Port Labor
Negotiations
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.
