Port Strikes From Texas to Maine
A likely port strike along our country’s Gulf and East Coasts could be a pivotal season for the national economy in more ways than one. We’re watching two things over the next few weeks as contract negotiations play out between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX).
At the center of contract negotiations between the ILA and the USMX is the potential for automated technology to displace thousands of port workers. Multiple automated gates have already been installed at ports in the U.S. and the ILA has refused to resume discussions until the gates are permanently dealt with. Another more obvious dynamic of a strike scenario is supply chain logistics. With so many major ports involved in a strike the ripple effect of bottlenecks from Main to Texas will negatively impact the United States economy as well as global shipping logistics.
Automation vs Human Laborers
Though the ILA is negotiating wage increases and better benefits, the most important issue on the table appears to be job security in the face of industry growth that continues to move towards automated tech and away from human laborers. The automated gates that seem to have escalated disagreements between the ILA and USMX are said to be in breach of the existing contract of the two parties.
Automated technology has been proven to increase productivity across all industries. It can lower the costs of products because businesses are spending less on employee wages and oftentimes, the work is accomplished at a faster pace and with fewer errors. Current technology is predicted to drastically change the labor force of the world. Vehicle drivers, retail workers, health care professionals and accounting and finance experts are all expected to be impacted in the coming years as artificial intelligence and robotics technology replace many of the jobs traditionally filled by humans.
New technology tends to bring with it fear of the unknown and throughout history people have been afraid that technology will make their skillsets obsolete. On the flip side, enthusiasm for technology also stems from the possibility of new jobs created by new technology. In reality, both scenarios are true. Automated technology in the shipping industry will likely do away with as many jobs as it is also part of creating. This is what dock workers fear; that their jobs will be replaced by technology and that their skill sets will no longer be needed. For older workers, it feels too late to learn the new skills necessary.
Will automation rob the residents of port towns of their earning potential and allow business owners to reap greater profits thanks to fewer employees? Or, will negotiations encompass discussions on how existing employees can receive further training that will compliment automated technology and thereby increase productivity while still protecting jobs? The ILA would like to answer these questions before the tech arrives on site and it looks as though they are prepared to draw a line in the sand.
Supply Chain Disruptions
Unfortunately, the line the ILA draws in the sand could have severe economic implications. As we’ve recently experienced on the West Coast, port shutdowns can create bottlenecks which result in unpredictable domino effects across supply chains. What we do know is that a bottleneck situation happens fast. It will take supply chains four to six days to catch up if ports strike for just one day. And, if the strike were to last as long as a week or ten days, well, it would take the U.S. months to recover. With shipping companies already hampered by geopolitical unrest, inflated operational costs and drought, who are trying to meet holiday inventory demands, there is growing concern that a U.S. port strike could do long term economic damage.
Companies aiming to stay ahead of the fallout have rerouted ships to the West Coast or opted to transport time sensitive cargo via airline. Both options are more expensive, but worth it in the short term for companies who rely on just in time inventory or are aiming to take advantage of increased holiday spending.
If October 1st is the beginning of an ILA strike, then we will see 36 major ports responsible for handling pharmaceuticals, heavy equipment, vehicles, textiles and agricultural commodities cease handling cargo. No goods will come in and no goods will go out. All imports will remain on cargo ships at sea which will spike all operational costs from fuel, to per diem, to refrigeration. And all goods intended for export will be stuck in the country and accrue additional storage fees.
Together these ports account for billions of dollars of trade per day. They offload half of the country’s imports and are responsible for 68% of America’s exports. Virginia alone handles $600 million in goods everyday, while New York and New Jersey are closer to $650 million. New York ports take in most of our agriculture imports while New Orleans handles most of our nation's agricultural exports. Current estimates suggest that 1 in 3 containers of plastic and petroleum are exported through one of the affected ports. And 30% of pharmaceuticals pass through South Carolina. Just those few examples demonstrate the scope of trade that stands to be disrupted in the event of a strike.
If the strike surpasses a day or two there will be a growing number of cargo ships anchored outside of East and Gulf Coast ports. The risk of lost goods will increase, with refrigerated and frozen cargo being in the greatest jeopardy. And seasonal goods will be at risk of missing their retail window.
Containers for holding and transporting cargo will be in short supply if the strike lasts much past a few days. Warehouses will be at maximum capacity meaning manufacturers will need to either stop production or find additional storage facilities.
The Supply Chain Brain publication says that current global dynamics including draughts, wars and now strikes, are a perfect storm that have the potential to “choke off major arteries of trade.” The network of shipping lanes that relies on well calculated turnaround times will be threatened and, as we saw during pandemic bottlenecks, these breakdowns in the chain can take months to set right. Europe, Latin America and the Indian subcontinent heavily rely on these ports for their shipping network and are also at risk of being negatively impacted by a strike.
During the pandemic we saw large spending increases for shipping companies. Businesses were spending upwards of 56% more to secure a spot on a transport truck and once ports begin to handle cargo again it's likely we will see similar increases. Drayage rates increased by 20% and congested ports, long wait times for equipment operators and drivers, and extra storage days all added to price increases that rippled down to the consumer during the post pandemic repair process. Even though we are equipped with this knowledge, have contingency plans in place and have diversified our shipping routes, it's still hard to imagine that any industry will navigate a port strike without having to spend more money to get goods where they are needed.
All industries are contending with the costs versus the benefits of utilizing automated technology. A port strike of this magnitude would certainly bring the issue to the forefront of conversations; and not just in meeting rooms, but into the living rooms of consumers who drive demand and the laborers who have long held important roles in the flow of goods and can now wield those roles as a bargaining chip in the way our economy evolves in the coming years.
Comments