Matthew Wright
Executive Vice President
A labor strike on the U.S. East and Gulf coasts by the International Longshoremen’s Association (ILA) was narrowly averted in October 2024. This near-miss event offers important lessons for supply chain risk management and business continuity planning.
Even though the strike—which would have caused significant economic impacts for many industries—didn’t happen, port closures or another supply chain disruption could occur in the near term. The ILA agreed to suspend its strike until January, when it will resume negotiations on its collective bargaining contract with the ports. If both sides cannot reach an agreement, a labor strike could trigger a cascade of negative consequences for businesses and consumers. Therefore, it’s essential for businesses to think about the impact of supply chain disruption and how to mitigate it.
Supply chain disruptions pose risks regardless of their source, whether stemming from labor disputes, natural disasters, geopolitical developments, cyber attacks, or other economic issues. Notably, ports are just one node in the global supply chain. Other nodes include road, rail, and air. Multimodal transportation of goods, such as containership/truck and air/truck, adds complexity to supply chains.
Globally, supply chain risk moves quickly due to connectivity and interdependent trading relationships. The dynamic and complex nature of supply chains means that hiccups at one end may result in significant ill effects elsewhere. It’s an illustration of a concept posed decades ago by Massachusetts Institute of Technology Professor Edward Lorenz, who asked, “Does the flap of a butterfly’s wings in Brazil set off a tornado in Texas?” Lorenz’s point, which later became the foundation of chaos theory in mathematics, was that small variations in a complex system can have profound, divergent, and unpredictable influences on outcomes.
Solving supply chain risks requires organizations to apply strategic and creative thinking to multiple areas of their operations. Understanding business continuity and the impact of disruption requires organizations to realize that supply chains involve not only owned physical assets but also non-owned infrastructure and talent.
Impacts on business
It isn’t difficult to envision the mounting operational challenges and expenses for businesses from a short supply chain disruption. The longer a disruption lasts, the greater the potential loss. Consider a few of the economic impacts that might result from a widescale port strike:
- Higher costs for exporters and importers due to rerouting ships and using alternative delivery methods
- Cash-flow problems from delays in reaching markets
- Product liability arising from alternate suppliers and potentially reduced quality of components and finished goods
- Reputational damage caused by a negative customer experience that could be shared on social media to influence others
- Worker strain, leading to loss of morale, lower productivity, illness, injury, and turnover
Risk scenarios can spiral from a port closure. For example, the inability to source or ship finished goods or components can mean delayed or lost sales, which lead to a host of other challenges, such as loss of market shares, layoffs, production shutdowns, and the inability to fulfill contractual obligations.
A major reason the ILA’s threat of a strike at East Coast and Gulf Coast ports is a serious risk is the value of cargo that passes through those facilities. According to the Bureau of Transportation Statistics’ Freight Facts & Figures, Atlantic Coast ports accounted for the largest share of U.S.-international trade value, almost 30%, in 2022. Together, Atlantic and Gulf Coast ports handled nearly $2 trillion of merchandise.
Port closures are not the only risk to global supply chains. Natural disasters, cyberattacks, and other events also can sever supply chains. Geopolitical events that discourage ships from using certain waterways also can be costly and disruptive. In 2023 and 2024, attacks on cargo ships and tankers by Houthi rebels in the Red Sea caused hundreds of vessels to avoid the Suez Canal. Rerouting around southern Africa added 4,000 miles to their journeys and raised freight costs between Asia and Europe almost fivefold, according to an analysis by J.P. Morgan Research.
What businesses can do
For most organizations, the answer to the question “How long can we afford to be disrupted?” is “Not long.” Actions by organized labor, political violence, and natural disasters—and the duration of their impact—seem far outside the control of businesses that rely on shipping. However, businesses still can take steps to mitigate their risks of supply chain disruption. These include:
- Assembling the right stakeholders to analyze your organization’s supply chains and the risks to each; create a committee that meets regularly to monitor and discuss supply chain risk management
- Prioritizing risk mitigation strategies according to business objectives, and align the risk management program with business strategy
- Assessing the cost and benefits of alternative supply chains and the risks involved; redundancy and diversification are proven supply chain risk management tactics
- Highlighting the importance of proactive communication with suppliers, customers, and partners to manage expectations and mitigate potential disruptions
- Working with risk management specialists to develop sustainable, flexible supply chain risk mitigation plans that take contingencies into account
Partnering with MMA for guidance
Mitigating supply chain risk is complex and calls for specialized expertise. Marsh McLennan Agency is a trusted advisor in risk management and business continuity. Our team has deep experience serving a broad range of industries and can assist you in assessing the potential impacts of supply chain disruption on your business.
Schedule a meeting with an MMA representative to discuss tailored strategies and solutions to mitigate risks and ensure business continuity.
