Background
On October 1st 2024, 14 major ports on the East Coast and Gulf Coast of the U.S. went on strike due to union (International Longshoremen’s Association, or ILA) collective bargaining asking for a stop in automation to preserve jobs, and a 77% salary hike over the next 6 years. Negotiations were on-going with the US Maritime alliance, by then granting “only” a 50% pay hike. This was the first strike on the East Coast since 1977. After a three-day strike, a temporary agreement was reached for a 62% wage increase over six years, according to sources. As a result, the strike will not impact the recovery efforts from the Helene storm aftermath and is on hold until January 2025, after the presidential election, but may resume then.
Without going into the merit of the claims nor the tactic used to reach a deal, we will look into the possible impact from risks and risk mitigation points of view.
Potential Risks and Impact
On a macro economic level, the strike could have threatened the nation’s supply chain, leading to shortages and putting upward pressure on consumer prices. With more than $2 billion worth of goods typically flowing through these ports daily, it was estimated that it would cost the US economy around $7.5 Billion every week of the strike, and 6 days to clear the backlog for every day of strike, according to NPR. Perishable goods were particularly vulnerable both for import and export.
Magnitude: The affected ports — from Boston to Houston — normally handle more than half of all cargo containers coming into the U.S., or about a million containers a month, as well as more than 300,000 containers heading out of the country, according to the freight-tracking company Vizion.
Ripple Effects
Even if some companies were not directly impacted, ripple effects would have been seen in the congestion from other ports on the West coast and expected price hike on Air Freight. Initial delays were possible at US East and Gulf Coast ports and then ‘knock-on’ delays for ships leaving European ports (1-2 months) and Asia (3-4 months). In such a scenario, consumer confidence, which was already trending down due to loaming geopolitical turmoil and the lasting impact of inflation, will likely go down further, impacting demand for companies and their customers.
Duration of a risk is as important as the impact of it. The length of the strike would have determined how bad this would have been for the US and even possibly the global economy. Considerable pressure was put on both parties to come to an agreement fast, as the Biden administration decided not to intervene (which is within his powers under the Taft-Hartley Act) to protect collective bargaining rights.
We had anticipated this major strike not to last past a few days, which would have limited impact due to some level of elasticity in the supply chain. If this had lasted until the end of the year and beyond, we can estimate a devastating impact on ILA, maritime companies, manufacturing and retail sectors and consumers on so many levels.
Risk Mitigation
From a risk mitigation stand-point, we have known for the past few weeks that this strike will likely be coming. This could have given companies some time to redirect critical components imports from sea to air freight whenever possible. Some companies such as retailers had already prepared with stockpiles and other companies have priced in increased logistics costs or reviewed alternate options such as air freight.
In these cases, we are looking at potentially reduced profitability for an already stressed retail segment, followed by higher prices for consumers. However, collective bargaining and worker rights have to be upheld if one looks at it from the ESG and social impact perspectives.
This may also be an opportunity to develop dual sourcing from within the US. Without going into the specific or individual cases, where that is even an option or not, the point is that advanced knowledge and monitoring of the likelihood of the disruptive event will even take place will always give companies an advantage over competition due to the opportunity to strategize and implement a mitigation plan.
How can Vertaeon help?
Vertaeon’s SaaS platforms have been tracking 100+ Risk and ESG indicators, including the container and supply chain indices mentioned above, for the last three years. This can help you get valuable insights in near-real-time, checking the impact of disruptive events, current or more importantly latent. This derived intelligence is delivered on easy-to-use, customized, dashboards and drillable to your most critical suppliers and customers.
Please give us your thoughts in this blog on how this strike may already have impacted your business.
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