Labor Talks at US Ports Stall, Creating Uncertainty in Supply Chains
Labor has been a critical factor in supply chains since the beginning. At the height of the COVID-19 pandemic, stringent COVID protocols forced companies to scale back on shifts to promote social distancing, and the sudden stalling of the global economy forced many others to slash payroll altogether. When demand was low this was not a major concern from a corporate level, but once demand began rising at a historic pace, it became a grave issue where companies had to walk a fine line between increasing production while maintaining ongoing COVID safeguards. This has been of particular concern in China, which has continued a strict “zero COVID” policy.
Among the hardest hit has been the shipping industry, which obviously is one of the foundations of the modern economy and is critical for supplying manufacturing inventory as well as nearly all the basic goods society needs to operate. As a result of limited labor, longstanding budgetary deficiencies that have prevented ports from modernizing many of their infrastructures, and general lack of available space, many critical ports have been backlogged for months. News reports for months have published photos of cargo ships anchored out at sea for weeks at a time waiting for their turn to unload.
The latest development in the labor crisis at U.S. ports comes in the form of new contract negotiations between unionized dockworkers and shipping operators. Should they fall through, supply chains will have right to be worried.
The current agreement, which covers the International Longshore and Warehouse Union (ILWU)’s more than 22,000 workers at the 30 ports on the West Coast, will expire on July 1 without intervention. Negotiations over a new agreement began May 10 in San Francisco, and as of now, prospects for a renewed contract before July 1 are slim. According to the Pacific Amritime Association, they “are unlikely to reach a deal before the July 1 expiration of the current agreement.”
According to several analysts following the matter, the union should have significant leverage in these discussions. “The ILWU definitely have a position in this negotiation,” said Patrick Penfield, a supply chain management specialist at Syracuse University, to Yahoo Finance. “They have a lot of leverage so they really are in the driver’s seat with this particular negotiation as far as when it will happen.”
Penfield, as others agree, expects an agreement around August 1. Penfield explained that “peak season, your shipping season for the ports is mid-August to October. And that’s where we’re getting a lot of inventory in from retailers. So if there isn’t a deal done by then I’d say… you’re probably looking at these work slowdowns.”
Should the talks continue to stall, the consequences could be dire for manufacturers across all major industries, as well as consumers, although neither side as of yet is anticipating a worst case scenario. “This timing is typical, and cargo operations continue beyond the expiration of the contract,” said the two sides in a joint statement. “Neither party is preparing for a strike or a lockout, contrary to speculation in news reports. The parties remain focused on and committed to reaching an agreement.”
While talks continue, however, this should be a risk that supply chains across the world should watch very closely — and take precautions to prepare should current disruptions extend and worsen. “There is still a significant amount of uncertainty with the lockdowns in China and the ongoing labor negotiations in the LA port,” Macy’s Chairman and CEO Jeff Gennette said in May. “Factors like these drive us to continue taking a prudent and disciplined approach with our lead times and forecasting.”