The 2:00 Minute Warning

Over the past 2 to 3 years, supply chains have gotten a bunch of attention. According to a survey by Alix Partners, 72% of the 3000 CEOs they surveyed were worried about losing their jobs in 2022, and supply chain issues are one of the three areas that are creating the most concern for these CEOs.

Now for the bad news! Things could get worse!

Right now we are watching three things that could pose extreme challenges for anyone managing transportation, logistics and supply chain activities. Hopefully your company is factoring the following three things into your supply chain contingency plans:

• Negotiations with the ILWU at the West Coast ports
• Impact of reduction in the port activity at the port in Shanghai, and other Chinese ports
• Price of diesel fuel

Negotiations with the ILWU at the West Coast Ports

As we have covered in previous Two Minute Warnings, the current contract with the International Longshoremen and Warehouse Union (ILWU) expires on June 30. History shows that a failure to reach an agreement has caused delays in the past. And if the purported demands from the ILWU are accurate, well, it’s a “Katie, bar the doors” moment because shippers will need to take precautions as there is trouble ahead!

This past week, I had a conversation with one of the top ocean executives in the country who shared that just about everyone with any knowledge of the industry is reaching the same conclusion: Months ago it looked like the chances of a port slowdown or shutdown were in the 30-40% range. Today, the odds are in the 75% to 80% range.

While there’s pressure from the Biden Administration to reach an agreement without any disruptions, they have also indicated that they will not invoke Taft - Hartley to keep the ports open. And if negotiations go to mediation, the ILWU has said they will operate “according to the rules” – in short there will be a significant slowdown in port activity. With the ocean carriers having reported record profits in 2021 and the ILWU saying that their members should be paid as essential workers because they kept the ports open during Covid, neither side (a.k.a. the ILWU and the PMA) appear to be in a conciliatory mood.

Impact of Port Activity in Shanghai

One of the major concerns about the timing of a potential slowdown or shutdown at the ports is that it could coincide with increased freight flows from China based on the backlog of containers (estimated to be in the 4 to 6 million range) that are there because the port activity in Shanghai has been affected by Covid induced restrictions for almost two months.

Hopefully, the Covid induced lockdowns that limited manufacturing and shipping in Shanghai are coming to an end, but keep in mind that approximately 800,000 – 850,000 containers move through the port on a weekly basis. And other Chinese ports such as Ningbo and Shenzhen are also reporting significant backlogs. Add it all up, and you have the potential for a massive number of containers to be heading to the West Coast Ports at the same time when those ports could be reeling from the ILWU – PMA negotiations.

The Price of Diesel

The good news is that the growth of diesel prices has flattened somewhat after soaring in the first two weeks of March. The bad news is that it remains elevated and no one we have talked to is willing to make any predictions about how much higher diesel prices could go as we head into the summer months when demand is typically elevated.

So in responding to the “What’s ahead?” question, the only thing anyone knows is that trucking companies will continue to pass along the increased prices to shippers through the fuel surcharge provisions. And since these surcharges are running between 30% to 40% of a shipper's base line freight costs, these numbers add up pretty quickly.

What do shippers need to do now?

More than ever, shippers need to have a written supply chain and transportation spend management program that addresses what happens based on the best/worst case scenarios resulting from these events. These written plans will help your company be prepared with alternatives that will enable you to be proactive instead and reactive.

Having said this, we know that far too many shippers don’t have any written plans to address these issues. And that’s why we encourage you to take advantage of some of the great resources we have, such as our Transportation Spend Management Plan eBook, or even better, our Rapid Assessment process that makes sure that you and your team are on the same page when it comes to managing these challenges. If you are interested in learning more, get in touch with us.

BY MIKE REGAN, CO-FOUNDER OF TRANZACT
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