Port strike insight: Planning and perspective help shippers avoid the panic button

Dockworkers at dozens of U.S. ports are now on strike, walking off the job as they petition for significant pay increases. The work stoppage affects ports from New England to Texas. If prolonged, it could potentially disrupt supply chains and constrict inventories.

Disruptions like this are business as usual for shippers, many of which took seriously the threat of the International Longshoremen's Association's (ILA) first multi-coast strike since 1977.  Retailers and industrials, anticipating volatility, started to place orders early and started changing their routing several months ago. This was an essential action for those pre/repositioning for the upcoming holiday peak.

AlixPartners recently laid out this blueprint for a response that is effective regardless of the strike’s duration. It included:

• Identifying and implementing trade lane alternatives 
• Prioritizing freight
• Building up inventory
• Leveraging key relationships 
• Creating a communication plan

This incident, much like recent problems in the Red Sea and many other disruptions, is a reminder that building a robust contingency plan—before it is actually needed—is crucial for a resilient supply chain. 

Here are some important questions we’ve been fielding from clients, and a summary of our responses. 

How will this play out?

The most likely scenario is a relatively brief strike, lasting potentially a week – long enough for East Coast labor to win credibility and gain leverage in negotiations. This could set a pattern over the next few months where ongoing escalating walk outs/strikes are used to secure labor’s objectives. 

West Coast labor represents an important will offload ‘normal’ flow as usual – but it is less clear if West will delay diverted containers from East Coast in support of their union brethren, although East Coast labor has not historically been as supportive of West Coast labor. 

How is the market responding? 

Spot East Coast ocean rates are dropping both import and export. For example, we’ve seen 50%-plus decreases on some trans-Atlantic import lanes.  In many cases, export East Coast lanes are dropping even harder.  West Coast rates are increasing 25%-plus, but not as much as East is dropping.

What risks does this pose to various sectors?

There is a ripple effect for domestic shippers that should not be ignored – particularly those involved with perishable goods.  For example, we expect cold storage availability to tighten as exporters aren’t able to move goods.

What should not be ignored is the potential impact on exports of perishable foodstuffs (such as pork, chicken, fruit, etc.). Resulting upstream storage issues may cause capacity challenges of where to store products that can’t ship out.

On the domestic truck side, we expect some temporary rate inflation West to East in certain corridors, though there is plenty of capacity available. Expect a knock-on effect of four to six weeks post-strike before things normalize. 

The consumer goods industry and retailers are likely in good shape for holiday as they are already stocked up. The furniture industry, which brings in large imports via the East Coast, is stocked up for now, but will see an impact if this lasts longer than a few days. Automotive companies have likewise calibrated their supply chains appropriately.

How will Washington respond? 

This action takes place as the 2024 election enters the home stretch. The Biden administration is not positioned to stop the strike, but the president is backing dockworkers by pressuring U.S. port employers to raise their offer. In an unlikely scenario, a prolonged strike could lead to a forced work/National Guard-type intervention last seen in 2002.