An Imminent East Coast Port Strike Spells Another Spike in Freight Rates
A dockworker strike at the East and Gulf Coast ports on 12:01 a.m. Tuesday appears inevitable, with both parties remaining at an impasse and ocean carriers and ports alike already having prepped for the expected cargo disruptions.
According to a Reuters report, no negotiations between 45,000 port dockworkers at the International Longshoremen’s Association (ILA) and their employers, the U.S. Maritime Alliance (USMX), were planned for Monday ahead of the deadline.
More from Sourcing Journal
With neither party coming to the table, this means U.S. retailers and brands could imminently be paying up more for goods entering the country by ship.
In the event of a strike, freight rates on the ocean, particularly from Asia to the East Coast, could be in for another boost after weeks of plummeting—and this latest wave could linger into 2025.
“As recent history has proved, any form of capacity shortage borne of a disruptive event creates a platform for carriers to raise freight rates, irrespective of the underlying supply and demand fundamentals,” said Philip Damas, managing director of Drewry Supply Chain Advisors. “Hence, we believe the U.S. East Coast/Gulf Coast port strike will contribute to higher prices for the remainder of this year, and potentially next year too, depending on the duration.”
Damas and other freight analysts had predicted last month that ocean freight rates were set to soar in the event of a strike. At the time, Damas said a strike would likely increase container prices out of China and Europe by “several hundred dollars.”
Worldwide rates have continued their descent over the past 10 weeks, with the Asia-to-East Coast rates per 40-foot container falling 37 percent during that period as demand deteriorated, according to data from Drewry’s World Container Index subset for Shanghai to New York.
But Damas pointed out that even as a strike looms, the trans-Atlantic rates have avoided this pitfall.
“Spot rates on the trans-Atlantic Rotterdam-to-New York index have held up better, actually rising 6 percent over the past 10 weeks amid some minor, up and down fluctuations,” said Damas.
In a Wednesday webinar, Nerijus Poskus, vice president of global ocean procurement at Flexport, called the impending ILA strike the biggest driver of any freight rate changes.
“If the strike happens of the East Coast, how long it lasts is going to affect everything,” Poskus said. “It will affect global congestion, it will affect equipment availability at origin—that’s the No. 1 thing to watch.”
Compounding the wider problem is the continued flurry of goods into the West Coast ports as shippers pulled their goods forward and moved product away from the East Coast throughout the summer.
“It’s possible that a strike of only a few days will not have a noticeable or at least very sustained impact on ocean rates, but if a strike stretches on—maybe more than a week—we should expect a significant impact, first on West Coast rates and eventually on East Coast rates once a strike ends and the backlog reduces operational speeds and ties up capacity,” Judah Levine, head of research at Freightos, told Sourcing Journal.
According to Freightos Terminal data, rates from Shanghai to Long Beach and to New York & New Jersey were at about $5,300 per 40-foot container (FEU) and $6,300 per FEU respectively last week, well below their July peaks of about $8,300 and $9,600. However, Levine said these numbers are still “more than double” typical levels even for peak season months.
“Ocean rates across the market are being pushed up by significant capacity being absorbed by Red Sea diversions,” said Levine. “So, any rate increase is going to be from an already elevated floor.”
Based on the National Retail Federation’s projections that October import volumes will be 10 percent lower than September, Levine acknowledged that a decrease in overall cargo demand means it is not a given that the rates will skyrocket.
“That may be one mitigating factor of how high rates will go as there won’t be as much urgency as there may normally be in October,” he said. “Also, the Golden Week holiday in China this week means some pause in being able to place shipments specifically for this week.”
If the container rates do increase, there’s a higher potential for companies to pass these costs onto the consumer, said Tony Pelli, director of supply chain security and resilience at BSI Americas.
“It may take a couple of weeks to see an impact on the price of goods in the U.S. In some cases, companies may have increased inventory at U.S. warehouses or shifted (to the extent possible) to West Coast ports in anticipation of such an event,” said Pelli. “It’s unlikely that stores have already raised prices, but that could happen fairly quickly following a strike, as West Coast ports do not have the capacity to handle the excess volume.”
After weeks of speculation, President Joe Biden told reporters on Sunday he did not intend to intervene in the strike if the ILA and USMX don’t come out with a deal by Tuesday, saying “it’s collective bargaining. I don’t believe in Taft-Hartley.”
The White House has urged both parties to get back to the negotiation table and negotiate “in good faith.”
A potential strike could change the tune of the Biden administration if it lasts more than a few days. One such analysis from J.P. Morgan estimated a strike could cost the U.S. economy up to $5 billion per day.
The invocation of the Taft-Hartley Act would extend the contract negotiation period 80 days, thus delaying a strike and requiring the ILA to return to work.
Ironically, the potential increase in freight rates would benefit the ocean carriers, which has drawn the ire of the ILA in the lead-up to the contract expiration. The union has sought out wage hikes “commensurate” with the record profits companies like Mediterranean Shipping Company (MSC) and Maersk were making during the Covid-19 pandemic.
The ILA’s demands are largely related to two major issues: the wage concern and the use of automation across its 36 ports from Maine to Texas. The union has denied claims that it is seeking out a 77-percent increase in wages over the course of its next contract. While the union has taken the anti-automation stance for years, recent reports have indicated the ILA is seeking a total ban on automated equipment across the ports.
With a deal seemingly nowhere near completion, the USMX filed an unfair labor practice charge with the National Labor Relations Board (NLRB) on Thursday to get the ILA to resume bargaining.
The anticipated work stoppage has completely dwarfed the attention to other labor action in Canada, as roughly 350 dockworkers at the Port of Montreal began a three-day strike at 7 a.m. Monday.
Two terminals at the port will remain closed until Thursday at 6:59 a.m. Access to these terminals is prohibited, and no rail, ship or truck services are provided.
All other Port of Montreal terminals remain in service.
In a statement, the Montreal Port Authority (MPA) expressed its disappointment that the Maritime Employers Association and the Canadian Union of Public Employees Local 375 couldn’t reach an agreement to avoid the stoppage.
According to the MPA, a strike puts $90.7 million in economic activity at risk for each day of interruption, and deprives companies in Quebec and Canada of some 40 percent of container handling capacity on the St. Lawrence River.
Solve the daily Crossword
