The dockworker strike at the East and Gulf Coast ports is over for now, but that’s only temporary since the collective bargaining agreement was extended until Jan. 15, 2025, following a tentative agreement on wages. Other issues, including automation, remain a bone of contention.
So what have we learned from the strike and other supply chain disruptions in 2024? And, perhaps more importantly, what may be the top challenges in North American logistics as we look ahead to 2025?
Gaurang Shastri, an expert in mergers and acquisitions (M/A), shares his thoughts on the sector and where it is headed. He is managing director at Lincoln International, where he leads the investment bank’s North American Logistics and Transportation Group.
Sourcing Journal: The East and Gulf Coast ports are back in operation, but now there’s a new Jan. 15th deadline for other outstanding issues. What is your expectation that a deal will be reached by then? And if not, could we see another spike in rates and other costs, such as demurrage and detention fees? Who would benefit the most? The shipping lines?
Gaurang Shastri: While we remain cautiously optimistic about reaching a pre-deadline deal, significant hurdles persist, particularly in the areas of healthcare and automation. Although wage increases are a more manageable issue, the ILA’s unwavering opposition to automation remains the primary sticking point.
A failure to reach a pre-deadline agreement would primarily harm retailers, manufacturers, and consumers. However, entities such as freight forwarders, shipping lines, and railroads might benefit in the short term due to increased demand and higher rates. Such disruptions could reinforce the value proposition of using freight forwarders, and railroads might likely experience higher intermodal volumes when cargo diverted to West Coast ports need to be shipped back to the East Coast. A prolonged strike, however, could significantly decrease shipping demand and harm the broader economy, ultimately impacting the entire ecosystem.
SJ: One issue that’s a point of contention is automation. Most overseas ports have a greater reliance on automation—and therefore likely operate more efficiently—than U.S. ports. What is your thinking on this and what role will automation play in five years’ time?
GS: It’s hard to believe that as a nation that celebrates technology and innovation, we’re so far behind in deploying automation at our ports. In fact, no U.S.-based port ranks in the top 10 for efficiency according to the World Bank’s most recent Container Port Performance index.
The biggest obstacle continues to be union concerns over job security. However, the Ports of Los Angeles and Long Beach have successfully implemented automation while simultaneously increasing jobs for the ILWU. This underscores the pro-automation argument that, when deployed correctly, automation can increase port throughput, require more labor, and improve overall safety, rather than reducing headcount. An independent study of how automation has helped create additional jobs at successful ports could help address these objections and facilitate the critical need to accelerate these initiatives.
Another consideration is the level of automation appropriate for each port, based on its volume. Some of the higher-ranked overseas ports can justify the high cost of investment due to significantly higher volumes and a higher mix of transshipments, which isn’t always the case at many U.S. ports. Over the next five years, we expect larger U.S. ports to adopt higher degrees of automation, while smaller ports will be more prudent and [will] selectively implement automation in cost-effective ways.
SJ: What is your expectation now in terms of retailers being able to get new goods in for early 2025? Will retailers elect to pull shipments forward as they did for holiday just in case there’s another hiccup?
GS: Assuming a healthy holiday season, we expect retailers to proactively stock up on products to ensure availability if a deal isn’t finalized before the deadline. Even if holiday sales are weaker than anticipated, their existing safety stock might minimize the need to significantly accelerate shipments. Nevertheless, we expect retailers to continue diversifying their supply chains to avoid relying solely on East Coast ports.
SJ: The East and Gulf Coast ports strike ended in a suspension as the parties now push forward on negotiations on the remaining outstanding issues. But the work stoppage for a few days still resulted in delays and a backlog on goods still to be shipped. Do you think companies will eventually pass along the added costs to consumers?
GS: We believe that retailers would have passed on higher shipping costs if the strike lasted longer, but given the faster resolution we expect many will try to cut costs in other areas before passing it on to consumers who have already reduced spending on non-discretionary goods to avoid significantly curtailing demand and being stuck with excess inventory.
SJ: There’s been so many supply chain disruptions on multiple levels from the Red Sea attacks earlier this year to various threats of port strikes or actual strikes in the last six months. Based on your knowledge of the North American logistics sector, what were the learnings from COVID that helped companies navigate the challenges that came up in 2024? And what could companies have done better?
GS: A key lesson from COVID is that companies must expect the unexpected and build more resilient supply chains, invest further in technology, and utilize providers that can manage multiple segments across the supply chain—ideally end-to-end capabilities.
The pandemic and ongoing labor, weather, and geopolitical disruptions have forced companies to increase their focus on supply chain flexibility and responsiveness. This has led to a “flight to scale,” with shippers preferring to work with larger providers that have a global presence and have invested in technology to provide the required visibility across the supply chain. We expect ongoing consolidation in the industry, with smaller providers seeking to join larger platforms to benefit from increased scale—both in terms of geographic presence and additional capabilitie—to offer shippers an enhanced value proposition and reliable service regardless of unforeseen changes.
In terms of what could have been done better, companies could have managed their inventories more effectively, as many overcorrected for disruptions and built excessive levels of safety stock that ultimately needed to be liquidated. Going forward, many are improving their demand forecasting and inventory management tools to determine the optimal mix of where to stock inventory and at what levels.
SJ: Are you seeing any greater movement to nearshoring or re-shoring that would help to curtail future logistics interruptions? What about any actions specific to the fashion and retail sectors?
GS: In response to painful lessons learned during the COVID-19 pandemic and ongoing disruptions, we’re seeing increased efforts to diversify supply chains through nearshoring and reshoring to shorten lead times and reduce costs.
Compounded by steadily rising wages, land, and power costs in China, countries like Mexico are poised to capture a significant portion of this shift by leveraging their younger, skilled workforce; lower input and export costs; and friendly relations with the West. Conversations with our clients and the broader investor community have revealed a recurring theme of expanding footprints and capabilities along the border, which we believe will also spur increased M&A activity near both the southern and northern borders.
In the fashion and retail sectors, nearshoring has become particularly important for reducing lead times, being more responsive to time-sensitive trends, improving quality, and satisfying the growing preference for locally made products.
SJ: And as you look to 2025, what do you think will be the top three challenges ahead for the North American logistics sector?
GS: We expect that the top three challenges in 2025 will continue to be similar to those we faced during recent years including: (1) persistent supply chain disruptions caused by heightening geopolitical tensions [such as trade disputes and ongoing armed conflicts], adverse weather events, and labor strife; (2) lingering overcapacity in warehousing and transportation exacerbated by slowing spend for consumer durable goods and online shopping, [as well as] weak industrial production continuing to depress rates and volume for longer than expected; and (3) inflationary pressures impacting fuel, labor and infrastructure costs that can limit growth and profitability.
