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Ten years after: supply chain reminded of West Coast lockout as it plans for possible work stoppage in the East, Gulf

Planning for possible service disruptions should start soon, or even now, experts contend.

Ten years after: supply chain reminded of West Coast lockout as it plans for possible work stoppage in the East, Gulf

On Sept. 29, 2002, the Pacific Maritime Association (PMA), the body representing waterfront management on the U.S. West Coast, locked out members of the International Longshore and Warehouse Union (ILWU) amid allegations the labor union was engaging in a deliberate work slowdown to support its demands for a new contract.

The lockout left heavily laden containerships stranded outside of ports from Seattle to San Diego, with no workers available to unload the cargo. By the time it ended 10 days later—much longer than anyone originally expected—the lockout had disrupted supply chains from coast to coast and had cost importers and the U.S. economy hundreds of millions, if not billions, of dollars.


It also caught many shippers and importers with their pants down. At the time of the lockout, more than 80 percent of seagoing imports from Asia entered the United States via West Coast ports. With dock activity paralyzed and no other port options, ships simply idled in the Pacific Ocean, creating a massive logjam. It took three months after the strike ended for the backlog to be cleared.

In the wake of the lockout, many importers vowed to never get caught in that situation again and began a multiyear gateway diversification program. Today, East and Gulf Coast ports handle 30 percent of Asian imports—mostly through the Panama Canal—while West Coast ports handle about 70 percent, according to data from Robert Sappio, managing director at consultancy Alvarez & Marsal. (In 2000, about 85 percent of all Asian seagoing imports entered through the West Coast, with 15 percent coming in through the East, he said.)

A decade later, the agility of the seagoing supply chain could be tested again, this time by a labor-management showdown looming in the East. Since March, the International Longshoremen's Association (ILA) has been engaged in a war of words with the United States Maritime Alliance (USMX), which represents waterfront employers, over a new contract to replace the current pact that expires Sept. 30. The ILA represents 30,000 longshore workers on the East and Gulf Coasts, the Great Lakes, Canada, and Puerto Rico.

The two sides exchanged general proposals in late March and are scheduled to meet this week in Delray Beach, Fla. In the interim, there have been no formal negotiations but plenty of rhetoric.

At the center of the storm is ILA General President Harold J. Daggett, a third-generation ILA member and a 45-year association veteran. An imposing and forceful personality right out of central casting, Daggett has warned for the past few months that a work stoppage is very possible as long as employers refuse to guarantee longshore worker jobs in return for the group's acquiescence to the increased use of automation at the ports.

While there are other matters of contention, the issue of automation's replacing labor on the docks is and will continue to be the main sticking point. At an early March industry conference, Daggett threw down the gauntlet to waterfront management. "We know technology is coming, and we know we can't stop it forever," he said, "but we will not be deterred from protecting our work and our jurisdiction."

TEMPEST IN A TEAPOT?
In theory, a dockworkers strike seems far-fetched. In a sluggish economy with elevated unemployment levels, it is unlikely dockworkers would be motivated to walk off of—or want to be locked out of—jobs that offer generous wages and benefits.

Should the game of chicken continue into the late summer, the Obama administration may seek a national emergency injunction under the Taft-Hartley Act, a 1947 labor law, to effectively force labor back to work rather than allow a job action to further damage an already-fragile economy in a presidential election year.

>p>For now, importers are mostly keeping mum. Mark Q. Holifield, who runs the global supply chain for mega-retailer The Home Depot Inc., declined comment other than to say that "in the normal course of our business, we monitor freight flows, capacity, and trends daily, and take appropriate actions to optimize our supply chain."

Tim Feemster, senior managing director at industrial property and logistics firm Newmark Grubb Knight Frank, said in a June 8 e-mail that it is too early for cargo diversion to occur. "The next few weeks will give us an early warning as to the tenor of the talks," he said. "We will not see the impact at the ports, or [in] the volume for the Western railroads, for another six to eight weeks."

Yet no shipper or importer is likely to wait long for both sides to reach an agreement, or for the White House to step in to end an impasse. Importers receiving goods into the East Coast from Asia and Europe have become concerned about possible service disruptions in the ILA's territory and have begun weighing plans to shift deliveries to West Coast ports to avoid any problems.

They are also looking at the possibility of advancing inventories of potentially strong-selling holiday items so they are guaranteed to be resting in U.S. commerce no matter what happens at the bargaining table.

DIVERSIONARY TACTICS
Experts say the time to begin planning is now, especially while West Coast ports are underutilized and there is ample containership capacity on the water with only about 3 percent of the global fleet sitting idle.

Sappio of Alvarez & Marsal, who spent nearly 30 years at ship giant APL, said companies looking to shift deliveries to West Coast ports should secure vessel slots no later than the end of July. "If contract discussions go badly in August, you're going to be late to the game," he said. "If it's much after July, it's going to be a chore to find a ship."

Sappio said he believes a strike or lockout is unlikely and that any inventory shift that occurs as a result will be short-lived. He added, however, that port congestion, especially at Los Angeles and Long Beach, is a "certainty" should a work stoppage occur.

Sappio surmised that some carriers may pre-file a "congestion surcharge" to offset unforeseen operating expenses arising from any supply chain disruptions in the East. This would come on top of "peak season" surcharges on Asian import traffic ranging from $480 to $675 per container. Those surcharges are expected to hit over the next few weeks.

Timothy R. Simpson, a spokesman for Copenhagen-based A.P. Moeller Maersk, the world's largest liner company, was unaware of any congestion surcharges under discussion.

Henry L. (Rick) Wen, Jr., vice president, business development/public affairs for the U.S. arm of liner giant Orient Overseas Container Line Inc., said that in the event of a work stoppage, ships already laden with imports could declare "force majeure," a legal maneuver shielding them from damages should an event outside of their control prevent them from fulfilling their contractual obligations.

Wen said ship lines would consider diverting vessels to Canadian ports and offloading freight there, or simply lying at anchor until the strike is settled. Regardless of the scenario, delays and bottlenecks would ensue because Canadian ports would be overwhelmed by all the diverted cargo. As a result, importers and exporters would be subject to additional charges under force majeure terms, he said.

While a work stoppage would mostly affect the flow of U.S. imports from Europe, cargo flows on both coasts would be stymied if the ILWU struck in sympathy with their East and Gulf Coast brethren. In a saber-rattling statement in early May, ILWU International President Robert McEllrath voiced full support for ILA workers. "The fact is that we have their back in the fight to protect work and jurisdiction; their fight is our fight," he said.

RAMPING UP
For their part, service providers are starting to listen to their customers, and they are starting to stir. APL Logistics, the third-party logistics unit of shipping giant APL, is gearing up its deconsolidation capabilities along the West Coast to accommodate any surge in imports, according to Tony Zasimovich, the company's vice president of international services.

Zasimovich added that APL Logistics will prepare to deploy more team-driver truck capacity to get goods inland and will ensure space is available for its "Ocean Guaranteed" service, which, as its name implies, guarantees deliveries from Asia to all continental U.S. points served by its trucking partner Con-way Freight, the less-than-truckload arm of Con-way Inc. The service is available for less-than-containerload and full-containerload traffic, albeit at a higher price than an all-water service.

Zasimovich said vessel users have a window until early August to put contingency plans in place.

Western railroads are gearing up as well. "We continue to talk to customers to understand what their needs might be," said John P. Lanigan, executive vice president and chief marketing officer for BNSF Railway, one of the two Western rails. "We are in good shape for locomotives, freight cars, and crews. We can respond to a surge in traffic with people, assets, and increased cars per train."

Lanigan added, however, that he would just as soon not see the rail's contingency plans be executed. "We certainly hope there is no disruption as it would negatively impact overall U.S. supply chain operations," he said.

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Logistics gives back: February 2025

Here's our monthly roundup of some of the charitable works and donations by companies in the material handling and logistics space.

  • For the sixth consecutive year, dedicated contract carriage and freight management services provider Transervice Logistics Inc. collected books, CDs, DVDs, and magazines for Book Fairies, a nonprofit book donation organization in the New York Tri-State area. Transervice employees broke their own in-house record last year by donating 13 boxes of print and video assets to children in under-resourced communities on Long Island and the five boroughs of New York City.
  • Logistics real estate investment and development firm Dermody Properties has recognized eight community organizations in markets where it operates with its 2024 Annual Thanksgiving Capstone awards. The organizations, which included food banks and disaster relief agencies, received a combined $85,000 in awards ranging from $5,000 to $25,000.
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  • Employees of dedicated contract carrier Lily Transportation donated dog food and supplies to a local animal shelter at a holiday event held at the company's Fort Worth, Texas, location. The event, which benefited City of Saginaw (Texas) Animal Services, was coordinated by "Lily Paws," a dedicated committee within Lily Transportation that focuses on improving the lives of shelter dogs nationwide.
  • Freight transportation conglomerate Averitt has continued its support of military service members by participating in the "10,000 for the Troops" card collection program organized by radio station New Country 96.3 KSCS in Dallas/Fort Worth. In 2024, Averitt associates collected and shipped more than 18,000 holiday cards to troops overseas. Contributions included cards from 17 different Averitt facilities, primarily in Texas, along with 4,000 cards from the company's corporate office in Cookeville, Tennessee.

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