After Covid-19 and, now, the war in Ukraine, new disruption at West Coast ports could plunge fashion and the rest of the shipping industry into yet another supply chain mess.
The fear is cargo having to be re-routed to other ports amid increased fuel costs and bottlenecks that are rearing their heads at Gulf and East Coast ports. As the 5 p.m. July 1 contract expiration approaches, it begs the question of how much more supply chain executives can take.
“No one’s pushing the panic button, but everybody should have a Plan B,” National Retail Federation vice president of supply chain and customs policy Jonathan Gold said to a packed room at the annual TPM22 Conference, which wrapped in Long Beach, Calif. this week.
The question of what could happen should negotiations go south was a topic brought up numerous times throughout the three-day event where shippers, carriers and freight forwarders meet to discuss industry challenges and hash out shipping contracts.
The impact of a strike or worker slowdown would be mammoth, encompassing some 15,000 workers whose contracts are set to end at 29 ports stretching from Washington state to San Diego.
The International Longshore and Warehouse Union (ILWU) held an internal caucus in February planning their strategy for negotiations and declined an offer made by the Pacific Maritime Association (PMA), the organization representing some 70 ocean carriers, to extend the contract for one year.
It’s unclear when negotiations are expected to begin, but they’ve historically started in May.
Fashion and retail groups were among 49 associations that sent a letter this week to the White House to get involved and encourage the ILWU and PMA to begin contract talks early, given concerns over the war in Ukraine and its impact on the already stressed supply chain system. That follows on from a Feb. 24 letter sent by NRF president and CEO Matthew Shay to the ILWU and PMA also asking the two to begin talks well in advance of the expiration.
The two parties enter contract negotiations amid a heightened public level of awareness in the supply chain, GSC Logistics president David Arsenault said at TPM.
Arsenault outlined the suspected hot topics between the two parties during negotiations would come down to ocean carrier profitability last year, wages and automation.
Arsenault said there’s hope the two sides will reach an agreement but also warned “hope is not a strategy.”
“It would be prudent for everybody to look at … ways to mitigate,” Arsenault said.
TPM22 yielded plenty of handwringing over the matter, but few concrete answers around the subject.
“It’s going to be a bumpy process,” Maersk Ocean and Logistics CEO Vincent Clerc said. “Obviously, I hope for a swift resolution but … some of the issues they will take some time to settle between the parties.”
Clerc said he’s had conversations with customers as far back as eight months ago on contingency plans.
“People who say that this [supply chain situation] cannot get any worse, actually it could,” Clerc said. “It could. So, it’s pretty smart to have some contingency plan. What we have tried to do for Maersk is increase capacity to the East Coast and Gulf, which will certainly help some customers. We’ve anticipated that to help customers, but there is no way around Southern California. It is the main gateway for us, so it takes very little to have a very big impact on dwell times and lead times and what have you.”
Ocean Network Express (ONE) chief executive Jeremy Nixon said the labor negotiations represent a curveball as carriers work to get their networks and reliability back to normal.
“The concern, obviously for all of us in the supply chain, is that those negotiations will take a long time and they could revert into lower productivity. They could even revert into something more serious,” Nixon said. “I think the last thing we want is a human-made roadblock in the road. I would really hope that we can still work with the labor and the terminals to try and avert some kind of crisis in that regard.”
Wayfair cofounder and CEO Niraj Shah has prepared the home goods company as best he can.
“There’s obviously things you control and things you don’t control, and so you try to prepare for a lot of variety of circumstances,” Shah said. “Ultimately, the supply chain today it takes longer than you like to flow goods. We have 18 million square feet of logistics space at this point. We have large fulfillment centers throughout the U.S., Canada, Germany and the U.K. A port strike would be very hard for us to risk mitigate fully, but this is where, frankly, the number of suppliers we have is a big strength. We’ll get the benefit of that inventory.”
Wayfair six years ago began building its own in-house logistics network called CastleGate Logistics, which exclusively handles goods movement for the multi-brand furniture and home goods company.
Logistics firms are guiding their customers as best they can, with Max Bernaldo, senior vice president of business development for freight forwarding at France-based freight forwarder Geodis, echoing Shah’s comment that not every risk can be fully mitigated.
“All the customers are looking for alternatives in case something happens so they can have a Plan B,” he told Sourcing Journal from the TPM floor. “But there’s not a lot of options because the market is already so saturated. It’s not like you can say, ‘Well, I’m just going to go to another port. The other ports are also really congested.”
Julian Alvarez, CEO of visibility platform Logixboard, which closed a $32 million Series B round in January, said many customers using the company’s technology could be impacted.
While visibility platforms could help users understand disruptions, the sentiment across TPM was there is no magic button that will help any shipper completely avoid the far-reaching impact a delayed dockworker labor contract could bring.
“We have a lot of our customer base in the U.S. and they have major trade lanes between Asia and California,” Alvarez told Sourcing Journal. “Obviously, any time you have stopgaps with the ports on the West Coast it has a deep impact into their operations. It has a deep ripple effect across the board.”