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7
MINUTE READ TIME
Published
October 1, 2024
|
Chelsea Cohen

Inventory Expert

|
News & Announcements

How the U.S. East Coast Port Strike and MSC’s Contract Terminations Could Affect Amazon Supply Chains

How the U.S. East Coast Port Strike and MSC’s Contract Terminations Could Affect Amazon Supply Chains
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Table of Contents

Update (October 4, 2024)

The U.S. East Coast port strike has paused as a tentative deal was reached between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX). Workers have returned to work to clear backlogged ports, but the deal is subject to member ratification. If rejected, the strike may resume, causing further disruptions. In the meantime, Amazon sellers and businesses relying on these ports should remain cautious and monitor the situation closely.

As an Amazon seller, you’ve weathered your fair share of storms. But the looming East Coast port strike and the Mediterranean Shipping Company (MSC) halting deliveries of diverted containers outside of Baltimore port facilities following a container ship incident threaten to disrupt operations on an epic scale.

As the holiday sales season looms, businesses, particularly Amazon sellers, must brace for potential upheavals and strategize to mitigate risks.

Let’s dive into what this means for you and how to stay ahead.

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The U.S. East Coast Port Strike: A Rare and Costly Disruption

On Tuesday, October 1, 2024, approximately 45,000 port workers represented by the International Longshoremen’s Association (ILA) initiated the first port strike on the U.S. East Coast ports since 1977.

This unprecedented action has targeted 36 ports stretching from Maine to Texas, including some of the busiest hubs like the Ports of New York/New Jersey, Philadelphia, and Savannah. The strike emerged after failed negotiations over pay between the ILA and the United States Maritime Alliance (USMX), with both parties accusing each other of bad faith bargaining.

Economic Implications

The economic ramifications of this strike are staggering. Estimates suggest that the strike could cost the US economy up to $5 billion per day.

Nearly half of all cargo containers entering the U.S. and three-quarters of export containers are processed through the East and Gulf Coasts. In fact, in 2023, over 40% of US footwear imports, valued at $10.5 billion, came through these ports​. 

Similar figures apply to various other product categories, significantly impacting goods from Europe, which rely heavily on these routes. In contrast, Chinese exports are less affected as they predominantly utilize West Coast ports, minimizing the impact of these disruptions on trade with China, though fallout could spill over into these trade routes if the strike is not short-lived.

Immediate Impact on Supply Chains

The strike's ripple effects could be far-reaching. Beyond the immediate financial losses, the strike may also result in lower turnover of freight, as ships remain idle in port or have to divert to longer routes. This reduced throughput has the potential to create a ripple effect, slowing down logistics on the East Coast. 

With approximately 147 vessels scheduled to arrive around October 1st, port congestion could quickly double if the strike continues beyond a week​. This translates to significant delays in getting inventory to Amazon fulfillment centers.

Additionally, if the strike persists, there may come a point where freighters either relocate to alternative ports or return with undelivered inventory, further compounding supply chain challenges.

Government and Union Dynamics

The White House has been closely monitoring the situation, urging both sides to negotiate towards an agreement that averts disruption.

Despite President Biden’s pro-union stance, the administration has so far refrained from intervening directly, citing the complexities involved.

Moreover, Biden himself stated to reporters on September 29th that he will not invoke the Taft-Hartley Act

JPMorgan’s transportation analysts predict that the strike is unlikely to last more than a week due to its severe economic impact, but even a short-term halt could cause significant delays and cost overruns.

MSC’s Contract Terminations: Compounding the Chaos

Exacerbating the existing turmoil is the MSC recently announcing it will terminate container contracts once cargo reaches a diversion port.

This decision follows the tragic Francis Scott Key Bridge collapse in Baltimore, which resulted from a container ship accident at the port, leading to its indefinite closure. MSC’s advisory (published March 27, 2024) stated that shippers will now bear the responsibility of moving goods from diversion ports or face delay charges.

Exacerbating Supply Chain Disruptions

MSC’s decision to terminate contracts at diversion ports places an additional burden on shippers, who must now navigate alternative logistics arrangements amidst a strike that has already reduced port efficiency by a significant margin. 

The combination of halted port operations and limited carrier options could lead to extensive delays, increased costs, and inventory shortages, magnifying the economic impact of both disruptions.

How This Affects Amazon Sellers

The timing of this strike and MSC’s contract terminations couldn’t be worse for Amazon sellers.

With the October 19th deadline for FBA and AWD inventory for Black Friday and Cyber Monday rapidly approaching, many sellers are rightly concerned. 

One Amazon Vendor shared, “Our main worry is not receiving goods in time, leading to late deliveries on accepted POs. This could result in expensive chargebacks from Amazon, affecting our Carton Content Accuracy and PO On Time Accuracy metrics.”

Another critical consideration is the potential need to adjust advertising budgets in the face of significant inventory challenges. 

Rather than maintaining high spending, sellers should strategically adjust their marketing campaigns to maximize profitability as they approach stockouts, aiming to increase revenue per unit. In addition, it would be prudent to revise pricing strategies, as they will likely face low inventory fees during this period.

Other ways these delays could impact your business:

  • Congestion and alternative routes, as nearby ports are likely to experience surges in traffic due to shippers diverting their cargo. Moreover, the Port of Baltimore’s specialized handling of bulk commodities means that other ports may struggle to accommodate redirected goods, further complicating logistics and supply chain management.
  • Increased shipping costs as alternative routes become necessary.
  • Higher storage fees if inventory gets stuck at ports. Ports typically have limited space, and when containers remain in port longer than expected, they occupy valuable real estate. As a result, port operators charge storage fees for the extended use of their facilities. This situation can also trigger demurrage fees, which are penalties levied on shippers for failing to move cargo out of the port within the allocated free time.
  • Potential loss of sales due to stockouts.
  • Additional costs and delays due to freight companies, MSC for instance, terminating their contracts once cargo is dropped at a diversion port. Shippers will be responsible for covering the additional costs of transporting goods from these alternate ports to their final destination. This includes potential storage fees, demurrage and detention charges (D&Ds), and any on-carriage costs. Without timely action, these added expenses can further delay inventory movement, leading to prolonged stockouts and a significant loss of revenue.
  • Challenges in meeting Amazon’s strict delivery deadlines, especially during the holiday season. Failure to meet these deadlines not only jeopardizes sales but also risks leaving sellers with excess inventory. This can result in substantial storage costs and aged inventory fees, further eroding profitability.
  • It is possible that Amazon could extend FBA check-in times due to the disruption. However, this is purely speculative at this point.
Urgent: Amazon sellers take action now!
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Lessons from Previous Shipping Disruptions

Strikes are not uncommon in this space, but the potential impact of inventory not arriving until after Christmas would have a huge effect on the economy.

Previous strikes have taught us the importance of diversification and preparedness, but this strike’s timing adds an extra layer of complexity.

Here are some actionable tips to stay ahead for Q4 and beyond:

  1. Increase Buffer Stock
    Assess your inventory needs and build a buffer to manage any delays.

  2. Use Small Parcel Delivery (SPD)
    Consider breaking down your FTL or LTL shipments into smaller parcels to achieve quicker check-in times. Although sending SPDs will cost more, this approach has a higher likelihood of getting your inventory checked in before the holiday sales season.

  3. Consider Live Unload Options
    Alternatively, inquire with your logistics provider about live unload options, which ensure immediate unloading at the dock rather than delayed handling in a yard. While this may also be more expensive, it is a more cost-effective solution than risking stock shortages.

  4. Explore Alternative Fulfillment Options
    Consider using Fulfillment by Merchant (FBM) as a backup during the strike.

  5. Create a Contingency Plan
    As ocean shipping companies like MSC divert cargo to alternative ports, they will effectively terminate their contracts with shippers, leaving them responsible for additional transport arrangements for diversion port to final destination. It’s crucial to prepare for these possibilities. Contact your 3PL logistics provider today to discuss contingency plans, ensuring you're ready to navigate these challenges seamlessly rather than scrambling for solutions at the last minute.

  6. Monitor Shipment Times
    Use freight tracking tools that provide real-time visibility into shipment statuses across various carriers, allowing you to track delivery times, delays, and locations. You can also use this information to adjust your marketing and pricing strategies.

  7. Consider Air Freight
    For critical inventory, air freight can be a faster, albeit more expensive, solution.

  8. Adjust Pricing and Shipping Options
    Consider adjusting prices to account for increased costs due to delays and additional shipping expenses. Also, offer multiple shipping options, including expedited shipping where feasible once inventory arrives, to accommodate customer needs despite previous potential delays.

  9. Stay Current
    Regularly monitor your supply chain and industry news. Subscribing to Carbon6’s weekly Top Amazon Seller News email can help keep you informed of changes as they happen.

  10. Stay Stocked
    Use inventory management tools like SoStocked to monitor your supply in real time, forecast demand accurately, maintain buffer stock, and adjust your marketing strategies to avoid stockouts.

  11. Stay Profitable
    Recover lost reimbursements with Seller Investigators and manage chargebacks with ChargeGuard to protect your profits during this uncertain period.

  12. Prepare for Potential Extended Delays
    As we head into 2025, it’s crucial to stay vigilant about potential challenges stemming from ongoing disruptions. 

    Even if your inventory is already at Amazon, the impacts of the current strike may ripple into Q1 2025, affecting restocking and order fulfillment. To mitigate risks in Q4, focus on optimizing your existing stock and ensuring your logistics are in place. For January, consider diversifying your supply chain and exploring alternative fulfillment options to better brace for prolonged disruptions.

Preparing for Uncertainty

The convergence of a major port strike on the US East Coast and MSC’s contract terminations creates a perfect storm for supply chain disruptions. Businesses, particularly those relying on timely imports and exports like Amazon sellers, must act swiftly to adapt to these challenges.

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