[Freightos Weekly Update] Ports preparing for a strike, carriers introducing surcharges

Key insights:

1. Five days remain before a likely ILA port strike. Shipper groups are asking the White House to intervene, and though the administration has said it won’t force workers back to ports, it will also face pressure to avoid the economic impact of a prolonged shutdown.

2. East Coast ports are extending hours and setting deadlines for final pick ups/drop offs, while carriers have suspended new export bookings and announced significant surcharges – ranging from $400 - $3,000/FEU – for East Coast bound containers in October.

3. In light of rule changes following shipper complaints of unfair container storage charges for containers stuck at ports during the pandemic, the FMC is warning carriers and operators against excessive detention and demurrage fees during a strike.

4. A strike will shift some traffic to the West Coast where, last month, a record level of container volumes flowed smoothly through LA/Long Beach. Some of this success is due to adjustments made following the extreme pandemic-era congestion which should allow them to handle a sudden volume surge reasonably well.

5. But a prolonged shutdown would still result in West Coast congestion and delays, which would contribute to additional upward pressure on rates. It would also eventually lead to capacity and empty container shortages at origin ports in Europe and Asia, spreading the impact to lanes out of those hubs.

Ocean rates - Freightos Baltic Index:

• Asia-US West Coast prices (FBX01 Weekly) increased 1% to $6,875/FEU.

• Asia-US East Coast prices (FBX03 Weekly) fell 4% to $8,952/FEU.

• Asia-N. Europe prices (FBX11 Weekly) fell 17% to $5,412/FEU.

• Asia-Mediterranean prices (FBX13 Weekly) fell 10% to $5,277/FEU.

Air rates - Freightos Air index

• China - N. America weekly prices decreased 6% to $5.43/kg

• China - N. Europe weekly prices fell 2% to $3.67/kg.

• N. Europe - N. America weekly prices increased 2% to $1.72/kg.

Analysis

Less than five days remain before the ILA’s current contract expires and, most likely, a large-scale strike begins. The ILA and USMX have not met face to face since June and remain far apart on key issues like wage increases and port automation.

Multiple shipper associations have reached out to the White House asking it to intervene. The vocally pro-union administration has stated that it does not intend to end a strike via the Taft-Hartley Act. At the same time, with the economic impact of a port shutdown estimated at several billion dollars per day and election day approaching, the administration will also be under pressure not to allow a strike to stretch on too long.

In expectation of a strike starting Monday night, ports, carriers and regulators are getting ready.

An ILA strike on the East Coast and Gulf would completely shut down many ports and could effectively paralyze some that employ both ILA and non-union labor, while other hybrid ports will be able to keep some terminals running.

Many of the major container hubs have extended their gate and terminal hours, including over the final weekend before the strike. Ports and rail operators are also setting deadlines for final pick-up and drop-offs, with particular concern for reefer shipments getting moved from the ports or loaded on vessels before the deadline to avoid going unattended on container yards.

Some ocean carriers have stopped accepting new export bookings in anticipation of the strike. Hapag-Lloyd announced that containers already en route to affected ports will not be rerouted, and many carriers have rolled out surcharges ranging from $400 to $3,000/FEU for all East Coast and Gulf containers starting in October.

During the pandemic, many shippers accrued significant storage charges on containers they were unable to move off container yards due to extreme port congestion. In anticipation of stuck containers during a strike the FMC has issued an advisory this week warning carriers and operators against unfair charges this time, with some already announcing they will stop the clock on detention and demurrage charges during the strike.

Though many containers and vessels will be stuck on the East Coast and Gulf until operations resume, others will be diverted or shifted to West Coast services. Despite a record number of containers arriving at West Coast hubs last month, operations remained smooth. Operators attribute some of this success to lessons learned during the pandemic – including increased warehouse capacity, better chassis management, and off-site container yards – which should allow them to handle a sudden volume surge reasonably well in the event of a strike.

But with ILA ports accounting for roughly half of all US container traffic, a prolonged shutdown would still result in West Coast port congestion and delays, which would contribute to additional upward pressure on rates alongside the increase in demand. A prolonged strike would also eventually impact vessel and container availability at origin ports in Europe and Asia, which could spread the strike’s impact beyond North America causing delays and rate increases for all lanes out of those hubs.