Dockworker Strike Tests Medical Device Supply Resiliency
Experts answer questions concerning the strike’s impact on the supply chain, alternative shipping like air freight, and how COVID-19 shaped US supply resiliency.
United States dockworkers and the US Maritime Alliance agreed on Thursday to a tentative deal on wages and to extend their existing contract through Jan. 15, 2025, to provide time to negotiate a new contract. The agreement comes after a week-long strike struck the East Coast and Gulf Coast ports and threatened the US supply of many items, including medical supplies and devices.
While workers today returned to the ports with a tentative deal that will increase wages 61.5% over six years, the strike raised questions that haven’t been discussed since COVID-19’s devastating effect on the supply chain.
MD+DI reached out to Scott Whitaker, president and CEO of the Advanced Medical Technology Association (AdvaMed), and Pat Shafer, managing director of the healthcare business transformation practice at FTI Consulting, to answer some of the questions concerning the strike’s impact on the supply chain, the increased cost of air freight, and how COVID-19 has shaped US supply resiliency.
Please note that Whitaker and Shafer answered these questions yesterday before a deal was struck.
We’ve all seen the devastation that can come from severe supply chain disruptions, ie COVID-19. How worried should patients be about the potential of cost increases, supply issues if the east coast strike continues for a substantial period of time?
Whitaker: Since we have known for months that there could be a strike, the medtech industry made advance preparations to mitigate impacts by shifting to air freight and ports not impacted by the strike. Companies have also taken steps to build up inventory and encourage customers to do the same in advance of October 1.
These preemptive measures, while costly, are ensuring that hospitals and patients continue to have everything they need to function. If the strike goes on for a second week, we have concerns that we may start to see signs of pressure on the health care delivery system.
Shafer: Supply chain constraints had a significant impact on the unavailability of pharmaceuticals and medical devices during the pandemic. There are alternative routes such as West Coast ports, trucking, and air freight. Unless the strike broadens to a nationwide issue, I suspect that it will be more of an inconvenience than a cause of shortages or sharp price increases. Some distributors and customers may insist on air freight if their inventories are in short supply. Hopefully, a lesson learned from the pandemic would be larger safety stock levels that would mitigate any short-term disruption from the strike.
It seems some medtech companies have already decided to pivot to airfreight in order to negate affected ports. Will this be sustainable in the long run? Will the potential greater expense of using airfreight be passed on to the customer?
Whitaker: A massive shift to air freight will certainly increase costs and stress air capacity, which is a concern. Smaller companies in particular may be disproportionately affected.
Shafer: I don't think there is a standard answer to this. Other solutions such as using unaffected ports and trucking to final destinations might prove a less costly solution. I'm sure companies are exploring all the alternatives at this point in time. Also, with healthier safety stock inventories, I don't think this is going to be as impactful. Also, if margins are sufficient, medtech companies may want to absorb the increased costs of shipping, at least in the short-term.
Reportedly, leaders at the Department of Health and Human Services met with trade associations, among others, to assess vulnerabilities and supply chain impacts. Has the department reached out? What has been the directive, recommendation thus far?
Whitaker: AdvaMed is in regular communication with officials across the federal government, including HHS. As we have expressed in several joint letters to the President, we urge the administration to do everything in its power to end the strike and get the ports back into operating order. Additionally, we urge the government to continue working with us in real-time to identify acute supply chain disruptions or challenges for products of concern that may require federal intervention.
When the strike is over and we work though the backlog, we urge CBP and ports to prioritize the off-loading of medical supplies and equipment.
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