Contingency plans for a paralyzed US East Coast are already in place, but they will not prevent the closure of “major arteries of global trade.”
In a week’s time, ports on the US East Coast could be void of people but filled with thousands of packed containers caught in a major conflict between dockworkers and employers.
The roadmaps for how shipping companies can help shippers avoid the worst-case scenarios have been ready for a long time, according to German Hapag-Lloyd and Norway’s Wallenius Wilhelmsen.
The influx of freight could cause weeks, if not months-long backlogs, even after the strikes end
Mike DeAngelis, Head of International Solutions, FourKites
“Our clear focus is on minimizing any potential disruption to their supply chains and our operations,” the Norwegian carrier writes in an email to ShippingWatch.
But no matter how good the plans are or how early shippers have tried to get their cargo through the US East Coast, it won’t change the fact that the potential strike will “choke off major arteries of global trade,” writes Mike DeAngelis, head of international solutions at research firm FourKites.
For months, the International Longshoremen’s Association (ILA) has been in an open conflict with the employers’ representative USMX over a new labor agreement.
Half of US imports will be hit
The two sides both slammed the door on their way out of the negotiation room in June. Since then, the parties have not seen each other.
Instead, ILA president Harold Daggett has been particularly vocal that the dockworkers will not accept the settlement offers put forward by USMX, as they fall far short of the ILA’s own demands.
Instead, they will shut down work on Oct. 1 indefinitely.
If this happens, it will paralyze 36 ports from New Jersey to Puerto Rico, including five of the ten busiest ports in North America.
Nearly half, 43-49%, of monthly US imports are set to be affected, amounting to several billion dollars.
Currently, an estimated USD 34bn in cargo is heading to these ports on 147 ships.
OVERVIEW OF THE CONFLICT
- Approximately 70,000 longshoremen on the US East Coast will be without a collective bargaining agreement from Oct. 1 as their union, the International Longshoreman Association (ILA), and the employers’ association USMX have been unable to agree on a new one.
- Therefore, the ILA announced at the beginning of the month that they will strike from Oct. 1 if an agreement is not reached before then.
- Among other things, the ILA demands that an article on automation in the main collective agreement be tightened to ensure that dockworkers do not lose their jobs to technology
- According to sources close to the negotiations, the ILA is also demanding wage increases of 77%. The same sources say that the ILA has rejected an offer from USMX for a 40% wage increase.
- In early June, the ILA withdrew from negotiations for a master labor agreement because it believed APM Terminals had violated the existing agreement by using an automated system that can handle trucks without the use of manual labor.
- Representatives of the Biden administration have repeatedly denied that authorities will intervene in the dispute.
At the center of the conflict is the increasing automation occurring in US ports, as in many other ports around the world, which, according to Daggett, is pouring money into foreign shipping companies and wiping out American jobs.
After months of stalemate between the parties, the outcome is clear for German shipping company Hapag-Lloyd.
Does Hapag-Lloyd expect a strike to break out in light of the recent escalations in the conflict?
“Yes, we expect it,” is the straightforward answer from a company spokesperson to ShippingWatch, who also informs that the carrier has already added surcharges for imports to the US East Coast of USD 1,000 per teu.
The perfect storm
A strike on the US East Coast would not only be a blow to the US economy, but more importantly create cracks in the already challenged global trade.
The Panama Canal has been challenged by low water levels for over a year, creating a less navigable passage between the Atlantic and Pacific for global ship traffic.
The Suez Canal is largely being avoided by the world’s largest shipping companies out of fear of Houthi missiles, forcing ships to take the longer and more expensive route around the Cape of Good Hope at the tip of Africa.
The strike should be seen in this light.
“In anticipation of the strike, shippers have been pulling forward imports and the busy shipping season. But frontloading can only get you so far,” says Mike DeAngelis, who predicts that the consequences of a strike will be felt well into next year.
“The influx of freight could cause weeks, if not months-long backlogs, even after the strikes end. This could reshape shipping patterns well into 2025.”
With the East Coast ports closed, shippers will look to Canada and the US West Coast. But there are already reports of busy ports and delays.
In a recent post on his LinkedIn profile, shipping analyst and owner of Vespucci Maritime, Lars Jensen, writes that several shipping companies and alliances are now taking precautions on the US East Coast.
“ONE – and thus also some of THE Alliance routes – will now omit some port calls and unload cargo in alternative ports in the coming week to ensure that cargo gets off the ship before the ports close.”
More cautious is Wallenius Wilhelmsen, who does not dare to speculate on the potential impact in just one week from today.
“It is difficult to speculate on the potential scale and scope of the possible industrial action widely reported in the media,” the shipping company writes in an email and continues:
“We, like other global carriers with established trade routes to and from the US, would of course be affected by any port disruptions as a result of industrial action.”
Throughout the dispute, it has been well known that shipping lines, freight forwarders and shippers want the ILA and USMX to find a solution to the issue that could paralyze global trade and cause major damage to the US economy just months before the November presidential election.
Political intervention
But it seems there will be no handshake between ILA and USMX. Soon there will only be a slim hope that US president Joe Biden will force the parties back into a negotiating room.
However, even that has difficult prospects.
As ShippingWatch has previously described, Biden holds a card that could end the conflict and a looming strike not seen since 1977.
The law provides for an 80-day “cooling-off period” during which production must resume. But if that happens, ILA’s Harold J. Daggett emphasized in early September, dockworkers will intentionally lower productivity.
However, a representative of the Biden administration pointed out to The New York Times last week that both parties should negotiate in good faith and that Biden would therefore refrain from getting involved.
The government has never used the so-called Taft-Hartley Act to break a strike. At the same time, the political landscape is not considering doing so now either.
However, shipping analyst Lars Jensen wrote in a post on LinkedIn last week:
“When the White House press secretary yesterday was specifically asked the question as to whether the president would invoke federal law to avoid or break a strike, the answer was: “I’m not going to get into hypotheticals. I’m not going to get hypotheticals from here.” – which to me sounds like the administration does not want to remove any options from the table while at the same time not commit to anything either at this point.”
According to a source close to the negotiations, it is also possible for the US Federal Maritime Commission (FMC) to intervene. However, this requires that both parties to the conflict request it. The FMC can then act as a kind of mediator between ILA and USMX.
Maersk has estimated that a one-week strike would cause disruption for 4-6 weeks.
In addition, HSBC explained in an analysis this week that if a strike breaks out on Oct. 1, it could affect more than 50% of US containerized cargo imports.
15% of the world’s container fleet could be impacted due to congestion and increased freight rates, HSBC further estimates.
Source: Shippingwatch.com
