How to prepare for the next potential port disruption

By Michael Paolillo

Vice president, manager, FM Cargo

It’s been a challenging year for cargo logistics, with a days-long port strike in the eastern United States, the collapse of the Francis Scott Key Bridge in Baltimore, a drought in Panama and attacks on shipping in the Red Sea all serving as key reminders of the importance of supply chain resilience.

Chief supply chain officers and the general public all over the United States breathed a little easier, when the International Longshoremen’s Association agreed to pause their strike to allow more time to negotiate a new labor contract with the United States Maritime Alliance. Ports along the U.S. East and Gulf coasts reopened after a three-day work stoppage that snarled logistics and threatened business continuity across the economy.  But this may not be the end of the story. The pause is only good until January 15, 2025, and if the two sides can’t reach an agreement, companies relying on the affected ports to send and receive goods may find themselves in the same proverbial boat – this time for a longer period. Here are some steps that you can take to prepare for future challenges.

1. Understand your exposure to port strikes.

To determine the best course of action, the first thing to understand is what exactly is at risk.  This goes beyond just knowing what products might be directly affected, but where they are, where they were meant to be, what impact a delay in their departure or arrival will have on things like direct revenue, contract penalties, reputational risk and changes to market share.

Many companies outsource their shipping and logistics processes to third-party logistics providers (3PLs), giving them limited immediate vision into where their goods are in the shipping process.  Before all else, companies have to understand where their goods may be, which means having direct contact with the 3PLs and gathering the information that may not be available internally.  Are they on the water, in a warehouse for packing or sitting in a port because they couldn’t get out on time?  The location of the goods will play a critical role in determining the best action to take, or whether any action is even possible.  Continuous, ongoing communication with a company’s 3PLs will be critical to understand the changing circumstances around a potential disruption.

Three more things will help drive decision-making: (i)understanding what your current unaffected inventory looks like, (ii) how long that inventory may last, and (iii) what alternatives may be available.

With that information at hand, you can begin to assess what the impact of future labor actions or other disruptions will be if no action is taken, or by what point alternative measures need to be implemented if the challenges are prolonged.

2. Understand your options to improve supply chain resiliency.

Many companies began preparing for the eventuality of a strike months ago. Some companies began as far back as May for the strike in September of this year.  Those companies increased or accelerated their timelines to get products and raw materials ahead of time.  Even those companies, however, may find themselves looking for additional options if a potential future strike or other disruption persists beyond what they predicted.  Understanding what other options may exist is therefore critical to even the most farsighted of companies.

Some examples of alternatives to the affected part of the supply chain may be:

• Sourcing materials from different locations, such as domestically within the US or Canada, Asia or Mexico.
• Shipping goods to alternative ports in Canada or Mexico and using trucks or rail to move the goods to their final destination.
• Using airfreight instead of ocean freight.
• Ordering goods that you might need for the late winter and early spring season now, instead of waiting.

Of course, all these options come at a cost, whether it is time or money. It also assumes that capacity exists on those other modes of transportation or with those new suppliers. However, these costs may minimize the risk of damage to a business’ reputation, loss of market-share or ability to claim significant tax credits that may expire. Weighing the various additional costs against these risks will be critical in determining whether or when it is appropriate to pursue them, understanding that the longer one waits to act, the more difficult putting that action into practice may be, as capacity fills up with early movers.

3. Understand your insurance programs.

Businesses may turn to their insurance carriers to recover some of the costs that a potential future strike or other supply-chain disruption imposes.  Every company buys insurance differently, but it is unlikely that even those that transfer as much risk as possible can recover 100% of their costs, when factoring coverage restrictions and deductibles.

Reviewing the terms and conditions of the policy and when coverage may be applicable under the various policies that may provide some relief with their brokers and carriers will allow a company to be in the best position possible to understand what exactly is at risk, what actions make the most sense and when to act.

The most important things to understand are what coverages exist, what triggers the coverage, what restrictions apply, how will the amount of the claim be determined in the event that a loss is recoverable, what limits apply and what deductible will be applied.

4. Identify and communicate regularly with key stakeholders.

This step is critical to both internal and external stakeholders, and who they are will vary significantly from company to company.  For example, it may be important for a business to designate a specific task force to work out the various scenarios around the information gathered during the first three actions in this article, in order to provide recommendations to a smaller group of decision-makers.  It may also be critical to communicate with key external stakeholders, such as customers whose goods may be delayed or suppliers who may need to hold future shipments prior to shipment to avoid having goods sit in a warehouse or on a ship for longer than necessary.  Communication with partners – like the insurance providers,3PLs, intermediaries, accounting firms, suppliers, and customers – will also be important, so that those decision-makers can be in the best possible position to successfully mitigate losses.

5. Make informed decisions that are appropriate for your specific situation.

Events like this have the potential to disrupt every company’s supply chain in an incredibly varied number of ways.  There will most certainly be countless articles, consultants, analysts and talking heads with opinions on the best way to prepare.  The important thing to remember is that no one knows your business as well as you do.  The Cargo Risk Engineers at FM Cargo, can provide excellent advice and insights, allowing each business to chart its own course.  Armed with all of the information above, and more, you alone have the ability to determine the best course of action, recognizing of course that choosing to do nothing is still making a decision.

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