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Lessons to Glean from the West Coast Port Dispute

Via LinkedIn : It appears that ports on the US West Coast are back in full swing after a protracted labor dispute delayed cargo worth billions of dollars and caused untold reputational damage to the companies caught in the crossfire.

But the implications of this standoff between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association go beyond idle ships and stranded freight containers.

On the company side of the divide, the dispute underlines how short termism hobbles the ability of companies to deal with crisis situations.

In 2002, a 10-day lockout on the West Coast cost the US economy an estimated $1 billion per day in the first week growing to $2 billion per day in the second week, and required a presidential intervention. Yet with a few notable exceptions, companies forgot or ignored the lessons learned some 13 years ago and were caught flat-footed by the re-run of the contract dispute in 2014/15.

Many enterprises argued that their options were limited given that West Coast ports dominate the container trades in the US. There is some truth to this claim at this time, however, too many companies failed to take precautionary measures and response strategies well ahead of the stoppages. It’s not as if the disruptions were unexpected.

The general lack of preparedness is testament to short-term thinking. Managers move on and take their experiences with them; companies are forced to march to Wall Street’s quarterly drumbeat.

There is a lack of farsightedness on the labor side too, but here the problem has more to do with tunnel vision than short-term memory.

Today, global supply chains have to be incredibly agile to stay competitive, which means that companies have become adept at reconfiguring their supply and distribution networks in response to changing market conditions. The uncertainty and high costs caused by the labor unpredictability on the Pacific Coast will (admittedly slowly) cause companies to adapt in two major ways.

First, over the next several years, new shipping options will become available to US companies. These include a wider Panama Canal and possibly the construction of a Nicaragua Canal; Mexican port capacity expansions; port capacity expansions on the US East Coast that will reduce the costs of using the Suez Canal; and even the opening up of Arctic sea routes.

The second way in which shippers could adjust to problematic operations on the Pacific Coast is by moving production to the US (re-shoring) or Mexico and other Latin American countries. This strategy enables shippers to bypass the Pacific ports altogether. California farmers might also reduce their export volumes through ports on the West Coast in response to the loss of market share as competition around the world heats up.

To make matters worse, US ports have fallen behind technologically-advanced cargo handling hubs such as Singapore and Rotterdam in the Netherlands, mainly due to union opposition. And no industry has ever been able to win the struggle against technological development and corporate flexibility. The UAW, for example, is now a shadow of its former self owing to the trade union’s over-reaching tactics. The UAW’s actions were based on the belief that production assets are not moveable and thus employers have to succumb to their demands. The result was the creation of multiple manufacturing plants in the US South, dwindling union clout, and bankruptcies at General Motors and Chrysler.

The lesson for Pacific ports is that they can either modernize or continue to fall behind and suffer the same, predictable outcome.

But that vision seems to be lost on the ILWU.

The union clings to outmoded practices and negotiating tactics, while the rest of the industry moves on. To some extent this is a symptom of an aging leadership that is far more concerned with the needs of the current generation of dock workers than future generations.

Some argue that robots will not buy the goods and services that underpin the US economy and create jobs, and this point of view does have merit. As robotics and advanced information technology replace more and more workers, the percentage of the US workforce that is fully employed will continue to shrink. Add to this the fact that the US educational system is falling further behind other systems in the world, and one can see the need to re-think social policies and the distribution of wealth. Companies – shippers in this case – cannot be expected to remedy this situation. This is Government’s job; but that is a much bigger subject that could fill numerous blog posts.

Meanwhile, the longer the ILWU’s myopic view persists, the more isolated it will become. Ultimately, shippers will find other routes and cargo handling options for their goods, eroding the West Coast’s dominant position in the US.

Let’s hope that both sides use this latest episode in their long-running contractual disputes as an opportunity to take the longer view. For example, strong investments in port modernization will make cargo operations more efficient in the short term and could deter alternatives from developing over the long haul.

One thing is for sure, the next time these issues come to a head the world will be a different place.

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