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What Can Be the Impact on Shipping From Fallout in the US West Coast Labour Talks?

Labour contracts for US West Coast ports are signed for multi-year periods, with the current contract being a 3-year extension of the previous one that ended in June 2022. The original contract had a clause that prevented strikes, however the extension does not have any such provision. This adds to the uncertainty and likelihood of a strike happening. The talks cover more than 22,000 dockworkers at 29 ports stretching from California to Washington state. West Coast port union talks have not progressed for months, prolonging uncertainty for retailers who import goods from Asia from the coast (https://www.hellenicshippingnews.com/west-coast-port-labor-contract-talks-remain-in-limbo/).

Why Should Shippers Be Concerned About Labor Disputes?
If the two sides fail to reach a new labour agreement, the repercussions could be far-reaching. Shipping delays, disruption of the supply chain, and increases in the cost of shipping could all be the result of labour talks breaking down. These could have a long-term impact on businesses, global trade, and services.

Potential delays in shipments and impact on productivity
The ILWU (International Longshore and Warehouse Union) has previously gone on strike, which resulted in the West Coast ports being closed for 10 days, disrupting trade flows and costing Southern California’s economy an estimated $8 billion (https://www.reuters.com/world/us/dreaded-us-west-coast-port-labor-contract-expiration-ticks-closer-2022-07-01/). This also resulted in ships waiting for more than a week before they can enter the port, causing a heavy delay for shippers. Another example of this was in mid-2021, a week-long strike caused disruptions at the port of Montreal, causing delays of up to 5 days.

In addition, Asian exports diverting their shipments to the East Coast experience longer transit times. The amount of time it takes for an average shipment to reach the West Coast from China is 25 days, while it takes 38 days to reach the East Coast.

Increase in cost of shipping
If the two sides fail to reach a new labour agreement, the cost of shipping may increase. This is because businesses will be forced to find alternative routes for their goods, which could be more expensive. Companies might struggle with the inability to receive goods and supplies on time, leading to shortages of raw materials and products, increased costs due to raised shipping charges, and delays in the production and delivery of goods and services. This could result in decreased sales and profits due to the inability to meet customer demand, not to mention a decrease in consumer confidence and trust in companies. During 2015 labor talks, $555.8 million (https://www.yakimaherald.com/news/local/business/reporters-notebook-west-coast-port-slowdown-led-to-millions-lost-in-apple-sales/article_51b3a874-dea9-11e5-8759-939b929b8ebb.html) of losses came from unshipped and delayed exports, much of that agricultural products

Diverting trade to other ports
Shippers and retailers are likely to persist in routing their goods to ports on the Gulf Coast and East Coast until they are certain that an agreement can be made. A survey conducted by CNBC (https://www.cnbc.com/2023/01/03/supply-chain-managers-wary-of-shifting-trade-back-to-west-coast-ports.html) shows that over half the respondents state ILWU strike as their main reason for shifting away from the West Coast. There have already been reports of importers diverting furniture, clothes, and electronics to East Coast and Gulf Coast ports in case labor talks fail and work disruptions occur.

A sharp increase in vessel delays on the East Coast was caused by trade shifts, causing ports like Houston to remain congested until January 2023, where the median delay had consistently been over three days. In contrast, Long Beach, a port of similar size on the west coast, handling similar container volumes, has seen relatively little congestion.

Should port strikes occur, ports on the East Coast may experience intensified congestion beyond what was seen in September 2022.

What Are the Steps to Mitigate the Impact of Labor Issues?

Some common steps carriers and shippers take to mitigate the impact of labour issues are:
• Consider the option of calling at secondary and tertiary ports. Examples include substituting Long Beach with either San Diego or Hueneme.
• When there is reliable hinterland connectivity between neighbouring countries, ports in neighbouring countries are a feasible option. Among the most recent examples are carriers that call Montreal in Canada, then haul to American destinations by rail.
• While that presents its own challenges, building buffers and storing excess inventory to counteract extended transit times can help prevent shortages.
While no one knows when and how the labor discussions will resolve, BCOs and shippers should plan for every scenario. Predictive visibility, takes into account changes in vessel routes and congestion at all ports around the world; thus the shipper would be able to understand the impact of these diversions on their containers and plan accordingly. Real-Time container Visibility helps shippers get an aggregated view of their containers across carriers, along with alerts for containers that might need your attention.
Source: Portcast (https://portcast.io/)

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