As Possible East Coast Port Strike Nears, ‘Rerouting Potential Isn’t Too Great’
With an Oct. 1 union dockworker strike looking more and more likely, shipments have heavily flowed into the East and Gulf Coast ports in September ahead of the possible work stoppage, even as shippers have built in their own contingency plans.
U.S. seaborne imports to the East Coast rose 9.8 percent year over year, up from a 2.6-percent annual increase in August, according to data from S&P Global Market Intelligence. Meanwhile, imports into the West Coast in the first 19 days of September have escalated further, jumping 27.5 percent from the year-ago period.
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But both options are looking less than ideal for shippers as the deadline approaches.
Douglas Kent, executive vice president of corporate and strategic alliances at the Association for Supply Chain Management (ASCM), acknowledged the “rerouting potential isn’t too great either,” especially when the Ports of Los Angeles and Long Beach in particular have seen a flood of cargo in August and September.
“It’s not like you can just fully absorb [the cargo] through rerouting, and plus, there’s a cost and time differential associated with that. Most of the goods that would be imported through the East and Gulf Coast ports are meant to satisfy demand on that side of the U.S.,” Kent told Sourcing Journal. “That’s not the sole solution, and that still has some lingering impacts relative to cost and our ability to process shipments that would get rerouted.”
As the International Longshoremen’s Association (ILA) continues to show no intent of bargaining for a new deal, retailers and other importers have continued to weigh the pros and cons of their cargo movement strategy.
Ronnie Robinson, chief supply chain officer at DSW parent company Designer Brands, told Reuters that the footwear seller normally routes about 20 percent of its shoe imports through the East Coast. But in the wake of a possible strike, he already shifted roughly half of those goods to the West Coast.
Already more expensive than its sea-based counterpart, air freight rates have escalated as a possible work stoppage nears. For example, Robinson said Designer Brands paid 10 times more to fly in a small shipment of leather boots and dress shoes from Brazil than it would for a typical ocean transit.
“People are paying whatever they can to make sure they’re in the front of the queue,” Robinson told Reuters, adding that Designer Brands cannot risk late deliveries to clients like Macy’s, Nordstrom and Dillard’s.
According to Robinson, the company currently has 10,000 to 20,000 units in transit via East Coast-bound ships “that we’re worried about.”
Not all brands are expecting a severe impact to their operations. Brian Bourke, chief growth officer at Seko Logistics, told Sourcing Journal that many of his company’s clients got out in front of the strike threat by either flowing more of their goods into the West Coast or pulling inventory forward.
“Especially for the retail peak season, of which we have a large number of our clients within that space, the deadlines have already hit. Products are already in the distribution centers, being ready to be distributed to the stores,” Bourke said. “The union doesn’t even have to strike one day in order for there to be an impact on global supply chains. And that’s what we’ve been seeing in real time. Simply the threat of a strike changes behaviors and changes flows.”
Kent agreed with the sentiment, saying “the majority of these goods are already here.”
While there had been speculation in recent months that many ships originally destined for the East Coast after Oct. 1 would simply be diverted to the West Coast instead, the ocean carriers appear to be avoiding the decision.
“The vessels that are now on their way to the East Coast will have to sit and wait until that industrial disruption is resolved,” said Jeremy Nixon, CEO of Ocean Network Express (ONE), during the Marine Money Week in Asia event in Singapore on Tuesday.
In an update Friday, Maersk said it expects vessels en route to ILA-impacted ports to anchor temporarily, but did not say for how long.
“Daily reviews will determine port calls, and adjustments will be made as needed,” said the update. “Our aim is to minimize delays and maintain schedules. Market and operations teams are exploring alternative cargo acceptance/routing for extended strikes.”
The decision to stay on the East Coast and wait out a strike comes amid ILA president Harold Daggett’s rhetoric that union members would travel to the West Coast to prevent those ports’ dockworkers from working on ships that are diverted in that direction. There are also concerns that West Coast workers will briefly walk off the job for a day in solidarity with the ILA if they strike.
Execs from the CMA CGM and the Port of Los Angeles suggested last week that ships aren’t prepping to divert away from the East Coast.
Asked about the option of diverting ships to Mexican or Canadian ports on the East Coast, Nixon appeared to rule that out as well.
“Mexican ports are running at very high utilization levels, as are the Canadian ports right now,” Nixon said. “We have no additional capacity available as an industry to move freight through the Mexican ports or the Canadian ports to make up anything close to the U.S. requirements.”
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