The International Longshore and Warehouse Union and the Pacific Maritime Association announced a tentative agreement late Wednesday for a new, six-year contract. Few details have been disclosed, but a deal would end a prolonged period of uncertainty at 29 ports from California to Washington state where workers have been operating without a contract since July and comes as somewhat of a surprise after negotiations appeared to have soured recently. The PMA, which represents ocean carriers and terminal operators, has complained about workers sporadically failing to show up or deliberately slowing down operations in other ways across various outposts starting this month, although the union disputed some of its characterizations. The disruptions were targeted and had a fairly limited impact, but delays were starting to build.
To get ahead of potential slowdowns at the West Coast ports, many manufacturers and retailers have been sending cargo to Canadian gateways instead or rerouting goods through the Panama or Suez canals to the US Gulf Coast or East Coast. This fits into a broader push for redundancy up and down the supply chain. A supplier with a single factory in Asia isn’t good enough anymore for most US industrial companies; that supplier needs to have plants in several places, including one within easy reach of North American markets. And even then companies might still line up a backup option, particularly for key components. A manufacturer might have originally designed a product one way but many have now come up with alternatives that work around stubborn semiconductor shortages. The same goes for transportation. Industrial companies can’t just assume that the shipping route they’ve typically relied on is going to be available when they need it. The post-pandemic world requires options.
But the world is a finite place, and there are only so many ways to get goods from point A to point B. Drought conditions are complicating passage through the Panama Canal, forcing shippers to lighten their loads so they don’t sit as deep in the depleted water and driving up costs. Earlier this week, the union representing workers at Canada’s western ports in British Columbia — including Vancouver and Prince Rupert — said its members had authorised a strike in an almost unanimous vote. This is often a negotiating tactic and doesn’t necessarily mean the ports will close. Should a strike take place, it could start June 24 at the earliest. Best laid plans and all that.
The Suez Canal is operating as normal, although the almost-weeklong blockage of that crucial waterway in 2021 by the Ever Given container ship is a reminder of its fragile balance. Air freight is still an option for shippers, although it can be expensive and impractical for certain goods. Rockwell Automation Inc. ships most of the components it needs by air, while anything too large or heavy for jet transport is heading toward ports in Canada and privately owned outposts that fall outside of the current labor negotiations, Chief Supply Chain Officer Bob Buttermore said in an interview last week. The preference for air freight was a pandemic-era adjustment that stuck, and the shipping arrangements were made partly in response to concerns about difficulties at other ports, including knock-on effects from the labor negotiations on the US West Coast.
Bloomberg“Things like this can happen at any port around the world,” Buttermore said. Post-Covid, supply chain planning boils down to one basic principle: “Where are the potential disruptions in the future and how do you need to design your supply chain redundantly to have backup channels?” he said. “You have to have redundant [freight] lanes, just like we worked with suppliers so they have redundant facilities, and we’re dual sourced on electronic components.” A strike at the Canadian western ports, should one take place, would have a minimal overall impact on Rockwell, thanks to the routes it has developed through private ports and rail transport networks, he said.
Even before this latest threat of a slowdown, the East Coast and Gulf Coast ports had started to chip away at the West Coast’s dominance, helped in part by the movement of manufacturing from China to Southeast Asian countries that can ship goods in a reasonably timely and cost-effective fashion through the Suez or Panama canals. It used to be that more than 50% of the intermodal cargo that railroad Norfolk Southern Corp. carried touched the West Coast ports at one point; now it’s closer to 20%, Chief Executive Officer Alan Shaw told me.
Shippers efforts to reroute goods away from the West Coast ports and a weaker macroeconomic backdrop helped curb the effect of the limited labor disruptions. Freight volumes have dropped as consumers shift their purchasing power toward services and retailers and manufacturers adjust inventory stockpiles that ballooned during the supply chain crisis. There were 109 container ships anchored outside the twin ports of Los Angeles and Long Beach or idling farther offshore at the peak of the West Coast shipping logjams in January 2022. Recent labor shortages have contributed to delayed arrivals or departures for 11 container ships, Bloomberg News reported, citing a Tuesday email from the Marine Exchange of Southern California, which monitors vessel traffic in the San Pedro Bay.
BloombergIt also helps that other kinks in the supply chain are getting worked out. Certain semiconductors are still hard to find, and demand for Rockwell’s automation equipment still outpaces supply, so the world’s factory network still isn’t fully back to normal, Buttermore said. But the company can now fill any component shortfalls that may arise within a week or two by striking spot deals with distributors or with backup manufacturers. During the peak of the input crunch, if a supplier had to go back on delivery commitments, it could take anywhere from two to six months to plug the gap. “It’s a lot better than it was,” Buttermore said. The Federal Reserve Bank of New York’s gauge of global supply chain pressure — which measures how well the world’s network of inputs and outputs is functioning by its deviation from the average — dipped further into negative territory in May to the lowest level on record in data stretching back to 1997.
That doesn’t mean continued disruptions at the West Coast ports wouldn’t have hurt. Even though Rockwell isn’t relying on that shipping lane for component deliveries or to move its products around the world, prolonged logjams at that key gateway would start to affect imports of raw materials, including those used for semiconductors, Buttermore said. A serious work stoppage at the ports of Los Angeles and Long Beach lasting 15 days could shave $7.6 billion off of the US annual gross domestic product, or about $500 million a day, according to a June 2022 analysis backed by the National Association of Manufacturers. This reflects a direct decline in export activity, higher costs for imports and a reduction in consumer purchasing power from the associated inflation. Diverting cargo to other freight lanes might help but only if those routes are viable options. If everyone needed to steer away from the West Coast ports, that would create congestion and higher costs elsewhere.
As the pandemic made abundantly clear, the global supply chain is intricately interconnected, and it’s possible for everything that can go wrong with supply chains to happen all at the same time — from volatile swings in demand to extreme weather events, wars, disease and myriad labor issues. Supply chains feel much less chaotic today than they did even a year ago, but in the new post-Covid normal, those responsible for overseeing vast manufacturing parts networks need to have backup options to their backup options.
