Risk briefing: learning lessons from the US port strike

The recent US port strike is the latest incident where a lack of granular data hurt businesses and their insurers’ ability to mitigate the risks before they occur.

The strike at 36 ports across the US East Coast began on October 1, and caused huge disruption to trade and the movement of goods.

The strike was caused by an impasse over pay between the International Longshoremen’s Association (ILA) a union representing 45,000 port workers and the United States Maritime Alliance employer group.

This blocked agreement of a new contract, to replace the previous deal which, ended on 30 September.

“[This] is another opportunity for risk managers to look at the impact on their business should a similar event occur at port facilities across the world and to put in pace strategies that can minimise that impact.

What does it mean for businesses?

Initially, data and analytics company Russell Group said the strike had the potential to deliver a $63 billion (£47 billion) knock to the US economy.

The figure was derived from the impact of a two-week strike from 1 October to the 15 of October, across leading US ports along the East Coast from New York to Houston, as calculated by Russell’s ALPS Marine exposure solution.

Union members downed tools at 36 ports including Boston, New York, New Jersey, Philadelphia, Houston, Tampa, Baltimore, New Orleans and the Port of South Louisiana. These ports handle about half of US ocean trade.

Russell said the ports most exposed were New York, at $17 billion (£12 billion), and Houston at $12 billion (£8.97 billion).

Deeper exposure analysis by the company shows that the commodities that were most vulnerable to the disruption are Crude Oil ($2.2 billion /£1.64 billion), Integrated Circuit Boards ($733 million / £547 million), Cars & People Carriers ($1.98 billion / £1.48 billion) and Pharmaceuticals ($1.518 billion / £1.13 billion).

How risk managers tackled the threats

Risk managers and businesses were quick to look at ways to mitigate the potential impact of the strikes.

Many businesses looked to order goods earlier, while others have sought to move goods by train and in some extreme cases by air. Some tried to move goods via the west coast ports but there were warnings that the rush west would create delays and backlogs amid a significant uptick in cargo movements.

Russell Group managing director, Suki Basi, told StrategicRISK that the port strikes, while carrying the threat of significant disruption to business, also highlighted the need for risk managers to have better levels of information on the impact of developing risks across the world. He said: “They show the current connectedness of supply chains to any form of disruption and resulting impact on global trade, given the role that US ports play in facilitating shipments in and out of the US.”

“Corporate boards, risk managers and their (re)insurers need to have access to more granular data analysis in order to understand fully their exposures from such events so as to mitigate the potential consequences.”

“There is a huge amount of data available which can create a completely different view on how risks can and will develop?

Basi continues that with growing complexity of today’s risks, the key challenge remains understanding the data, so risk managers can make better informed decisions as to how they can mitigate supply chain disruptions.

“The ongoing issues with access to the Red Sea, and Panama Canal coupled with the need for shipping companies to undertake longer transits via the Cape of Good Hopes has already put global supply chains under pressure,” he adds.

As risk managers shift towards nearshoring and friendshoring to ensure their materials and goods are delivered when needed, there has also been a clear move by companies to revise the way they look at supply stocks.

“We have left the era of ‘just in time’ to move into an era of ‘just in case’,” Basi says.

However he adds that risk managers need to be more demanding when it comes to the data they can access.

“The temptation is always to look to the data which is and can be created internally,” he explains. “However, there is a huge amount of data available which can create a completely different view on how risks can and will develop and will enable risk managers to put better strategies in place earlier, and in doing so reducing the risks they face.”