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Home » With three days left before port paralysis, supply chain bows to the seemingly inevitable
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With three days left before port paralysis, supply chain bows to the seemingly inevitable

December 27, 2012
Mark B. Solomon
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The strike that few thought would happen is now less than three days from actually happening.

Barring a last-minute contract agreement or extension of the existing pact, 14,500 workers represented by the International Longshoremen's Association (ILA) will strike Dec. 30 at 14 ports from Maine to Texas. As of late afternoon on Dec. 27, talks between the ILA and the U.S. Maritime Alliance (USMX), representing ship management, continued under a federal mediator's supervision. But as the days leading up to a Dec. 29 contract deadline turn into hours, those involved in the multibillion dollar seagoing supply chain have concluded that shipping on the East and Gulf coasts will grind to a halt by Sunday night.

Talks broke off Dec. 18 after the ILA refused a mediator's proposal to extend the contract deadline to Feb. 1. The union said it would stand by its strike threat unless management agreed to preserve language providing each worker with annual royalties pegged to the revenue from containerized traffic. Established in 1960 to compensate the union for lost jobs and wages from containerization and automation practices, the program last year provided workers with $211 million in royalty payments—about $15,500 per worker—an amount roughly equal to 10 percent of container revenue, according to management figures.

USMX, which has called the program outdated, wants to freeze payments at 2011 levels and not allow new hires to participate. The ILA believes the issue is part of the basic contract and should be taken off the table entirely.

Dozens of trade groups representing thousands of businesses have urged President Obama to invoke the Taft-Hartley Act, a law that would keep workers on the job and the ports open while labor and management begin an 80-day cooling-off period to hash out their differences. However, with the White House consumed by the federal budget impasse and reluctant to anger its many supporters in organized labor by implementing what is considered an antiunion measure, few expect the president to act before the strike date, if he does so at all.

DUSTING OFF PLAN B
As the two sides fiddle, importers and exporters who thought that workers would refrain from striking because of a sluggish economy and competition from non-ILA ports are now scrambling to keep the supply chain from burning.

"Until Dec. 18, everyone was pretty hopeful that a contract or an extension would be reached," said Ann Bruno, vice president of global trade for TBB Supply Chain Guardian, a New Freedom, Pa.-based global supply chain consultancy that has been helping clients develop strike-related contingency plans.

Once the negotiations collapsed, companies believed a strike was inevitable, and those who hadn't already made alternate arrangements went into panic mode, she said.

TBB began formulating contingency programs last fall, when the two sides hit their first contract deadline only to agree to a 90-day extension on Sept. 20 to keep goods moving through the preholiday shipping season. Should a strike occur, TBB has arranged to move shipments to and from Europe out of the Port of Chester, Pa., located about 15 miles southwest of Philadelphia along the Delaware River. The port is not staffed by ILA labor.

In addition, TBB has instructed its trucker partners to remove every shipment from the affected ports prior to the strike date, a sign the firm and its customers feel a work stoppage is a foregone conclusion.

The firm has also negotiated "bullet mini-landbridge" rates with several ocean carriers for customers who ship from Asia to the East and Gulf coasts only through the Panama Canal. The agreements allow containers from Asia to be transloaded to intermodal service at West Coast ports for the eastbound move.

So-called bullet rates, which must be added to carrier tariffs, are applied to specific commodities. They are usually priced at a discount to rates for "freight all kinds" moves. However, Bruno said her company began negotiating the rates months ago to keep its customers from paying exorbitant prices should intermodal capacity become scarce in the days leading up to a strike.

Many importers had considered diverting deliveries to West Coast ports prior to the original contract expiration date of Sept. 30. The first extension, agreed to Sept. 20, put those plans on hold. However, the events of the past 10 days have forced businesses to dust off their playbooks. The problem, experts said, will be finding viable capacity on such short notice.

LINGERING EFFECTS
A strike, if one occurs, would impact import shipments that are set to reach stores by the end of January or early February. However, U.S. exporters need to get their goods moved now because they are shipping to customers not affected by the walkout and who expect their shippers to honor their commitments.

A top supply chain executive for a major industrial manufacturer, who asked not to be identified, said the firm is forecasting a strike that will last about two weeks. The firm's products that would otherwise move through the affected ports will instead be put in storage for the duration of any work stoppage, according to the executive.

Tim Feemster, senior managing director at New York-based industrial property and logistics firm Newmark Grubb Knight Frank, said he doesn't expect the conflict to be settled by year's end. Feemster said that because retailers are now in a slow replenishment period right after the holidays, delivery diversions to West Coast ports should be the exception rather than the rule. However, another contract extension would trigger diversions, since retailers don't want to find themselves in the same position two to three months down the road, he said.

Another issue facing the supply chain is whether a strike or another extension would coincide with the Lunar New Year, which is Feb. 10 but is marked by at least a week of prior celebrations that result in the closing of many Chinese businesses during that time.

According to Bruno, the dual effects of the Chinese celebrations and potential labor-driven supply chain disruptions have forced companies to order much farther ahead than normal or, in some cases, delay their purchases until the commemorations end.

"Exporters and importers aren't necessarily changing their behavior as much as they are readjusting it," she said.

Transportation Maritime & Ocean
KEYWORDS Newmark Grubb Knight Frank TBB Supply Chain Guardian
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Marksolomon
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

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