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Labor strike fears at US East and Gulf coast ports – where do shippers go from here?

Barely a week goes by without another major disruption rearing its head in ocean freight container shipping – the latest being the threat of labor strikes at ports on the US East and Gulf coasts.

The announcement on Monday by The International Longshoremen’s Association (ILA) that it has suspended negotiations over a new labor contract for workers at US East Coast and Gulf Coast ports comes at a time when ocean freight container shipping is already under severe strain.

For many shippers, navigating the market in 2024 must feel like trying to solve a jigsaw puzzle that fights back.

How likely is strike action?

There has never been a strike on the US East Coast – it is usually the US West Coast where union disagreements are more likely to result in action.

But this time could be different.

The rhetoric from the ILA has been particularly strong and it is clear there is a depth of anger and frustration that has perhaps not been there in previous years.

The existing labor contract will expire on 30 September and we should expect unionised action as the situation heats up. Timing is everything when you’re negotiating and the announcement by the ILA could not have come at a worse time for shippers.

What impact could this have on the market?

In isolation, ocean supply chains would probably be able to cope with union action on the US East and Gulf Coasts.

However, this is happening at a time when the majority of carriers continue to avoid the Red Sea region, there is severe port congestion in the Mediterranean and Asia, there are equipment shortages, shippers are frontloading imports ahead of the Q3 peak season and there are still restrictions in the Panama Canal (albeit these restrictions are reducing).

There is also disruption at Port Charleston due to construction work at Wanda Welch terminal, which could last up to a year and has seen wait time for all vessels increasing to six days.

This toxic cocktail of factors has seen spot rates soar on the world’s major trades and the threat of union strikes will do nothing to ease this upward pressure. Even ‘work by the rules’ union action will bring down the efficiency of US East Coast ports and cause problems for shippers. 

From the Far East to US East Coast average spot rates have increased 64% since April 30 to stand at USD 6 835 per 40ft equivalent container (FEU) on 13 June.

From the Far East to US Gulf Coast average spot rates have increased 50% since 30 April to stand at USD 7 087 per FEU.

Forward-looking Xeneta data suggests this growth is set to slow in mid-June, however the spot market is still yet to reach its peak on these trades and rates into the US East Coast and US Gulf Coast from the Far East remain up 175% and 137% respectively compared to December 2023 before the escalation of conflict in the Red Sea.

On the Transatlantic, average spot rates from North Europe to the US East Coast and Gulf Coast are still softening from their Red Sea crisis peak in early February. However, this may not be a safe haven from spiralling spot rates for long, especially if carriers remove capacity from the Transatlantic in order to increase capacity on trades where rates are higher.

If an agreement is not reached between the ILA and the United States Maritime Alliance (USMX) then it could contribute to spot rates remaining elevated longer into the summer months, the traditional Q3 peak season and beyond.

At an operational level, strike action could lead to a build-up in waiting time and congestion outside of the ports as well as higher yard density, longer export dwell times and lower productivity.

How will shippers react?

The industry will view the collapse of negotiations extremely seriously and plan accordingly because the threat, on the face of it, appears very real.

The obvious response for US importers would be to rush as many shipments as possible and build up inventories ahead of any potential port disruption.

We have already seen shippers adopting this tactic in 2024, with some importing Christmas goods now ahead of the peak season.

Shippers may well have taken this pro-active approach due to the situation in the Red Sea and with memories still fresh from the chaos of Covid-19. However, those shippers with good risk management planning and access to market intelligence may have also had one eye on the potential for disruption on the US East and Gulf coasts.

This tactic must come with a warning, however. The frontloading of imports has contributed to the current congestion and spot rate spike. Therefore, if more shippers choose this option in response to the threat at US East and Gulf coast ports, it could add fuel to the fire.

Will shippers head west?

If there are delays and congestion on the US East and Gulf coasts an obvious solution would be to import goods into the US West Coast, for those shippers with the ability to do so.

We know a switch of seaboards is possible because we saw shippers do so during the Covid-19 pandemic, only back then they headed to the US East Coast due to congestion on the US West Coast.

Again however, this is a jigsaw that fights back, so any potential solutions will come with unintended consequences.

In the first four months of this year, 2.44m 20ft equivalent shipping containers (TEU) arrived in the US from the Far East via ports on the East and Gulf coasts. This accounts for more than 40% of total container imports from the Far East into the US (source: Container Trades Statistics).

We have already seen, through the diversions around the Cape of Good of Hope, the domino rally of disruption caused by a sudden re-alignment of global ocean supply chains.

A significant increase of volumes from the Far East into the US West Coast, where the spot market has also spiked dramatically, would inevitably squeeze capacity and put further upward pressure on rates.

Mexico could be an option but there have already been colossal increases in volumes from the Far East in the past 12 months, so a significant shift from the US East Coast would have consequences.

Volumes into Montreal were up in March and April compared to the same period in 2023, which is perhaps a clue as to where some US businesses are choosing to import goods from Europe.

The well-connected Port of Halifax and, to a lesser extent, the Port of St John could also be options, but there is also a looming threat of rail strikes in Canada so shippers could go through the pain of switching trades only to find themselves in an even worse position.

Are US shippers in an impossible situation?

 Any attempt to identify the ‘perfect’ solution is doomed to end in disappointment.

Any action a shipper takes in response to threats such as strike action on the US East and Gulf coasts will have consequences – of that you can be sure. However, a shipper can use data and market intelligence to make the ‘best’ decision based on their individual business and supply chain needs.

Monitoring short and long-term rates - at port level - on the trades into the US East, Gulf and West coasts will allow for an evidence-based strategy.

It will also support better working relationships between shippers and service providers – which becomes of critical importance during times of crisis. Discussions based on solid data and market intelligence are far more productive and likely to result in a mutually-agreeable way forward.

You can sit back and hope for the best – and perhaps there will be a resolution to the dispute between the ILA and USMX – but the smart shippers with robust forward-planning and risk management are already constantly monitoring and analyzing the data so they can make the better decisions, at the right time.

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