[Freightos Weekly Update] Container market braces for ILA strike

Key insights:

1. Ocean rates from Asia to Europe are now 20% lower than in mid-July, likely signaling the early end to this year’s peak season.

2. Container import volumes to the US likely peaked – a little earlier than usual and at a near record level – in August and are projected to dip slightly in September and significantly in October.

3. This pull forward in demand was partly motivated by shippers trying to get ahead of a possible ILA port worker strike at East Coast and Gulf ports on October 1st. Ocean rates are likely to decrease significantly from Asia to the East Coast soon as it is too late to receive goods before the end of the month, but prices may be more buoyant to the West Coast as demand shifts there.

4. The ILA and port operators are far apart on issues like wages and automation, and negotiations are suspended with just three weeks remaining.

5. Significant front loading may mean a strike will not have a widespread impact on holiday season inventories.

6. But a strike would strand containers, tie up capacity, create backlogs and lead to spiking rates and congestion at West Coast alternatives – all of which will get worse and take longer to unwind the longer the strike lasts.

7. The ILA has hinted that West Coast unions may refuse to process diverted vessels out of solidarity, which would only make disruptions worse. Though the White House could order an 80-day cooling off period – unlikely in an election year – the ILA says it would deliberately slow operations if forced back to work.

8. Last week’s typhoon is leading to ocean delays out of Vietnam, and rain closed some container terminals in Hong Kong over the weekend.

9.  In air cargo, Air Canada is bracing for disruptions from a possible pilot strike next week, and the e-commerce surge is now having an impact beyond China, with reports of congestion at other east Asian hubs.

Ocean rates - Freightos Baltic Index:

• Asia-US West Coast prices (FBX01 Weekly) stayed level at $6,837/FEU.

• Asia-US East Coast prices (FBX03 Weekly) fell 3% to $9,130/FEU.

• Asia-N. Europe prices (FBX11 Weekly) fell 13% to $6,787/FEU.

• Asia-Mediterranean prices (FBX13 Weekly) fell 4% to $6,011/FEU.

Air rates - Freightos Air index

• China - N. America weekly prices increased 14% to $5.82/kg.

• China - N. Europe weekly prices fell 4% to $3.45/kg.

• N. Europe - N. America weekly stayed level at $1.66/kg.

Analysis

Ocean spot rates from Asia to N. Europe and the Mediterranean decreased further last week. Prices are now more than 20% below their highs reached in July, and likely mark the early close to a peak season that started early too.

Red Sea diversion-driven longer transit times and delays at Asian origin ports motivated shippers to start ordering early, and import volumes from Asia likely peaked in June and early July. With late September as this year’s deadline for European importers to move goods in time for the holiday season, rates that have declined more quickly in the last couple weeks may have further to fall as seasonal demand dries up.

Transpacific peak season got off to an early start too, but volumes are estimated to have continued climbing to a near monthly record in August and are projected to dip just 3% this month before a significant drop off in October.

Compared to Europe, this demand strength has kept rates from falling as significantly, especially from Asia to the East Coast where part of this year’s front loading was due to the added urgency of moving shipments before a possible ILA port worker strike on October 1st.

As we’re now about past the deadline to move containers from Asia to the East Coast before a strike there are more reports of carriers offering discounts and expectations that East Coast rates are likely to drop significantly soon. This deadline may add some buoyancy to West Coast rates as more volumes shift there from the East and Gulf. Transatlantic shippers still have a little time left to move containers, and the approaching cutoff may be supporting the $300/FEU increase in daily rates so far this week.

The ILA and port operators are still far apart on issues like wages and port automation, and with negotiations suspended a strike is looking more and more likely. As most importers pulled peak season shipments forward for exactly this reason though, a strike may not have a widespread impact on the availability of holiday season goods for consumers.

But a strike would strand imports and exports already at East Coast and Gulf ports, create backlogs and tie up capacity as some vessels wait for ports to reopen. Reduced capacity and diversions to West Coast alternatives could lead to spiking rates and congestion at these ports too. Maersk estimates that a one-week shutdown could take four to six weeks to recover from fully, with significant backlogs and delays compounding the longer the strike lasts.

Upward rate pressure – from levels already elevated by Red Sea complications already absorbing much of the available capacity in the market – could therefore persist even after the strike ends, and, if the strike lasts long enough, seasonal demand increases ahead of Lunar New Year would put additional pressure on operations and rates.

ILA President Harold Daggett recently hinted that, just as they did as a show of solidarity during the last ILA strike in 1977, West Coast port workers could refuse to process vessels diverted from the East Coast, which is a scenario that would disrupt supply chains further. Though unlikely in an election year, the White House could order an 80-day cooling off period if it deems the strike a threat to national health or safety. The ILA has opposed government intervention, and has said that if forced back to work, union members would deliberately slow down operations anyway.

A super typhoon wreaked havoc on northern Vietnam over the weekend and caused heavy rains across southern China. The disruption is leading to delays for ocean logistics out of Haiphong, has held up vessels transiting through the region and shut down some container terminals in Hong Kong over the weekend.

In air cargo, Air Canada is bracing for disruptions from a possible pilot strike next week. And the surge in e-commerce volumes moving by air is now having an impact beyond China, with reports of congestion at air hubs in Korea, Taiwan, Japan and the Philippines even before the expected demand increase in Q4. Freightos Air Index rates from China to N. America and Europe were $5.82/kg and $3.45/kg last week, respectively, which are levels typically reserved for peak season.