Dockworkers’ Strike: What It Means

A dockworkers' strike that began on October 1, 2024, across East and Gulf Coast ports threatens to disrupt supply chains nationwide. The strike, led by the International Longshoremen’s Association (ILA), stems from disagreements over wages and the automation of dockwork machinery.

Published on October 3, 2024

strike

A dockworkers’ strike that began on October 1, 2024, across East and Gulf Coast ports threatens to disrupt supply chains nationwide. The strike, led by the International Longshoremen’s Association (ILA), stems from disagreements over wages and the automation of dockwork machinery. With construction and manufacturing sectors poised to face significant delays, the insurance industry is bracing for potential ripple effects.

Supply Chain Disruptions and Coverage Implications

The strike affects major ports from Texas to Maine, which are critical entry points for construction materials, heavy machinery, food, and chemicals. This could lead to material shortages, price hikes, and delivery delays—factors that could trigger claims under business interruption and contingent business interruption (CBI) policies. For industries reliant on just-in-time inventory, these delays could disrupt operations, leading to losses that businesses may seek to recover through their insurance policies.

As ships back up and distribution to warehouses slows, contractors are already predicting that delays could extend into 2025 if the strike persists for more than a week. This timeline could worsen if insurers are inundated with claims from affected industries.

Rising Costs and Inflationary Pressures

Bill Flemming, senior VP at Cumming Group, and Ken Simonson, chief economist for the Associated General Contractors of America, warn that prolonged strikes could exacerbate shortages in structural steel and equipment, driving up costs. This potential inflation in construction and manufacturing sectors may translate to increased premiums for insured businesses, as insurers reassess the risks associated with supply chain volatility.

In addition, price hikes for materials could lead to higher payouts for insurers covering projects that are already underway, as the cost of replacing or sourcing delayed materials escalates.

Contingent Business Interruption: A Crucial Safety Net

CBI coverage could become a key factor in mitigating losses for affected companies. CBI protects businesses from losses resulting from disruptions in their supply chain, particularly when suppliers are unable to deliver due to unforeseen events. For companies that depend on materials moving through the impacted ports, this coverage could help cover lost profits or extra expenses incurred due to delays.

However, insurers will need to closely examine the scope of CBI policies to determine how well they apply in this situation. Since the strike stems from a labor dispute, some policies may exclude coverage if labor actions are not explicitly covered under the insured’s CBI plan. Businesses and their insurance agents should review the fine print of policies to understand potential gaps.

Potential Long-Term Impacts

If the strike extends beyond a few weeks, recovery could stretch well into 2025, according to supply chain experts. Such a scenario may also lead to insurers reconsidering risk assessments for companies that heavily rely on global supply chains. Underwriters may adjust premiums or recommend new risk management strategies to account for the ongoing threat of labor strikes and supply chain disruptions.

In the event of prolonged labor disputes or recurring strikes, the insurance industry may see an uptick in demand for specialized strike insurance or broader business interruption policies to protect businesses from future disruptions. Companies that fail to adequately plan for these risks may face heightened financial vulnerability.

Preparing for the Future

As industries await resolution, businesses should proactively assess their current insurance coverage and potential exposures. Reviewing business interruption policies, exploring extensions for CBI coverage, and working with insurers to adjust limits or add endorsements could help companies better manage the financial fallout from prolonged supply chain issues.

For insurers, this strike serves as a reminder to reevaluate policy offerings and claims protocols related to labor disputes and supply chain risks. Staying ahead of these challenges will be crucial as the industry navigates the evolving landscape of global trade and transportation.