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As talks between the International Longshoremen’s Association and the U.S. Maritime Alliance take place in a shroud of secrecy to avert a strike by 14,500 longshoremen members working at 14 major East Coast ports on December 30, one manufacturing association puts the cost of a potential strike at a billion dollars a day.Robyn Boerstling, director of transportation and infrastructure policy at the National Association of Manufacturers (NAM) says manufacturers have been making preparations to reduce the impact on supply chains and avoid disruptions to production capabilities in anticipation of a strike.
“Manufacturers are trying to protect jobs and minimize the damage of potential supply chain disruptions from a costly strike, which could cost an estimated billion dollars a day,” she told CNBC.
Boerstling said some manufacturers have increased their monthly export volumes in advance of the December 30 walk-out date, while others have increased inventories and many have diverted cargo.
“These preparations have come at an enormous expense for manufactures during a period of great economic uncertainty and the threat alone of a strike comes with financial consequences,” said Boerstling. “In spite of all these efforts, disruptions in sales and lost export opportunities are likely to be unavoidable outcomes.
Negotiations broke off on December 18th after management said they want to cap “container royalties” — payments made to longshoremen based on the weight of the container cargo.
Some 14,500 workers at the 14 ports—including the 4,000 dockworkers in New York and New Jersey—could go on strike on Dec. 30. The last time there was an East Coast longshoremen’s strike was back in 1977.
The New York-New Jersey port is the second largest port to handle manufactured goods from China and is the largest port on the East Coast. In 2011, the New York-New Jersey ports handled $208 billion in cargo- the most on the East Coast.
Approximately 3,200,000 TEU of containers and 700,000 cars are handled per year in the port of New York New Jersey. According to economic data from the Port of New York and New Jersey, the port generates more than $5 billion in annual tax revenues to state and local governments.
Prepare for the Worst
Those who advise companies on crisis planning say the NAM members’ preparation plan is key to help soften the impact of a potential strike.
“While many businesses are well protected should their operations be interrupted because of a fire, windstorm and certain other natural disasters,…. events like the looming port strikes, however, highlight the critical need for risk transfer methods to address supply chain disruptions resulting from an inability to obtain access to necessary products because of something other than physical damage,” said Linda Kornfeld, partner at the law firm Jenner & Block.
“In this global economy where one chink in the supply chain can create significant impact on profits, many companies do not adequately insure for current events that can create major issues. In addition to potentially applicable traditional coverage, businesses that may be impacted by the strikes also should consider additional coverage such as trade disruption and voyage disruption insurance,” she said.
With just days left in the negotiation window, Kornfeld says companies waiting for shipments on boats heading to impacted ports should immediately determine the extent to which shipments can be redirected to other ports.
“The expense associated with redirecting shipments, such as increased tariffs and other amounts possibly can be defrayed through careful access of existing insurance policies. Companies also should identify alternative suppliers or sources of necessary products or goods that do not require shipments from impacted ports. Again, insurance may reimburse for extra expenses incurred by modifying the supply chain in response to this event,” she added.
(Read More: Beyond Twinkies: Why More Workers Are Striking)
Kornfeld explained contracts with trading partners should also be carefully reviewed to determine whether contingency plans, including indemnity agreements were included to address “the unexpected” such as a complete shutdown of 14 ports spanning from Maine to Houston.