Employers and striking harbor clerks at the Ports of LA and Long Beach mercifully reached agreement on a contract that brought striking workers and sympathizers back to work on December 5. The deal allows normal volumes to flow through America’s most important trade gateway after an 8-day labor impasse that cost the National economy $8 billion.
In the wake of the strike, there is already talk of shippers shifting a portion of import volume to Gulf and East Coast ports to avoid future supply chain disruptions. That’s a concern for those of us who make a living providing logistics services in and around the port complex. But is there a silver lining to the walkout? Call us cockeyed optimists, but we think there is.
The new deal with clerical workers, expected to span multiple years, together with the two years remaining on the current longshoremen contract, means a period of relative stability for Southern California ports. Instead of losing volume, perhaps in the coming months we can begin to regain some of the container volume lost to other ports after 10-day longshoremen lockout in 2002 and subsequent freight bottlenecks.
Here are some things to consider:
- East Coast and Gulf Coast ports face a high probability of a work action by members of the International Longshoremen’s Association if an agreement can’t be reached this month. The Ports of LA/Long Beach can be a safe haven for import freight during and beyond this time to avoid supply chain disruptions.
- The long-awaited Panama Canal expansion, now slated to open in 2015, still has many question marks, including what the true cost will be for Canal usage. Also, many East Coast ports are not yet ready to handle the increased size of Post-Panamax vessels.
- Shippers are wary of the lengthy supply chain cycle times that accompany long ocean legs. We know that a round trip for a cargo ship to Newark, NJ from Shenzhen, China is over 60 days – more than double the round-trip time to LA and back. This added cycle time could increase inventory carrying costs by as much as 30%. Read more about this in our Insight paper: Panama Canal Expansion: Impact on the Volume of Imports to Southern California.
- Carriers prefer the shorter route from Asia to LA/Long Beach because it’s more profitable. They call it a pendulum route. The shorter that pendulum’s arc, the more the freight turns, resulting in greater profit. To address the profit challenge on the longer routes through the Panama Canal to the East Coast, carriers will adjust rates upward. This will give shippers further reason to think twice before extending the ocean leg of their supply chains.
As ugly and painful as the clerical worker strike was, Southern California port operations can look forward to a period of labor stability at a time when the volume of imports continues to rise. This fact, coupled with the shorter transit times SoCal ports allow, position us well for future growth.
Our post-strike message to importers bringing freight into the U.S. via the Trans-Pacific highway: “America’s open for business and fully staffed. Get off at the first exit.”