US importers caught in a vicious circle with labor union strike threat

Jun 12, 2024

Labor union strike threat raises fears of soaring freight rates and massive disruption at US East and Gulf Coast ports.

Threat of strike action at US East and Gulf Coast ports may see importers accelerate efforts to protect ocean supply chains in a vicious circle of disruption in ocean freight container shipping.

The International Longshoremen’s Association (ILA) announced on Monday that it has suspended negotiations with United States Maritime Alliance (USMX) over a new labor contract for workers at US East Coast and Gulf Coast ports. The existing agreement will expire on 30 September.

Peter Sand, Xeneta Chief Analyst, said: “We have already seen shippers frontload imports ahead of the traditional peak season in Q3 due to concerns over the continuing supply chain impacts from the conflict in the Red Sea. They may now accelerate this approach if there is a further risk of major disruption on the US East and Gulf Coasts later this year.

“However, the frontloading of imports is part of a toxic cocktail of factors which has caused severe port congestion in Asia and Europe and the dramatic increases of more than USD 2 000 per FEU in ocean freight container shipping spot rates. It seems shippers are caught in a vicious circle where any action they take to protect their supply chains can result in making the situation worse.

“Timing is everything when you’re negotiating and the announcement by the ILA could not have come at a worse time for shippers.”

Latest data from Xeneta, the ocean freight rate benchmarking and intelligence platform, shows average spot rates from the Far East to US East Coast have increased 64% since 30 April to stand at USD 6 820 per FEU on 11 June.

In the first four months of this year, 2.44m 20ft equivalent shipping containers (TEU) arrived in the US from the Far East via ports on the East and Gulf coasts. This accounts for more than 40% of total container imports from the Far East into the US (source: Container Trades Statistics).

Sand said: “If shippers believe there will be major disruption on the US East Coast they may consider importing into the US West Coast in a reversal of what we saw during the Covid-19 pandemic.

“Shippers will look closely at the data before making this leap of faith, because higher volumes being imported into the US West Coast – or alternatives such as Vancouver - will tighten capacity and see rates increase. This includes importing into Mexico where the market has already seen massive increases in imports from the Far East in the past 12 months.”

Forward-looking Xeneta data suggests the recent growth in ocean freight container shipping spot rates from the Far East to US East Coast is likely to slow down, rising by around 2.4% on 15 June compared to the 19% increase seen on 1 May.

However, Sand believes the potential disruption at US East Coast and Gulf Coast ports could see spot rates remain elevated for longer.

He said: “If the collapse of union negotiations sees more shippers frontloading imports and bringing Christmas goods in early then we could see spot markets remaining high.

“We have not seen strike action on the US East Coast for decades but the rhetoric from the ILA has been particularly fierce so it should not come as a surprise that negotiations have collapsed.

“Shippers with good risk management and supply chain data may have planned for this situation and that’s perhaps one of the reasons we have already seen frontloading of imports ahead of peak season. Industrial action on the US East and Gulf Coast is the least surprising of all supply chain disruptions this year.

“There is no ideal solution and shippers will be hoping for a similar outcome to last year’s labor negotiations on the West Coast where a deal was eventually agreed following extremely difficult negotiations, and operational difficulties.

“If an agreement cannot be reached and strike action takes place when ocean freight container networks are still under extreme pressure, it could be a hugely difficult end to 2024.”