West Coast Port Uncertainty a Headache for Supply Chains

July 26, 2022
Geraint John

By Geraint John

American companies whose supply chains rely on the country’s West Coast ports for imported goods from Asia currently face multiple sources of disruption.

Last week, truckers blockaded the port of Oakland – the ninth busiest in the U.S. – in protest at a new gig-economy law passed by the state of California, which they say will damage their pay and conditions.

Four hundred miles to the south, at the ports of Los Angeles and Long Beach, tens of thousands of containers are backed up on the dockside waiting for freight trains to transport them to customers across the U.S.

These latest delays come at a time when weeks of negotiations between West Coast port management and dockworkers on a new multi-year labor contract have yet to reach an agreement. The existing contract, covering 29 ports, expired on 1 July.

Although the Pacific Maritime Association, which represents employers, and the International Longshore and Warehouse Union, which represents more than 22,000 dockworkers, say work at the ports continues as normal, the risk of disruption remains a real concern.

The last time negotiations broke down, in 2015, West Coast dockworkers went on strike for more than a week, causing gridlock and saddling U.S. firms with billions of dollars of additional logistics costs and lost business.

Port strikes would exacerbate supply chain disruptions

Any industrial action at West Coast ports would exacerbate the current backlogs. At LA and Long Beach, the two biggest U.S. ports by cargo volume and value, almost 30,000 containers are waiting for a train – three times the normal figure.

Average “dwell times” – the period between a container being unloaded from a ship and taken away by road or rail – are now more than a week and growing.

The seriousness of the issue for U.S. supply chains was underlined by President Biden’s personal visit to LA last month to encourage a swift resolution of the port negotiations, and the fact that his administration has intervened to try to head off potential rail strikes.

Problems on the U.S. West Coast follow weeks of disruption at key originating ports in China, as cities such as Shanghai and Shenzhen have locked down as a result of the country’s strict zero-COVID policy.

An analysis of bills of lading data on Interos’ Resilience platform shows that:

  • More than 51% of the 3.3 million-plus shipments into LA, Long Beach and Oakland in 2022 so far came from China.
  • Shanghai and Yantian (Shenzhen) are the two major ports serving the California trio, accounting for 36% of total inbound shipments.
  • Ningbo port in China and Hong Kong each account for a further 8% of shipments, while Kaohsiung in Taiwan and Busan in South Korea both represent more than 6%.
  • After China and Hong Kong, Taiwan is the third biggest exporter by volume serving these three West Coast ports, followed by South Korea, Vietnam and Japan.

According to the Port of Los Angeles, of the 10.7 million containers and $294 billion of cargo value it handled in 2021, the top five imports were furniture, automotive parts, apparel, plastics and footwear.

Together with its Long Beach neighbor, it accounted for almost three-quarters of West Coast port trade and 31% of the U.S. national total.

When Oakland and the other 26 West Coast ports are included, they collectively handle around 60% of all imports coming into the U.S. from Asia.

West Coast ports rank bottom of the class

However, what these impressive figures mask is the woeful inefficiency and low productivity of West Coast ports.

In the Container Port Performance Index 2021, compiled by the World Bank and S&P Global Market Intelligence, LA and Long Beach were ranked last and second last among the 370 global ports assessed.

Oakland didn’t fare much better, taking 360th place in the statistical analysis of a range of port operations and management factors.

These dreadful results highlight both the urgent need for investment in port infrastructure and the fact that any labor problems will quickly have a negative impact on dependent supply chains.

These include not only retailers in segments such as toys and household goods, but also technology, automotive and aerospace & defense manufacturers.

Separately, the Port of LA last week revealed that the number of cyber-attacks it is being subjected to has almost doubled since the pandemic began.

Executive director Gene Seroka told the BBC his port was experiencing around 40 million attacks every month, and that it was working closely with the FBI to improve its cyber resilience.

Workarounds available, but at a price

Companies affected by West Coast port disruption have several options:

  • Alternative ports: Faced with shipment delays and heightened risks, some companies have been switching cargo to ports on the East Coast, as they did in 2014 and 2015. This is despite it costing about 33% more to ship a container from China to ports such as New York and New Jersey, and longer journey times that add around 10 days to a trip.
  • Airfreight: For urgent, high-value goods and smaller volumes, airfreight is an obvious alternative to ocean shipping – albeit at a cost that can be up to five times higher. China’s recent COVID-19 lockdowns slashed cargo capacity from major airports such as Shanghai, although logistics experts say this has recovered and that weak demand is now more of an issue.
  • Building Inventory: To get ahead of supply chain disruptions, many U.S. retailers have built up high levels of inventory in recent months – a strategy now being called into question as consumer demand weakens.

Big manufacturing firms have pursued a similar approach. A recent analysis of more than 2,300 publicly listed manufacturers found that inventories were at an all-time high of almost $1.9 trillion.

Despite these options, U.S. companies remain heavily dependent on West Coast ports for supplies of raw materials, components and finished products from China and other Asian countries.

They will be keeping their fingers crossed that the current labor and logistical issues can be resolved quickly and that they don’t cause further supply chain disruptions this year.

To learn more about the potential impacts of global supply chain disruptions, including the cost of port disruption, check out Interos’ annual market research report, Resilience 2022

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