On Sept. 25, the United States Maritime Alliance (USMX) filed an “unfair labor practice” charge with the National Labor Relations Board (NLRB) against the International Longshoremen’s Association (ILA), requiring the Union to resume bargaining in order to reach a deal.
The ILA represents more than 85,000 dockworkers on the East and Gulf Coasts of the United States.
“USMX filing these charges four days before the expiration of the current Master Contract clearly illustrates what poor negotiating partners they have been,” according to a press announcement released by the ILA. “If it wasn’t for the ILA engaging in serious and productive negotiations, most of the local agreements would not have been settled over the past year.”
"USMX has been clear that we value the work of the ILA and have great respect for its members. We have a shared history of working together and are committed to bargaining,” USMX responded in its own press announcement.
What’s behind the contract negotiations?
ILA wants significant wage increases, fair treatment, recapture of Container Royalty funds, and job security. The ILA is also asking for protections against the automation of cargo handling, particularly concerning the use of automated cranes, crucial to safeguarding jobs. If a new Master Contract Agreement with USMX cannot be reached by Oct. 1, then ILA members will threaten a coast-wide strike.
What’s at stake?
Key ports, such as Wilmington, Delaware, and Baltimore, play crucial roles in importing various commodities and vehicles.
CNN adds that “America could see some shortages of chocolate, alcohol, popular fruit, including bananas and cherries, and even certain cars if the strike lasts a long time. That could mean higher prices for the goods that are available.”
"An East Coast port strike will adversely impact U.S. consumers and companies. In my opinion, I think a strike will occur because both parties seem so far apart in their negotiations. Fifty percent of what is imported/exported goes through the U.S. East Coast ports. This is a critical time for many U.S. farmers, and they are shipping agricultural products all over the world through the East Coast ports. U.S. consumers will start to see lack of inventory and increased prices with such food perishables as bananas, cocoa, coffee, and seafood. If food retailers cannot get this food via the ports, they will have to use air shipments to get these perishable products into their stores which will drive food prices up. The longer the strike lasts, the more chaos we will see within U.S. supply chains. It could impact the U.S. economy by about $5 billion a day,” says Patrick Penfield, Syracuse University Professor of Supply Chain Practice.
What's more, the port strike will affect even more companies than just the big retail and automotive companies.
"Given the operational degradation the middle market has faced in the past few years and the toll of inflation and capital costs, the timing couldn’t be worse. For the companies, unions and government mediators involved in these disruptions, it would be good to remember that pain flows upstream," says James Gellert, executive chairman of RapidRatings. "The East Coast port strike will send shock waves upstream into the suppliers that can ill afford the disruption. In a recent inventory stress test, we determined that for middle market companies an extension of inventory days by 15% would result in a 5% increase in inventory cost. A 25% increase in inventory days would result in a 10% increase in costs. These are alarming burdens to put on companies that are already degraded operationally and buckling under the weight of increased leverage and interest costs. From 2019 to YE 2023, the cash conversion cycle (days inventory outstanding and days sales outstanding minus days payable outstanding) has stretched from 54 days to a whopping 82 days. This 50% increase in how long it takes middle market companies to convert inventory to cash can hardly withstand work stoppage of any material duration."
The East and Gulf Coast ports have seen a 27% year-over-year increase in port calls from vessels from July to Sept. 22, with no signs of slowing down on a week-over-week basis, according to FourKites.
"This trend is consistent with the front-loading of cargo that we've seen all summer as shippers prepare for the potential strike. I suspect a tapering down of the number of vessels this week and next as fears of them being forced to anchor off the coast start to kick in, depending on carriers' contingency plans," says Mike DeAngelis, senior director of international solutions, FourKites.
Oxford Economics warns that a prolonged strike could impact up to 100,000 jobs, and companies will be forced to shift cargo to the West Coast or opt for air freight in order to avoid potential delays.
"The strike could push the container trade into chaos, with ripple effects that potentially will disrupt supply chains well. The congestion and delays at these major ports will severely impact the availability of containers, increase costs, and disrupt schedules. Small traders, in particular, may feel the squeeze as they are more vulnerable to price surges and extended delays in securing and moving their boxes. Businesses are acting now to reroute shipments and secure their container supply, or they risk being left stranded in a congested and costly aftermath,” says Christian Roeloffs, co-founder and CEO of Container xChange.
Immediate supply chain challenges, according to Container xChange.
- Stranded cargo. With 42 container ships scheduled to arrive at the Port of New York and New Jersey alone in the coming days, any work stoppage could leave cargo stranded in transit.
- Rerouting challenges. Redirecting shipments to West Coast ports or alternate East Coast ports could create a logistical bottleneck, especially for goods requiring passage through the Panama Canal.
- Cost escalations. Maersk has already announced a disruption surcharge for all cargo moving to and from U.S. East and Gulf Coast terminals, starting Oct. 21. The surcharge will be $1,500 per twenty-foot equivalent unit (TEU) and $3,000 per forty-foot equivalent unit (FEU), depending on the extent of the supply chain disruption. Hapag-Lloyd plans to implement a "Work Interruption Destination Surcharge" for imports from East Asia on Oct. 19, and a "Work Disruption Surcharge" for cargo from the rest of the world on Oct. 18, both at $1,000 per TEU. CMA CGM will introduce an export surcharge on Oct. 11, set at $800 per TEU and $1,000 per FEU, with a $1,500 per TEU import surcharge. Additionally, starting Nov. 1, they will apply a $1,000 peak season surcharge for imports from the Indian Subcontinent and the Middle East, delayed from the original Oct. 1 date.
Based on Everstream Analytics’ historic congestion and strike data for U.S. ports, it’s anticipated that every 24-hour shutdown of all East and Gulf Coast ports would result in operational backlogs that could take up to 7 days to clear. A weeklong strike from Oct. 1 would thus have repercussions until after the U.S. presidential election. The compounding effects of displaced containers and equipment, disrupted schedules and vessel diversions would likely push the impacts well past the Thanksgiving holidays and potentially into December.
Impacts would likely be less severe if the union decided to go on strike at one port at a time, a tactic the ILWU has used in a similar situation on the West Coast in 2022 and 2023.
“Based on our intelligence, there haven’t been any reports of price hikes at the retail level in anticipation of the strikes. However, a variety of goods are expected to see impacts in the event of strike action, even if it ends up being a partial strike like a work-to-rule order. This includes fruit imports like bananas given the significance of the Port of Wilmington, Delaware, for companies like Dole Fresh Fruit Company and Chiquita Fresh North America and meat exports as 45% of waterborne U.S. pork exports and 30% of U.S. beef exports are shipped via East and Gulf Coast ports. As the affected ports handle about half of the nation’s cargo shipments, disruptions would extend to most categories of goods, including automotive and electronics shipments, other perishables like medicine and pharmaceuticals, and general retail goods,” says Jena Santoro, senior manager of intelligence solutions at Everstream Analytics.
According to the Federal Maritime Commission, "regulated entities are reminded that all statutes and regulations administered by the Federal Maritime Commission remain in effect during any terminal closures related to potential work stoppage at ports in the East Coast and Gulf of Mexico regions. The Commission is directing its Bureau of Enforcement, Investigations, and Compliance to investigate any reports of unlawful conduct of regulated entities. The FMC will prosecute violators to the fullest extent of the law. Common carriers and marine terminal operators (MTOs) must continue to comply with all statutory and regulatory requirements, including rules governing tariffs, service contracts, MTO schedules, the application of and invoicing for demurrage and detention, and all other fees and surcharges assessed. Demurrage, detention, and all other fees and surcharges must be reasonable, clearly defined, and serve a specific measurable purpose."
In the event of a strike, if the wage increase demands by the International Longshoremen’s Association aren’t met, "this could result in a prolonged strike by the East and Gulf coast dockworkers, which could ultimately cause harm to the supply chain systems globally and impact the economy in the long run," says Rich Kulesa, chief risk officer, Dun & Bradstreet. "With the impending increase of imports of Christmas season goods and other Q4 supply chain deliverables, there will be significant potential short- and long-term ripple effects that the strike may have on international trade. Currently, we are already experiencing increased ocean shipping delays due to weather and geopolitical disruptions such as the conflicts in the Red Sea and low water levels in the Panama Canal. The strike could cause more stress to these delays and further hurt the economy, especially during a time when the Fed is expected to decrease rates. The hit that global supply chains may face due to these strikes could reverse this anticipation as the cost of goods and supply shortages may increase given the delays in shipping."
The strikes could also pose a threat to the United Kingdom, in particular.
"The United States is the UK’s largest trading partner for both exports and imports. Disruption to one of the largest shipping ports and the ripple effect this will have on other trade routes could create challenges for shipping between the two nations," says Jay Dhokia, founder of Pro3PL. "The UK Department for Trade and Business reports that in the four quarters to the end of Q1 2024, trade with the U.S. accounted for 17.7% of the UK’s total trade. Exports of goods from the UK to the US accounted for £61.8 billion in trade over this period, a trade which supports thousands of businesses across the UK and could be a leading revenue source for British businesses. Any disruption to major supply routes puts this at risk, as supply chain managers may need to source alternative shipping routes or risk being caught in a time-sapping backlog. “This is especially pertinent for medical supply sources from overseas, including time-critical resources and temperature-controlled deliveries. Medical supplies are one of the U.S.’s major exports to countries across the globe. For example, medical and pharmaceutical products are in the top five goods types imported to the UK from the United States at 7.5% (£4 billion) of the total goods imported in the four quarters to the end of Q1 2024."
“If the strikes do go ahead, there’s no easy fix," adds Dhokia. "For companies concerned about the potential disruption in the East Coast port, it would be wise to explore other transportation routes. Some companies will opt for road or rail freight into different ports to circumvent the problem, but this is more time-consuming and costly and will likely lead to increased costs for consumers. Alternatively, if companies are looking for fast solutions — and can shoulder the increased cost, — there is the option of airfreight. To beat the rush, some companies may wish to pre-book space on airlines for any critical supplies to keep supply chains moving outside the U.S.”
Stay tuned for updates.
