The West Coast ports slowdown may be over for now, but it wreaked enough havoc to give CEOs from the Pacific to the Atlantic pause. And many are concluding that it’s time to take a closer look at their supply chains.
The dispute cost U.S. companies an estimated $2 billion a day and began badly crimping manufacturers such as Honda and Subaru whose U.S. plants rely greatly on parts imported from Japan, the latter of which told media it spent millions per month to fly parts in from Asia. Finally, the Pacific Maritime Association and the International Longshore and Warehouse Union reached a tentative, new five-year agreement, and port operations began a long slog back to normality just this week.
But the strike underscored the vulnerability of U.S. manufacturers that rely on imported parts and gave chiefs of mid-market and larger companies a huge reason to take stock of their supply chains for ways to mitigate any future strike and perhaps to lessen their overall dependence on foreign-made goods.
“The situation reveals something … profound about the fragility of the U.S. supply chain.”
Most important, as David Dayen noted in The Fiscal Times, “The situation reveals something … profound about the fragility of the U.S. supply chain. We simply don’t manufacture enough domestically to satisfy even modest demand, leaving us vulnerable to dangerous supply shocks that aren’t necessarily limited to labor disputes.” And there’s the fact that there is an increasing concentration of cargo on fewer but larger vessels and in fewer ports, which only increases the ripple effects when those operations are disrupted.
More manufacturing CEOs may be prompted to reduce their exposure because of the strike. There’s already been a lot more impetus behind onshoring and reshoring lately, establishing U.S. production of goods that once might have been done offshore, and bringing back some stuff that’s been made in China and elsewhere. The longshoremen’s dispute will put more strength behind such decisions.
It also will likely have more manufacturing chiefs turning to Mexico as a lower-cost source where seagoing transport isn’t an issue. Labor costs in Mexico already have come within about 5 percent of those in China, and auto manufacturers are among the many companies rushing to boost factory investments in Mexico for vehicles to serve the entire North American market.
Finally, as far as the ports themselves are concerned, things are still smoldering even as longshoremen consider ratifying the new agreement. Industry observers noted that “underlying issues of structural impacts” for the ports still must be addressed, including the growing size of container ships and the consequences of trucking lines reclassifying their workers as independent contractors.