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Posted by Pamela Gordon, CEO, Technology Forecasters Inc..
Pamela J. Gordon is CEO of Technology Forecasters Inc., keynoter on profitable sustainability, and co-developer of ProductDesign21.
Contingency Planning in the Supply Chain — Are You Prepared?
Labor issues at Long Beach and Los Angeles ports are causing major headaches for supply chain managers. Again.
A volatile labor environment, record-setting volumes, and ever-larger container ships are delaying ocean freight, especially at our already strained West Coast ports. Shippers may have sighed in relief when the February 2015 ILW slowdown/lockout issue was resolved, but who thought we would be facing the same issue again just two months later?
In April, a Teamsters-affiliated group, Justice for Port Truck Drivers, called for a strike vote. Drivers ratified the strike, launching a job action that may restrict flows at the nation’s two largest ports for the second time in 2015.
How did we get here? And why do we keep coming back?
Concentration of Demand
All this trouble comes back to one fundamental issue: the concept of specialization. US companies have chosen to concentrate their shipping through Long Beach and Los Angeles, because LA provides some of the very best, lowest-cost, and most convenient alternatives for shippers importing cargo from the Far East. Today, LA-area ports handle 60% of US West Coast container volume and more than 33% of all US container volume.
(See additional content on this topic in EBN.)
So when people ask, “Why not just ship through another port?” the answer is quite simple. There is not another option that affords the connectivity, capacity, and capability of LA.
Options are Growing, but LA is Still Deeply Advantaged
As the Panama Canal expansion nears completion, major US ports are embarking on dredging and construction campaigns to handle these new, enormous ships. The longer term trend will bring more volume to East Coast ports on massive Panamax and Post-Panamax ocean liners. The result of this shift will eventually be more volume from the Far East moving to US East Coast and Midwest destinations through Savannah GA, Miami FL, New York NY, Norfolk VA, Baltimore MD, Jacksonville FL and Houston TX.
Even when these new alternative ports are in place, LA is still likely to be the best option for some shippers. If the commodities demand short transportation lead time, or if distribution patterns demand breaking down containers for distribution to the entire US, West Coast ports are still the fastest and most flexible choice. For this reason, I don’t see LA losing its long-term advantage.
Addressing the Risk
The first step in addressing a problem is recognition. For shippers that are highly or completely dependent on Los Angeles and Long Beach, it’s critical to be looking at alternative options. Do you know what your exposure is on West Coast freight? How much of your company revenue can be traced to shipments that arrive through LA? Even if LA is the best choice overall, it’s risky to run all of your cargo through it.
If your supply chain group is not talking about West Coast port issues or prepared to mitigate them, you should be concerned. Options to consider include use of other West Coast ports, including Oakland, Seattle and Tacoma, and Vancouver. But this strategy is also being employed by most other shippers; placing everyone at risk. In fact, rail congestion, labor concerns, and chassis shortages have recently challenged other West Coast ports too.
Shippers are also diverting cargo in record amounts to East Coast ports. Last year, some of the fastest growing ports in the US were Savannah, Norfolk, and Port Everglades in Fort Lauderdale. I predict that this trend will continue.
Consider Nearshoring and Onshoring
As manufacturing costs rise in the Far East and transportation grows more challenging, bringing the production process closer to demand starts to look more and more attractive. At TFI, we have helped dozens of clients evaluate and restructure their supply chains. Reducing transportation lead-time variability and risk are often at the heart of these projects; we also find opportunities to reduce cost and carbon emissions.
Whatever strategy you ultimately choose, diversification is usually the best way to mitigate risk. Build alternatives into your network, and consider all of the options available; not just for transport, but in manufacturing, supplier and DC locations.
Building for the Future at Your Company
As you consider your next moves, think about the embedded risk that comes with your company’s supply chain choices. What ports do you plan to use? How will your inland logistics network be structured? What other options could be considered to reduce risk and build resiliency into your supply chain?
Please post your ideas through a comment below.