Executive Briefings

Hard Lessons in Disruption: What the West Coast Port Slowdown Really Taught Us

With a tentative agreement in place between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA), the 7-month-long West Coast port crisis has come to an end. What comes next is the final body count - what percentage of GDP shrank because of the slowdown? What was the impact on the trade deficit? Who got hit hardest, and just how hard? Then what? There may be a collective sigh of relief in the air, but can things really go back to normal? Should they?

Hard Lessons in Disruption: What the West Coast Port Slowdown Really Taught Us

The West Coast port problems revealed a lot about supply chains, what happens when they break down, and what happens when you don't have a contingency plan. These are hard lessons, but there’s a lot to gain from understanding them and looking ahead.

1. West Coast Port Issues Aren't Going Away

The strike and slowdown peeled back the curtain on a whole lot of stuff that's troubling with the West Coast ports. For one, they’re too small. Cargo ships have grown into enormous vessels and many West Coast ports don't have the capacity to handle loading and unloading and serving these ships well. On top of that, loading inefficiencies and pier access restrictions have caused a lot of truck drivers to stop working at Southern California ports. That means bottlenecks will still exist. Shippers need to figure out a strategy for dealing with these kinds of ongoing problems.  One promising option is the rise of Gulf of Mexico ports. Because of upgraded entrance locks to the Panama Canal, Gulf ports are becoming increasingly attractive and will likely continue to become more robust at handling major commerce.

2. Risk Spots Are Everywhere

Moving beyond U.S. West Coast ports, there are lots of global commerce hotspots in the world, and many of them could face issues. Take the South China Sea, for instance. According to recent reports, China is building artificial islands in the disputed waters of the South China Sea. The action follows another incident last May, when a Chinese oil rig entered the disputed waters and the resulting protests and violence caused Chinese-owned factories in Vietnam to be closed down, impacting trade. Then there’s the recent strike and violence in Bangladesh. These events show us that many crucial manufacturing sources and emerging markets are extremely volatile. To think that your supply chain is secure because you have a long history of doing commerce in a region is naïve. Risk spots are everywhere. Nobody expected a volcano eruption in Iceland to wreak havoc on transit. It did.

3. Cargo Diversions Happen, But They Aren't Easy

Around the time the port crisis ended, close to 65 percent of shippers were diverting or planned to divert cargo away from West Coast ports. Some did so successfully, to the point where a lot of that cargo isn’t going to return to the West. But diverting cargo often came with greater costs in time and money. East Coast ports, for instance, charged $1,000 “West Coast congestion” surcharges, on top of their already-higher price per container.

Global trade needs to move on from this crisis, and it will. But there are ways to move on by turning lessons into action that can make life easier the next time something like this happens.

Disruption Preparedness 101

Disruptions come in all shapes and sizes—strikes, political unrest, capital risks, sudden market changes and natural disasters. Their effects on supply chains are often unpredictable and nonlinear because of all the complexity involved. That means to prepare for a disruption you can’t just get ready for a specific event like a flood or a protest. Instead, you need to get ready for uncertainty and unpredictability as a whole. The idea is that survival doesn’t require being omniscient, it requires being adaptable.

That’s the abstract guiding principle. Getting down more concretely to supply chain strategies, being prepared requires being agile. Agile supply chains can routinely engage in functions like rerouting inventory at will, drawing from multiple suppliers, rapidly enabling transactions, and finding optimum routes that maximize profits while minimizing the total cost to serve. These functions are useful in regular, day-to-day transactions, but the agile infrastructure on which they rest really mitigates risk when disruptions occur.

What does it take to make a supply chain agile? The foundation of making adjustments on demand is knowing what has happened, what is happening, and what’s going to happen throughout your supply chain.  It requires being able to see into the past, present, and to a certain extent, the future. “Supply chain visibility” is a common term for this concept, but it’s one that’s often tossed around loosely without a general consensus on its definition.

Some people think of visibility as a binary switch—you either have it or you don’t. But it’s not. Visibility is more like Google Earth, where drilling down to different levels gives you different kinds and granularities of information. They’re all useful if used properly. Big data, in particular, will offer insights on the past, present and future based on the respective descriptive, predictive and prescriptive analytics. Think of all these tools as the joints and ligaments of your supply chain arm—they enable flexibility and movement.

According to Gartner, the journey toward more robust visibility is a multistage process. In it, organizations move from having visibility within their organization, to visibility between and across trading partners, then to their entire network of networks. That journey is both a structural one as well as a technological one.

Businesses who want to mitigate their losses against disruption need to reprioritize their normal, non-disruption operations in order to gain better visibility and agility. That’s really the only way to skirt around trouble when it crops up. The West Coast port problem was prominent and taxing for shippers, and its long duration also made it particularly painful to endure. It might not ever be possible to predict or completely eliminate such events, but as more supply chains evolve toward becoming more agile, the effect of those disruptions can certainly diminish. And perhaps that’s the greatest lesson of all—the universal truth about crises—they expose us to our endemic problems, so we can make adjustments and improve processes, even when the building’s not on fire.

Source: GT Nexus

The West Coast port problems revealed a lot about supply chains, what happens when they break down, and what happens when you don't have a contingency plan. These are hard lessons, but there’s a lot to gain from understanding them and looking ahead.

1. West Coast Port Issues Aren't Going Away

The strike and slowdown peeled back the curtain on a whole lot of stuff that's troubling with the West Coast ports. For one, they’re too small. Cargo ships have grown into enormous vessels and many West Coast ports don't have the capacity to handle loading and unloading and serving these ships well. On top of that, loading inefficiencies and pier access restrictions have caused a lot of truck drivers to stop working at Southern California ports. That means bottlenecks will still exist. Shippers need to figure out a strategy for dealing with these kinds of ongoing problems.  One promising option is the rise of Gulf of Mexico ports. Because of upgraded entrance locks to the Panama Canal, Gulf ports are becoming increasingly attractive and will likely continue to become more robust at handling major commerce.

2. Risk Spots Are Everywhere

Moving beyond U.S. West Coast ports, there are lots of global commerce hotspots in the world, and many of them could face issues. Take the South China Sea, for instance. According to recent reports, China is building artificial islands in the disputed waters of the South China Sea. The action follows another incident last May, when a Chinese oil rig entered the disputed waters and the resulting protests and violence caused Chinese-owned factories in Vietnam to be closed down, impacting trade. Then there’s the recent strike and violence in Bangladesh. These events show us that many crucial manufacturing sources and emerging markets are extremely volatile. To think that your supply chain is secure because you have a long history of doing commerce in a region is naïve. Risk spots are everywhere. Nobody expected a volcano eruption in Iceland to wreak havoc on transit. It did.

3. Cargo Diversions Happen, But They Aren't Easy

Around the time the port crisis ended, close to 65 percent of shippers were diverting or planned to divert cargo away from West Coast ports. Some did so successfully, to the point where a lot of that cargo isn’t going to return to the West. But diverting cargo often came with greater costs in time and money. East Coast ports, for instance, charged $1,000 “West Coast congestion” surcharges, on top of their already-higher price per container.

Global trade needs to move on from this crisis, and it will. But there are ways to move on by turning lessons into action that can make life easier the next time something like this happens.

Disruption Preparedness 101

Disruptions come in all shapes and sizes—strikes, political unrest, capital risks, sudden market changes and natural disasters. Their effects on supply chains are often unpredictable and nonlinear because of all the complexity involved. That means to prepare for a disruption you can’t just get ready for a specific event like a flood or a protest. Instead, you need to get ready for uncertainty and unpredictability as a whole. The idea is that survival doesn’t require being omniscient, it requires being adaptable.

That’s the abstract guiding principle. Getting down more concretely to supply chain strategies, being prepared requires being agile. Agile supply chains can routinely engage in functions like rerouting inventory at will, drawing from multiple suppliers, rapidly enabling transactions, and finding optimum routes that maximize profits while minimizing the total cost to serve. These functions are useful in regular, day-to-day transactions, but the agile infrastructure on which they rest really mitigates risk when disruptions occur.

What does it take to make a supply chain agile? The foundation of making adjustments on demand is knowing what has happened, what is happening, and what’s going to happen throughout your supply chain.  It requires being able to see into the past, present, and to a certain extent, the future. “Supply chain visibility” is a common term for this concept, but it’s one that’s often tossed around loosely without a general consensus on its definition.

Some people think of visibility as a binary switch—you either have it or you don’t. But it’s not. Visibility is more like Google Earth, where drilling down to different levels gives you different kinds and granularities of information. They’re all useful if used properly. Big data, in particular, will offer insights on the past, present and future based on the respective descriptive, predictive and prescriptive analytics. Think of all these tools as the joints and ligaments of your supply chain arm—they enable flexibility and movement.

According to Gartner, the journey toward more robust visibility is a multistage process. In it, organizations move from having visibility within their organization, to visibility between and across trading partners, then to their entire network of networks. That journey is both a structural one as well as a technological one.

Businesses who want to mitigate their losses against disruption need to reprioritize their normal, non-disruption operations in order to gain better visibility and agility. That’s really the only way to skirt around trouble when it crops up. The West Coast port problem was prominent and taxing for shippers, and its long duration also made it particularly painful to endure. It might not ever be possible to predict or completely eliminate such events, but as more supply chains evolve toward becoming more agile, the effect of those disruptions can certainly diminish. And perhaps that’s the greatest lesson of all—the universal truth about crises—they expose us to our endemic problems, so we can make adjustments and improve processes, even when the building’s not on fire.

Source: GT Nexus

Hard Lessons in Disruption: What the West Coast Port Slowdown Really Taught Us