West Coast Ports Dispute and Supply Chain Risk

A protracted labor dispute that continues to disrupt operations at U.S. West coast ports underscores the supply chain risk facing global businesses.

Disruptions have steadily worsened since October, culminating in a partial shutdown of all 29 West coast ports over the holiday weekend.

The Wall Street Journal  reports that operations to load and unload cargo vessels resumed Tuesday as Labor Secretary Tom Perez  met with both sides in the labor dispute  in an attempt  to  broker a settlement amid growing concerns over the  impact on the economy.

More than 40 percent of all cargo shipped into the U.S. comes through these ports, so the dispute has potential knock on effects for many businesses.

A number of companies have already taken steps to mitigate the supply chain threat, according to reports. For example, Japanese car manufacturer Honda Motor Co, among others, has been using air freighters to transport some  key parts from Asia to their U.S. factories — at significant extra expense.

On Sunday Honda also said it would have to slow production for a week at U.S.-based plants in Ohio, Indiana, and Ontario, Canada, as parts it ships from Asia have been held up by the dispute.

Toyota Motor Corp. has also reduced overtime at some U.S. manufacturing plants as a result of the dispute.

A brief published by Marsh last year noted that a West Coast port strike or shutdown could have broad consequences for global trade, business and economic conditions.

Organizations with effective risk management and insurance strategies in place will be best prepared to manage and respond to situations that hamper their flow of goods and finances, Marsh noted.

In 2002, a similar labor dispute ultimately led to the shutdown of ports along the West coast costing the U.S. economy around $1 billion each day, and creating a backlog that took six months to clear.

Many businesses purchase marine cargo insurance to protect against physical loss or damage to cargo during transit. This type of insurance generally will not respond in the event that a strike or other disruption at a port delays the arrival of insured cargo, unless there is actual physical damage to the cargo, according to Marsh.

However, some policyholders may have obtained endorsements to their insurance policies, or purchased additional coverage to protect themselves from the effects of port disruption.

Trade disruption insurance (TDI), supply chain insurance, and specialty business interruption insurance may also provide coverage for the financial consequences of a port disruption, Marsh wrote.

A study by FM Global of more than 600 financial executives found that supply chain risk, more than any other, was regarded as having the greatest potential to disrupt their top revenue driver. FM Global’s Resilience Index can help executives evaluate and manage supply chain risk.

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