ILA Agreement Update: Supply Chain Implications

The current extension between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX) expires on January 15, 2025, and the continuing negotiations between them remain contentious (read our previous article on the subject here). This is primarily due to disagreements over automation at U.S. East Coast ports. The USMX advocates for increased automation, citing the need to modernize and improve port efficiency. They argue automation is vital for handling higher cargo volumes, ensuring competitiveness, and supporting economic growth, which they purport will serve to save and secure jobs at the ports. On the other hand, the ILA opposes these automation increases, fearing significant job losses and potential risks to national security. The union emphasizes protecting longshoremen’s jobs and has warned of further strikes, which could begin as early as January 15, if their concerns are not addressed. Both parties have acknowledged a stalemate, raising concerns about potential disruptions to the supply chain as negotiations continue without resolution.

The status of the negotiations can be summarized by three key issues.

1. Automation & Technology vs. Manpower:

The stalemate between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX) centers on automation, specifically technologies like semi- automated rail-mounted gantries (RMGs) and remote-controlled cranes. The USMX argues these technologies are vital to improving efficiency, handling growing cargo volumes, and maintaining port competitiveness within limited physical space. The ILA opposes these changes, warning that automation eliminates 95% of tasks traditionally performed by workers and risks widespread job losses. They also raise national security concerns, citing vulnerabilities like cyberattacks on automated systems. This deep divide has led to a stalemate, with the ILA threatening strikes and the USMX emphasizing the need for modernization to ensure economic resilience.

2. Job Security & Port Performance:

The divide on job security versus automation could have a significant impact on port performance. As other global ports have increased investment in automation, the U.S. East Coast ports continue to lag behind leading international ports in efficiency rankings. The 2023Container Port Performance Index (CPPI), a collaboration between the World Bank and S&P Global Market Intelligence, ranks port performance by measuring things like port dwell times, cargo operations, berth time, idle time, and arrival-to-departure times. The highest U.S. East Coast port ranks at 65th globally on the CPPI.

3. Political & Economic Stakes:

Leading into the holidays, the incoming administration offered its support for the ILA's anti- automation stance. A port strike is appearing more likely, and could have widespread economic implications, especially given the existing strains on supply chains due to global disruptions and trade restrictions. Port closures have broad downstream effects impacting rail and truck transport, warehousing and fulfillment operations, inventory stockouts and scarcity of critical supply. Data from Sea Intelligence, a leading maritime data and analytics group, estimates that “every week of strike will lead to a capacity loss of more than 400,000 TEU, more than 1.4% of the global fleet, in turn pushing up freight rates, not just on the trades to the US, but likely across all major deep-sea trades.”

Given the current landscape, here are three ways your supply chain can be prepared and resilient in the face of uncertainty.

1. Realign your supply chain with a clear understanding of the facts and get up-to-date data on estimated vessel arrivals to East Coast ports.

• With the president-elect’s public support for the ILA’s stance to fight automation, supply chains must face the increasing likelihood of a port strike. Port Technology International estimates that for every day a port is closed, it could take up to 6-days to clear the backlog due to congestion and capacity constraints.

2. Diversify ports and modes of transport while you still can.

• Shift cargo to less congested or at-risk ports, such as those on the West Coast or in Canada. While these ports may also face labor challenges and congestion, diversifying destinations reduces dependency on East and Gulf Coast terminals.
• Accelerate shipment schedules to move goods before any potential strike, ensuring critical inventory levels are met. Many retailers have already adopted this approach in anticipation of disruptions.
• Enhance the use of alternative transportation modes, such as rail or air freight, to minimize reliance on port operations. This diversification can help maintain supply chain continuity in case of delays or shutdowns.

3. Understand inventory implications.

• Review and be prepared for inventory stockouts and the financial repercussions of lost sales and chargebacks from customers. Engage in scenario planning sessions to satisfy the demands of sales contracts and understand any force majeure provisions. Inquire about specialty insurance offerings like Trade Disruption Insurance.
• Increase buffer stocks while/if you still can.
• Increase transparency and communication with transportation and brokerage partners to ensure timely information on all your cargo movements. Be wary of diverting cargo to offload vessels to keep capacity active.

Resilience requires contingency and a critical understanding of how every node in your supply chain interacts to deliver the right product, at the right price, at the right time. Our supply chain resilience assessment can help you navigate the uncertainty of disruption. Whether that be port strikes, tariff policies, or armed conflicts, we can help you uncover ways to retain market access, maintain business continuity, and contain cost during costly supply chain disruptions. Contact us below to get started.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.