By Rita E. Garwood
Editor in Chief,
Monitor
East and Gulf Coast ports are bracing for the impact of a strike by the International Longshoreman’s Association. The strike threatens to add to an ongoing series of supply chain disruptions. ABF Journal explores how the strike could affect specialty finance providers.
Ports on the East and Gulf Coast are bracing for the impact of a strike by the International Longshoreman’s Association, the largest union of maritime workers in North America, over what the association calls “stingy wage offers” from the United States Maritime Alliance.
The impending strike threatens to add to an ongoing series of supply chain setbacks, including the Francis Scott Key Bridge collapse which shut down the Port of Baltimore for 78 days earlier this year and ongoing delays from rerouting traffic away from the Suez Canal after vessel attacks in the Red Sea.
Ongoing supply chain disruptions have already caused U.S. business logistics costs to reach an all-time high, increasing by 19.6% year over year. How will the looming port strike impact specialty finance providers?
Supply Chain Diversification Opportunities
Ever since the COVID-19 pandemic disrupted global supply chains, many companies have shifted from a “just-in-time” to a “just-in-case” inventory model, according to Stephen Schwartz, managing director at Wells Fargo, who leads underwriting for the bank’s Supply Chain, Trade and Channel Solutions Group.
As companies diversify their suppliers to mitigate risk, especially through the nearshoring and onshoring trends that have taken hold since COVID, specialty finance providers may have opportunities to finance new supplier networks and help businesses adapt to a more diversified supply chain.
To help with the shift to a “just-in-case” inventory strategy, Schwartz says lenders or specialty finance firms can provide much needed liquidity through inventory or supply chain finance programs to help companies manage the higher costs of carrying larger inventory reserves.
“We’ve seen pretty significant growth over the last five years in particular, as supply chain products have become much more mainstream,” Schwartz says. “And I think it’s an effective way for companies to help offset the cash burden of managing their inventory levels more conservatively.”
On the flip side, for less prepared companies that may face cash flow challenges due to supply chain delays, demand for receivables financing may increase.
Sectors to Watch
In today’s global economy, the strike has the potential to impact every company in one way or another. Companies involved in exporting or importing goods, such as retail, manufacturing, food, auto and consumer goods are generally more vulnerable to supply chain disruptions.
The National Association of Manufacturers created an interactive map to illustrate the strike’s impact on manufacturers, stating that manufacturing supply chains throughout the U.S. will be “thrown into disarray.”
Retail Industry Leaders Association Director of Government Affairs Sarah Gilmore recently authored a blog outlining the “profound consequences for retailers, manufacturers and consumers” across the U.S., stating that the affected ports represent up to 56% of inbound containers. The timing for retail, on the heels of the holiday season, could lead to shortages and missed revenue opportunities.
Farm Policy News reported that containerized agricultural exports will be affected as well, and many exporters are already rerouting shipments to West Coast ports, which will lead to further congestion.
Credit Risk Management
Specialty finance providers may need to be more cautious in assessing credit risk, factoring in potential delays, volatility and inventory management practices when underwriting loans.
According to a 2024 study by Accenture, supply chain disruptions caused companies to miss 7.4% to 11% of revenue growth opportunities, which impact a company’s bottom line.
Lessons learned from COVID have led many companies to become more conservative with liquidity, which may lead them to seek financing solutions that help absorb short-term shocks. This could lead to a shift toward shorter-term, flexible financing structures, with an emphasis on liquidity management.
“There is now less credit risk with short term supply chain disruptions given changes that companies have implements, especially around liquidity and inventory levels, Schwartz says. However, longer term disruptions, like the potential port strike, increase the likelihood of issues for companies, lenders and consumers.”
As supply chain disruption continues, specialty finance providers will play a pivotal role in helping businesses manage their financial risk amid supply chain volatility by offering solutions that help companies navigate disruptions without compromising cash flow or profitability. However, they will also need to be cautious about credit risk and may need to innovate to meet the evolving needs of their clients.
Rita E. Garwood is editor in chief of ABF Journal.
