Supply Chain

Looming Strike Spurs Supply-chain Angst

Companies that rely on shipments to Eastern ports could be hit hard, and risk managers are on the spot to come up with mitigating strategies.
Caroline McDonaldDecember 11, 2012

A labor strike that would begin December 30 could cripple East Coast and Gulf Coast ports, cost companies billions in lost revenue, and even impair the U.S. economic outlook for 2013, according to a new report.

If the International Longshoremen’s Assn. (ILA) does strike ­­— and observers are expecting it to — ports from Maine to Texas would have to close, says big insurance broker Marsh in its “U.S. Port Strikes: What’s at Stake and How to Manage Your Risk.” Important affected ports would include those in New Orleans, Houston, New York/New Jersey, Baltimore, Savannah, Norfolk, and Charleston.

The closures would affect a cross-section of major industries, including electronics, machinery, clothing, retail, pharmaceutical, construction, food and beverage, and automotive.

The strike — which pits the ILA against port operators, represented by the United States Maritime Alliance, over the potential loss of jobs to technological advances — could cost the nation’s economy up to $1 billion a day, according to the report.

Risk professionals “have to be very aggressive on this. I don’t think there’s any choice but to assume that it’s going to happen,” Gary Lynch, global leader of Marsh’s supply-chain risk-management group, tells CFO.

The most important thing to do is add new shipping ports. That may be challenging, though, because major West Coast ports already have strained capacities as a result of recent strikes in Los Angeles and Long Beach, as well as increased Asian trade, Lynch notes.

Risk managers also might recommend that their company consider:

  • Alternative buying strategies — for example, buy locally or have supplies trucked in instead of shipped by sea.
  • Stockpiling inventory before the strike date.
  • Moving subassembly into target sales markets.
  • Emphasizing product offerings that rely less on shipping-dependent materials.

Small companies are likely to be much more damaged by a strike. Many large retailers, consumer-product companies, and industrial manufacturers have already secured contracts allowing for deliveries at alternative ports or through different modes of transport.


But, says Lynch, smaller companies generally don’t have the leverage to arrange such deals, which is unfortunate, because they can afford a stoppage in deliveries even less than large companies can. He adds that he is surprised by how many small and midsize businesses seem “totally unaware of the possibility of a strike.”


Particularly at risk are pharmaceutical companies. Drugs are often shipped in drumlike containers and would be especially vulnerable to changes in temperature and humidity as they sit unhandled in the port. “We’re not talking about weeks and months of flexibility in the supply chain,” Lynch says. Even if the strike were settled almost immediately, before product was ruined, it would be a huge challenge to identify and segregate lifesaving drugs for priority shipping.


Shipments of food and electronics would also be highly at risk of spoilage.

At least the blow to businesses will be less than if the walkout had occurred at the end of September, as originally scheduled. That would have dragged down the crucial holiday season, which already was slowed by superstorm Sandy at the end of October. In fact, says Lynch, “We’re still recovering from the damage [Sandy did] to carriages for cargo containers, which is still affecting the ports in terms of delays.”

There is something of a silver lining to the strike threat, though. Regardless of whether the strike happens, companies’ working out alternative shipping logistics and going over different scenarios with their supply-chain consultants would count as valuable learning opportunities, says Lynch.