[Freightos Weekly Update] ILA - USMX agreement ends strike threat

Key insights:

1 The ILA - USMX tentative agreement announced last week removed the East Coast and Gulf port strike threat, earning operators the right to introduce semi-automated operations. The ILA meanwhile succeeded in blocking full automation and ensuring that tech introductions will not result in headcount reductions by linking them to job creations.

2 Transpacific rates were level last week after climbing to the $6000 - $7,000/FEU level to start January as pre-Lunar New Year demand has kicked in. Asia - Europe rates whose pre-LNY climb was earlier than usual – to about $5,500/FEU by early December – due to Red Sea diversions, are already showing signs of easing.

3 Frontloading ahead of expected US tariff increases may keep US ocean volumes higher than they otherwise would be in Q1, with the NRF projecting a 10% increase in January volumes compared to last year.

4 So far there are no reports of significant logistics disruptions from the devastating fires in Los Angeles, and container ports remain unaffected. The scope of the future rebuilding could eventually impact container volumes as construction material imports increase, which was one factor in elevated ocean volumes and rates into Turkey following the earthquake in 2023.

Ocean rates - Freightos Baltic Index:

• Asia-US West Coast prices (FBX01 Weekly) stayed level at $5,924/FEU.

• Asia-US East Coast prices (FBX03 Weekly) fell 1% to $6,898/FEU.

• Asia-N. Europe prices (FBX11 Weekly) increased 1% to $5,640/FEU.

• Asia-Mediterranean prices (FBX13 Weekly) increased 1% to $5,685/FEU.

Air rates - Freightos Air index

• China - N. America weekly prices fell 4% to $5.90/kg.

• China - N. Europe weekly prices increased 2% to $3.50/kg.

• N. Europe - N. America weekly prices stayed level at $2.11/kg.

Analysis

Shippers who rely on US East Coast and Gulf ports were able to breathe a sigh of relief last Wednesday night when the ILA and USMX announced a tentative agreement for a new six year contract, ending the strike threat and extending the existing contract through the review and ratification period that is required by both parties and will begin shortly.

The sides had appeared far apart on the role of port automation, with the USMX seeking the introduction of technologies to make the ports more efficient, and the union rejecting even semi-automated operations that could eliminate jobs. But secret meetings by representatives last Sunday yielded language for a compromise that ultimately led to the Wednesday night announcement.

Details of the agreement are being withheld during ratification, but the joint statement explained that the agreement will protect current jobs and establish a framework for implementing technologies that will create more jobs and modernize the ports.

The WSJ reports that the new deal will bar full automation from ILA ports, and will detail processes for how new technologies will be implemented without reducing union headcounts. It reportedly will allow operations at ports which already have multiple semi-autonomous cranes operated by a single worker to remain unchanged, while terminals adding new semi-autonomous cranes will be required to hire one union worker for each new crane.

These terms look like a win for the ILA by preventing both the introduction of full automation and the loss of jobs when semi-automation is introduced. The USMX gains the right to introduce tech to improve efficiency – including better yard density – via the compromise, though without realizing the full cost reductions that automation otherwise might bring.

Frontloading ahead of the possible January strike had helped keep N. America container rates elevated into November but were no longer a driver of rates as the strike deadline got closer. Though transpacific prices to both coasts were level last week, rates had climbed sharply to start the month as demand is increasing ahead of the Lunar New Year holiday which starts January 29th. Asia - West Coast prices climbed 52% compared to late December up to the $6,000/FEU level with East Coast rates at about $7,000/FEU for a 30% gain.

For Asia - Europe and Mediterranean shippers LNY demand started earlier than usual this year due to longer lead times from Red Sea diversions. Rates that had increased about 60% from early November into December to about the $5,500/FEU level have been stable since then, with daily rates this week already starting to ease. Reports that some carriers intend to lower prices to about $4,000/FEU soon also suggest an unusually early end to the LNY rush and low expectations for the not uncommon upward pressure on rates just after the holiday.

Asia -Europe prices may soon fall all the way back to the Red Sea crisis-era floor of $3,000-$4,000/FEU hit in the low demand periods last year. But transpacific rates may not recede as significantly once LNY demand eases, since frontloading ahead of expected US tariff increases may be keeping volumes higher than they otherwise would be in Q1, with the NRF projecting a 10% increase in January volumes compared to last year.

So far there are no reports of significant logistics disruptions resulting from the devastating fires in Los Angeles, and container ports are far enough away from the blazes that they have been unaffected. The scope of the future rebuilding effort could eventually impact container volumes as construction material imports increase, which was one factor in elevated ocean volumes and rates into Turkey following the earthquake in 2023.

Air cargo rates continued to ease from their December peak season bump, but remain well above slow-season norms as e-commerce volumes continue to keep demand for capacity strong. Freightos Air Index data show transatlantic rates have fallen 33% from their December peak suggesting some peak season volumes were routed through Europe this year. But at $2.12/kg, the current rate is still 17% higher than a year ago and 32% higher than during low-demand periods last year, possibly reflecting the continued capacity deficit on this lane resulting in shifts of freighters to the Pacific.