Mastering a potential US East Coast Port Strike

[What a US East Coast port strike means for Automotive Supply Chains]

After a months of negotiations, a labor strike along 36 major US East Coast ports is looming.

45,000 port workers are scheduled to lay down their equipment by midnight on October, 1st 2024.

This could cause almost half of US East Coast ports to be idle. It would also mean the first strike in almost four decades (the last one dates back to 1977).

I attended the Automotive Logistics and Supply Chain Global conference in Dearborn last week and the imminent port shutdown was a key discussion point.

In the following, I want to break down alternatives for car makers, their pro’s and con’s and shed some light on the impact this could have on North American supply chains in the near future.

I identified three main alternatives for car makers:

1. Using West Coast ports
2. Importing through Mexico
3. Expedite shipments.

Let's break down all three.

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Using West Coast ports

Pros:

• Reduced Congestion on the East Coast: By diverting vessels, the pressure on East Coast ports is alleviated, reducing congestion and improving turnaround times.
• Direct import into the US: Car parts still need to go through the customs process once. A clear advantage vs. importing through e.g. Mexico.

Cons:

• Increased Shipping Distances and Costs: The distance between East Coast destinations and West Coast ports is, depending on the destination, around 3,000 miles leading to increased lead times and costs. And let’s not forget road/rail transportation from ports to their final destinations. Here, capacity and costs will be a deciding factor.
• Additional Handling and Transportation Costs: Goods diverted to West Coast ports would need to be transported across the country to reach their final destinations. This involves additional handling and transportation costs, further increasing the overall expense.
• Increased demand leads to higher prices: If West Coast ports are the way to go, carmakers might have to negotiate rates and conditions in an environment in which they have no leverage.
• Potential for Congestion on the West Coast: West Coast ports are already at capacity limit. If you can find dock space, it’s far from guaranteed.
• Environmental Impact: Longer shipping distances contribute to increased greenhouse gas emissions, negatively impacting the environment.

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All in all I believe we will see some diversion of vessels to the West Coast especially for parts which car makers have banked for or for urgent finished vehicle deliveries.

Some of the companies that I have worked with in the past are:

Port of Huemene (Port location located between LA and San Francisco specialized on finished vehicles). It already handles around 6% of US car volume.

Pasha Automotive Services is a port processor operating a 157 acre terminal in San Diego.

AMPORTS Inc. is a port processor for finished vehicles with locations in Antioch & Benicia in California for deliveries to Northern California.

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Let’s look at the second alternative:

Importing through Mexico

This is a viable option if, and only if the supply chain from the ports (including handling and potential reworks) can be successfully sourced. OEM’s with already established production in Mexico have an advantage here, as they are potentially able to lean on already existing supplier agreements.

Here are the Pros and Cons.

Pros:

Cheaper cost of labor and logistics: Cost of transportation to and from Mexican ports should on average be cheaper than on the West coast. If demand doesn’t drive prices up. OEM’s with leverage through their MX operations will win here.

Cons:

Increased Export Customs complexity: Automotive parts and finished vehicles might be subject to US Custom Duties.

Capacity: Many ports in Mexico are operated by one port processor (example: The port of Veracruz handling almost 70% of automotive sea trade in Mexico is operated by two main operators: SSA Mexico for finished vehicles & Hutchinson Ports ICAVE with a total are of 42 hectares and capacity for 31,000 TEU’s (Twenty foot Equivalent Units). Obtaining capacity if you’re not already a customer might be difficult.

Border crossing: Crossing the border through Nuevo Laredo, Tamaulipas might take longer than usual depending on how many car makers use this strategy. A strong customs broker as a partner can be worth their weight in gold here.

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Mexico seems to be a viable option for OEM’s who already have experience handling logistics in Mexico with strategic partners ready to take over.

Some of those partners could be:

Hutchinson ICAVE: As mentioned before, they operate the largest container terminal in Veracruz.

SSA Marine Mexico : A viable solution for the handling of finished vehicles in the ports.

Transportes MARVA S.A.de C.V : A 1954 founded & family owned transportation company that has become a Top 5 transportation company in Mexico. With seven decades of experience, they offer car hauling services and material transportation services.

Expeditors: A Customs Broker with many years of experience in the Automotive industry.

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The last alternative to mitigate the impact of the strike are:

Expedite shipments

Although they might be costly, expedite shipments are a sublime way to mitigate the impact of missing parts on the production line.

Pros:

Lead time: Expedite shipments are exactly that: fast! May it be airfreights from Europe or Asia or team drivers from Mexico, expedite shipments get material to the production line and avoid costly shutdowns.

Door to door service: Many expedite shipping companies take care of everything: customs, handling, transportation, you name it. This can save tons of time and headaches on the OEM’s (Original Equipment Manufacturer’s) side.

Premium Service: Necessities like tracking and tracing are usually taken care of and ease the customers mind. Premium price = premium service.

Cons

Cost: Expedite shipments can often times cost 3-5 times more compared to conventional transport modes. While it can be a short term fix, it might not be a long term solution.

Driven by demand: As expedite shipments are usually ad-hoc, they demand a high premium. Even more so if the demand surges. Finding a reasonable partner who does not gouge prices in times of need might be the way to go.

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Some of the companies I have worked with in the past are:

time:matters : A German expedite shipper backed by well-known Lufthansa (the largest German airline). Time:matters is known for its expertise in handling time-critical shipments and its commitment to providing exceptional customer service.

Evolution Time Critical : Based in the UK, ETC offers bespoke time critical logistics solutions to a wide range of customers.

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And that’s it. I think I could write hours about this topic as it is so complex and news are changing by the hour.

But if you feel lost in what’s happening, consider reaching out to the companies who are there to help.

And if there is anything that I can do for you, please let me know.