Devastating Shutdown of US Supply Chain Feared

Peter’s Commentary:

One Week To Looming Port Shutdown

29 US West Coast ports could shut down within a week due to unsuccessful wage hike negotiations. These ports handle 43.5% of all containerized cargo in the US and are responsible for 12.5% of US GDP.

Talks between the Pacific maritime association (PMA), representing port management and the international Longshore and Warehouse Union have officially broken down this week.

Dock

Dock

US Supply Chain Seriously Threatened

American exporters, retailers and manufacturers have already been experiencing logistic nightmares for the last seven months during these contract negotiations.

Should a shutdown occur next week, hundreds of thousands of US jobs would be threatened due to America’s supply chain grinding to a halt.

From Bloomberg, James Nash and Katherine Chiglinsky, February 4, 2015:

Users of the biggest U.S. container ports have faced slowdowns and backups since mid-2014, with congestion worsening in November as unionized dockworkers reduced productivity at several locations, according to the maritime association. With prospects growing of a coast-wide shutdown, some shippers say they’re shifting to backup plans.

Suppliers Affected

“A lot of the suppliers will stop putting any sort of inventory on a ship now,” said Neel Jones-Shah, president of JS Aviation Consulting and chief commercial officer for Los Angeles-based forwarder Able Freight. “They know it’s going to get stuck at sea for weeks before it gets unloaded.”

Japanese carmakers including Honda Motor Co. and Fuji Heavy Industries Ltd.’s Subaru are already sending some parts to the U.S. by air to bypass the slowdown. Airlifts began late last month on concern that the stalled labor negotiations could slow deliveries enough to hurt production, the companies said.<More>

Economic Disaster

From the Retail Industry Leaders Association:

“A west coast port shutdown would be an economic disaster,” said Kelly Kolb, vice president of government affairs for the Retail Industry Leaders Association. “A shutdown would not only impact the hundreds of thousands of jobs working directly in America’s transportation supply chain, but the reality is the entire economy would be impacted as exports sit on docks and imports sit in the harbor waiting for manufacturers to build products and retailers to stock shelves.

“The slowdown is already making life difficult, but a shutdown could derail the economy completely,” said Kolb. “For retailers specifically, a shutdown will have dire consequences for those dependent on spring inventory demand.”

The last prolonged port shutdown of the West Coast ports was the 10-day lockout in 2002 which was estimated to cost the U.S. economy close to $1 billion a day.

“A port shutdown of even a short duration could de-rail economic growth and cause long-lasting damage and job losses across the country,” said Kolb. “There needs to be a greater sense of urgency at the White House, before it’s too late.” <More>

White House Monitoring Situation Closely

From Bloomberg:

The White House said Thursday that negotiations, not more federal intervention, would be the right course for settling the standoff between the maritime association and the union.

“This dispute is up to the two parties to resolve at the bargaining table, and we urge them to do so as expeditiously as possible,” said Frank Benenati, a White House spokesman. “We continue to closely monitor the situation.”

2002 Lockout

The maritime association locked out workers for 10 days amid slowdowns in 2002 during contract talks. That stoppage, which ended when then-President George W. Bush invoked the Taft-Hartley Act, cost the U.S. economy $1 billion a day, the maritime association said.

A 20-day lockout now would cost more than $2 billion a day, the association said in a report last year, including losses to railroads, ocean carriers and the broader economy.

Twenty-four ships were queued up Thursday at the harbor shared by the Los Angeles and Long Beach ports, up from as few as four in mid-December, according to the Marine Exchange of Southern California, in one measure of the backups confronting shippers.

Port Workers’ Demands

From ZeroHedge:

The association of shipping lines, terminal operators and stevedores made public details of its contract offer, including 3 percent annual raises over five years, retaining employer-paid health care, and raising pensions by 11 percent.

The average dockworker now makes $147,000 a year in salary, plus $35,000 a year in employer-paid health care and an annual pension of $80,000, according to an association press release. <More>

Conclusion:

A shutdown at these 29 West Coast ports would have a devastating impact on US industry, cost $2 billion a day, and threaten hundreds of thousands of jobs due to the ramifications to the US supply chain.

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