US Port Strike Threat: Impact on the Chemical Supply Chain

Are Just-in-time Strategies Just Out of Luck?

Many chemical producers rely on just-in-time logistics to maintain the flow of raw materials and finished goods. A strike could exacerbate delivery delays and increase logistical costs. 

Shipping delays and rising freight rates would raise transportation costs, potentially passing expenses onto end users. For example, some carriers have already announced surcharges for transporting containers.

For example, Geneva, Switzerland-based Mediterranean Shipping will add an emergency operational surcharge of US$2,500 on northern Europe to US journeys from January 18, as per a late December 2024 announcement. 

Experience tells us extended disruptions can potentially exacerbate container shortages, further stressing supply chains. These issues mirror past challenges, such as when the Ever Given container blocked the Suez Canal for six days in 2021 and the more recent rerouting of Red Sea shipping routes via the Cape of Good Hope. Further disruption to trade flow is inevitable if this strike goes ahead.  

JP Morgan estimated a cost to the industry of up to US$5 billion per day, which could impact US economic growth trajectories significantly. Prolonged disruptions would undoubtedly lead to severe economic loss. A tightened supply of products will push prices higher, and where this ruptures economic growth, there is potential for production to be stopped altogether.  

Mitigating Economic and Supply Chain Impacts

For the chemical industry, the situation underscores the importance of contingency planning. Companies may look to increase their inventories.

Stockpiling critical materials can be an effective strategy in the face of potential supply chain disruption, especially in times of uncertainty.

"Maintaining a reserve of key resources, businesses can avoid delays caused by shortages or geopolitical issues, ensuring smoother operations and keeping plants online when feedstocks supply is short," says Matteo Baldi, Global Sales Manager at ResourceWise Chemicals. 

"There is also the option to explore alternative supplies, shipping routes, and logistical solutions to optimize value chains. There are several hundred established producers of caustic soda, for example, worldwide. Diversifying procurement is best done using robust databases."

In the infographic below,  around 50 of the world's biggest caustic soda producers are visibly referenced. Each section around the outer layer of the infographic, which is featured in the Capacity dashboard of our chemicals-focused business intelligence platform OrbiChem360, represents a site producing the chemical intermediate.

When OrbiChem360 subscribers scroll over each of the Starburst infographic's elements, see pop-ups show each company's full name and nameplate capacity. These details are also available.

"Building up databases of potential producers allows companies to diversify within a network of suppliers. Having this level of flexibility helps to circumvent bottlenecks, delays, or blockages in traditional routes, improving overall supply chain resilience and maintaining a steady flow of goods," Baldi adds.

Balanced Approach to Automation

The threat hanging over logistics and shipping as dockworkers attempt to preserve their position in the shipping industry and the matter becomes geopolitical shows just how precarious today's landscape is.  

We only have to look at what happened in the automotive sector late in 2023—which we explored in our blog post Is the Automotive Sector Strike Impacting Supply Chains—to see how powerful workforces and unions can be. GM for example, conceded the strike cost the company $200 million in its first two weeks. 

It underpins the importance of taking a balanced approach to automation policies in the modern economy. While automation can significantly enhance efficiency and productivity, it is important to strike a balance that preserves jobs.

Thoughtfully integrating technology can help optimize supply chain operations without displacing workers, ensuring both technological advancement and the well-being of the workforce.

Resolving this dispute could set precedents that influence port operations and global supply chains for years to come.

At the same time, shipping challenges can open up opportunities for local producers to step in when disruption to deep sea freight routes occurs. This was seen during and after the COVID pandemic and led buyers in Europe, for example, to look at increasing their locally sourced material in favor of relying too heavily on imports, at least in the short term.