Supply Chain Labor Challenges: Ongoing and New Uncertainties for 2022

While automation has transformed manufacturing among other industries, the delivery of physical goods still relies intensively on human labor. Many experts predict that labor constraints, pandemic-related and otherwise, will continue to create headwinds for importers as consumer demand remains high through 2022.  

Declining labor force participation 

Though absences due to COVID-19 are easing in the US, many industries still face a near-record shortage of workers, with almost 11 million positions vacant in February 2022. The labor force participation rate, which measures the percentage of Americans who are either working or looking for work, has been rising so far in 2022. But it remains low compared with pre-pandemic levels according to government statistics, especially relative to strong job growth and declining unemployment.

From truck drivers to warehouse pickers to manufacturing workers, labor is in short supply across the US economy. Adding to the pool of nonparticipants are early retirees, mothers unable to secure childcare and those holding out for better jobs. This trend will continue to create challenges with delivering materials, ramping up production, and clearing supply chain transport blockages.

Globally, a shortage of workers at factories and other workplaces in China, Vietnam, and other Asian export nations due to COVID-19 “rebound effects” could also slow the unraveling of North American supply chain disruptions. For example, waves of lockdown-driven layoffs forced many workers to reverse migrate from cities back to rural areas. This trend is slower to reverse than to initiate, contributing to labor shortfalls as facilities come back online.

Another example is trucking. In the US and Canada as well as Europe, longstanding factors like rising demand, an aging workforce and deteriorating pay and working conditions have steadily eroded the availability of truckers. Adding COVID-19 sick leave to the mix has not helped. The overall situation is strongly reflected in an ongoing shortage of drivers willing to haul cargo from ocean terminals to warehouses in the face of congestion, reduced daily wages and scarcity of container chassis. 

US West Coast dockworker contract concerns  

A much-discussed unknown in the current North American labor situation is the fate of contract negotiations between US West Coast terminal operators through the Pacific Maritime Association (PMA) and the International Longshore and Warehouse Union (ILWU). The union represents about 20,000 dockworkers at 29 ports from Washington to southern California.

Preliminary talks are underway. If negotiations falter the potential for exponentially worse port congestion is a powder keg that already has shippers and importers moving to reduce supply chain risk. Trade community trepidation is understandable given that three of the past four negotiations between these parties went past the contract expiration date and culminated in work slowdowns or an employer lockout. The ports most likely to see disruption include Seattle/Tacoma, Oakland, Long Beach, and Los Angeles.

 West Coast US dockworkers are among the world’s best compensated industrial workers, earning an average of almost $200,000 per year plus excellent benefits. The main issue is not compensation but automation and its long-term impact on job availability.

The US lags far behind Europe and Asia in cargo handling efficiency and loading/unloading times. Given current port congestion and record carrier profits, pressure on terminals to automate is intense. Meanwhile, the ILWU is in an extraordinarily strong negotiation position as port congestion remains and it is no secret, they feel automation is an existential threat to their labor force. 

It is widely believed that the PMAs’ bargaining position will broadly be to offer more money in exchange for accepting some automation. Trade associations have been quick to lobby the Biden administration for “early and persistent” engagement in the contract negotiations, as the situational uncertainly is already impacting the global supply chain. But sourcing products early and rerouting cargo to Gulf and East Coast ports is likely to increase costs and transit times, and quickly jam up the straining “plan B” terminals. 

Railroad worker contract issues 

While dockworkers are getting most of the press, major union labor disputes are also rearing up to threaten North America’s essential rail supply chain. Even a short strike would have a significant impact on bottlenecked rail transport operations.

After 6 months of negotiations and a two-day work stoppage Canadian Pacific Railway and the union representing its conductors and engineers agreed to shift stalled contract negotiations to binding arbitration, allowing the railway to resume freight shipments averting an extended strike with the potential to massively impact agriculture and other areas of the continent’s economy.

Agricultural stakeholders were active in asking for Canadian government intervention to avert economic impacts like food shortages and reduced crop yields due to lack of fertilizer. Other widespread problems would quickly result from scarcity of commodities like forest products, mined ores, and chemicals. Given the situation in Ukraine, it is also worth noting the critical role that rail plays in the military supply chain.

Meanwhile, a two-year negotiation process involving over 100,000 US union rail workers reached an impasse back in January and is still (barely) in mediation. The unions are now petitioning to declare a bargaining impasse. If approved by the National Mediation Board, this could open the door to a nationwide rail work stoppage by early summer. A more likely scenario would be for Congress to order the workers back on the job, as has happened as recently as 1991.

US law requires that “every reasonable effort” be made to arrive at an agreement to avoid disrupting commerce. But there has yet to be a meaningful bargaining session between the two parties, and the unions have refused to respond to recent carrier proposals and suggestions.  

Both US and Canadian rail workers are irate about being asked for more concessions after having weathered massive layoffs and other cost-cutting measures in recent years that have boosted railroads’ profitability.
 

Next steps 

As labor dynamics continue to shift, importers should stay in close contact with their freight forwarder or logistics provider regarding West Coast port services and related concerns. These experts often have first-hand, up-to-the-minute insights into events through their personal industry connections. Such guidance can be invaluable in projecting both short- and long-term shipping activity.

To check in on how we can help in this unprecedented cycle of disruption, contact Laufer Group International.