A potential labor strike by longshoremen in ports from Maine to Texas at the end of the year could have devastating economic consequences as inventory depletion, rerouting, hoarding, and price speculation ripple through supply chains of global companies, insurance broker Marsh has warned in a new report.
Those not prepared for such disruption in the East and Gulf coast ports could face adverse operational and economic impacts including increased expenses, decreased revenues, loss of market share, and reputational damage, Marsh said.
The longshoremen’s labor contract with port operators along the East and Gulf Coasts is set to expire December 29, 2012. If a compromise cannot be reached, ports from Maine to Texas could see work stoppages similar to what was experienced the past eight days with the clerical workers’ strike at ports in Los Angeles and Long Beach, California.
The largest U.S. cargo shipping complex in California resumed full operations on Wednesday after harbor clerks and management settled an eight-day strike but not before that strike idled the Los Angeles and neighboring Long Beach ports, costing the region’s economy an estimated $8 billion, according to Reuters.
In the event of an additional strike, retail, agriculture, food, and beverage companies would be hit especially hard due to their profit-driven strategy of keeping inventory levels low and the sudden and severe backlog and rerouting pressures caused by a work stoppage, Marsh said in its report: “U.S. Port Strikes—What’s at Stake and How to Manage Your Risk.”
For each day of backlog accumulated during a port closure, affected organizations would typically need about eight days to stabilize inventory levels within their supply chains, the report said.
“The ability to move goods freely is an essential component of the global economy,” said Gary S. Lynch, global leader of Risk Intelligence and Supply Chain Resiliency Solutions for Marsh Risk Consulting and lead author of the report. “As we saw with the West Coast port strike, such events have broad consequences, such as destabilizing trade flows, business, and economic conditions. That strike and a potential East and Gulf Coasts one come at an inopportune time given low growth in key markets like the US, Europe and China.
“This potential crisis on the East and Gulf Coasts and the substantial economic losses that occurred on the West Coast demonstrate why global businesses must be prepared for powerful and possibly crippling disruptions that can happen without warning,” he said. “Those companies with the right portfolio of risk strategies can more effectively protect themselves from potentially severe losses, while simultaneously gaining market share from less-prepared competitors.”
According to Marsh’s report, companies have options when designing and implementing a risk management portfolio to respond to a port strike. In addition to port-of-entry diversification, companies also should consider various alternative sourcing and buying strategies, changes to their manufacturing process, and risk financing solutions, including voyage frustration and trade disruption insurance.