Potential Port Strike Forces Retailers to Prepare for Supply Chain Management Challenges

Chinese New Year is signaling an increase in transpacific freight, but retailers are bracing for potential supply chain disruptions over threats of a worker strike at gulf and east coast ports. Though talks made progress in December, when an earlier strike was avoided between the United States Maritime Alliance (USMX) and the International Longshoremen’s Association (ILA), the February 7 deadline still remains in effect and could potentially interfere with retail supply chain management across the country.

“It is critical that the parties remain at the table and continue to work with the federal mediator to reach a new long-term contract before the February 6 contract extension expires,” said Jon Gold, vice president of supply chain and customs policy for the National Retail Federation. “The continuing uncertainty surrounding these negotiations has already had an impact on global supply chains as companies must continue to plan for the potential for supply chain disruptions.”

Uncertainty at the ports is compounded by a 14 percent container freight rate increase, as the January peak season surcharge went into effect. “The U.S. East Coast and Gulf Coast strike threat notwithstanding, we expect spot rates to soften following Chinese New Year. However, we caution that shippers should expect some increase in their 2012-13 contract rates on the eastbound trans-Pacific, given the stronger state of the market compared to last year,” said Martin Dixon, a research manager for freight rate benchmarking.

In an effort to compensate for the potential strike, retailers have stepped up inventory management by increasing imports, which helps explain the steady rise in business inventories over the last few months. Time will tell if this increase was additionally fueled by an improving economy, as inventories tend to rise when there is increased demand, but may linger if retailers aren’t able to sell merchandise as quickly as they’d anticipated. Truckers are likely to be busier due to the inventory increases, which could pose some transportation management challenges beyond whatever happens with the port negotiations. In any case, businesses should have a better idea of what disruptions they’ll be facing by February 7.

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