Amid strike fears, freight rerouting is a key part of the 2022 supply chain playbook

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On the west coast, the Port of Los Angeles is trying to attract more shippers as volume tumbles from its record-breaking highs. Along the east coast, the Port of New York and New Jersey leadership touts it has been the nation’s busiest container port for two straight months.

“We’ve been number one here in the United States for 22 consecutive years. A month or two isn’t going to create a trend,” Port of Los Angeles executive director Gene Seroka said Tuesday at the media briefing. Nonetheless, he said the port has been touring for months, knocking on shippers’ doors to get back an allotment of cargo.

While not the only factor responsible for their differing cargo trends, experts and port leaders agree that the shadow of negotiations between the International Longshore & Warehouse Union and the Pacific Maritime Association has motivated shippers to move more U.S. cargo from reroute west to east. Companies used a similar tactic for rail freight in the third quarter to guard against a possible rail freight shutdown, which remains a concern.

“Although both sides – the PMA and the ILWU – have issued two co-signed media releases stating that they will neither strike nor lockout, there is still skepticism,” Seroka said.

The threat of a strike was enough to spur shippers into action and transform the country’s cargo flow. In doing so, however, shippers have found that rerouting cargo—like other supply chain contingency plans—can result in tradeoffs such as longer lead times and added logistics complexity.

Ports on the east coast snag important parts from the west

Diversion activity has become more pronounced in recent months after the ILWU and PMA failed to reach a working agreement by the July 1 deadline, said Glenn Koepke, GM of Network Collaboration at FourKites.

In October, 62% of FourKites customer import shipments arriving at U.S. ports went to the East Coast versus 38% to the West Coast, according to the company’s tracking data. That’s the largest share for the East Coast so far this year, beating its 57% share in October 2021.

The volatile ocean shipping conditions unleashed by the COVID-19 pandemic — including severe rate fluctuations and congestion — have led companies to renegotiate their contracted rates and capacity more frequently, Koepke said. This has enabled shippers to know more quickly where their cargo is arriving.

“If you compare the diversion of freight today to four years ago, the process of sourcing ocean freight allows for a little more efficient diversion today because historically they have been annual contracts,” said Koepke. “Now you see quarterly contracts.”

East Coast ports outperform West Coast in imports during labor talks

Loaded imports in TEUs at the major container ports on the West and East Coasts of the US since 2016. The shaded area represents the ongoing ILWU-PMA contract negotiations.

It’s unclear how much of the Port of Savannah’s recent import growth is directly related to diverted cargo, according to Cliff Pyron, chief commercial officer at the Georgia Ports Authority. But in the quarter ended September, 166 importers were either entirely new customers or increased their Savannah trade by 20% or more.

“Since fiscal 2001, the Port of Savannah has gained both short- and long-term cargo with every work operation on the West Coast,” Pyron said in emailed replies to Supply Chain Dive. “We are already hearing from port customers who are moving cargo to the East Coast as a hedge against a possible strike.”

Some hauliers fled the railroad in Q3

Concerns about work-related disruptions do not dissipate when shippers’ cargo moves inland. With negotiations between railroads and unions still ongoing, companies have adjusted their supply chains to insure against a possible strike or lockout.

The airlines addressed this shift during the last quarterly phone calls. Schneider saw intermodal volumes fall in September as customers sought to avoid uncertainty on rail by switching to trucks instead, particularly affecting activity on shorter routes.

Norfolk Southern executives said the railroad took a “no surprises” approach in the third quarter by talking to customers about how to keep their freight moving. The company estimates the approach accounted for about 40% to 50% of the quarter’s volume decline, primarily in its intermodal markets.

The locomotive of a Norfolk-Southern train passing through Cresson, Pennsylvania

Thai Phi Le/Supply Chain Dive

Railroads and three unions reached a tentative agreement on September 15 to avert a freight shutdown, assuaging some shippers’ concerns. And for now, there’s no spate of freight moving from rail to truck — Chris Caplice, chief scientist at DAT, said in an emailed comment on Nov. 7 that he doesn’t anticipate any changes to the rail network due to the potential rail Truck trends on the lanes got noticed strikes.

But the threat of disruption this year still looms as the deadline to avoid a rail strike or lockout is now set for December 4.

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