East and Gulf Coast Port Strike Averted

By MarEx 2012-12-28 11:48:00

Retailers Continue to Seek Certainty in the Supply Chain

National Retail Federation President and CEO Matthew Shay issued the following statement on news that the International Longshoremen’s Association and United States Maritime Alliance agreed to extend their contract negotiations for an additional 30 days:

“We welcome today’s news that a contract extension has been reached. However, we continue to urge both parties to remain at the negotiating table until a long-term contract agreement is finalized.

“While a contract extension does not provide the level of certainty that retailers and other industries were looking for, it is a much better result than an East and Gulf Coast port strike that would have shut down 14 container ports from Maine to Texas.

“A coast-wide port shutdown is not an option. It would have severe economic ramifications for the local, national and even global economies and wreak havoc on the supply chain.

“Throughout the process, NRF has stressed the vital economic importance of keeping the ports open to international trade and commerce. Our ports and the cargo and containers that flow through them are truly our economic lifelines to the world.

“Following the devastation of Hurricane Sandy and the recent eight-day port strike in Los Angeles and Long Beach, this extension is a welcomed sign to the entire supply chain community – from manufacturers to retailers – that the two sides understand the risks of a shutdown and are listening to the concerns of the shipping community.

“We applaud the work of the Federal Mediation and Conciliation Service for working tirelessly – even through the holiday week – to orchestrate this contract extension and encourage them to continue their work with both parties to help them arrive at a final master contract. Only until we have a final contract will retailers and others have the certainty they need.*

Linda Kornfeld, insurance litigation attorney, weighs in on how businesses can avoid major disruptions from a possible strike.

MarEx: What can businesses do now to prevent larger supply chain issues from the potential strikes?

LK: With the potential port strikes, businesses may experience a delay in their overall supply chain for shipping and receiving products, and they may not get parts or components in time from their business partners and vendors. To prepare for possible strike issues, businesses need to first assess exactly how the port closures will impact their business, both immediately and long term. Businesses should gather all records regarding shipments and contracts with trading partners that can be affected because of the strikes, and determine the extent to which shipments can be redirected or whether alternative sources of necessary supplies can be identified and pursued. This information can help businesses assess their rights, obligations, and potential exposure.  Businesses also should gather and carefully review all potentially applicable insurance policies to understand whether insurance resources can provide any form of financial support in response to this potential event and immediate requirements under any such policies.

MarEx: Can working with insurance policies prevent disruptions in capital possibly caused by port strikes?

LK: Whether insurance will be available to any particular business responding to this event will depend upon the types of policies contained in a company's insurance portfolio.  By way of example, companies should carefully review cargo/marine policies to determine whether depending upon the specific nature of their potential loss, those policies may cover amounts spent to redirect shipments or find alternative transportation methods to prevent loss or damage to products being shipped.  Trade or voyage disruption or other coverages addressing supply chain issues also could provide significant benefit to companies.  Critically, whether insurance proceeds may help companies in this circumstance will depend upon the specific contract language and nature of a company's potential loss.  

MarEx: What are some ways that companies can plan ahead to deal with the port strikes?

LK: In this global economy, where so many businesses depend so significantly upon timely receipt of products, component parts, goods and other necessary items from their trading partners, supply chain risk management has become an essential business strategy.  That strategy includes methods to transfer potential risk of loss due to a massive port shutdown, including through negotiated contract terms with trading partners, careful consideration of insurance policies that may apply in such circumstances, and creating contingency plans should, for any reason, the supply chain be disrupted.  The events of 2011 and 2012 evidence that the global supply chain is vulnerable to disruption from unforeseen events, such as these strikes, cyber security breaches, natural disasters and other events.   Businesses should look at broader, more holistic risk management approaches for planning for future disruptions.

Linda Kornfeld is a partner at Jenner & Block, based in its Los Angeles office. She represents corporate and individual policyholders in high-stakes insurance coverage litigation.  She has helped clients ranging from telecommunications companies and real estate developers to manufacturers and nonprofit