingency plans in place to mitigate the risks of the disruptions. It is felt that many were unprepared for the dispute to last as long as it has and that it has left companies exposed to the delays.
Although some companies like Nissan and Toyota have been able to take steps to mitigate the disruption by using other transportation methods, others have not been able to act in the same way, compounding the delays in the supply chain.
One high-profile victim of the dispute is McDonalds. As Procurious reported earlier this year, the disruption at the coastal ports lead to shortages in produce exports and rationing of fries in Japan. This was a contributing factor to the company’s first full-year loss in the region in 11 years.
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