As of midnight on 1 October, the ILA union has initiated a strike, closing all ports on the US East and Gulf Coast ports. A last-minute effort by United States Maritime Alliance (USMX), who negotiates on behalf of the employers, failed as ILA rejected an offer of 50% salary increases over the next six years combined with increased health benefits.

It is unknown how long the strike will last and to what extent the global ripple effects will be. Inbound vessels are already anchoring up outside the US ports.

There are already operational effects taking place as carriers began to redirect cargo in the days leading up to the strike. Some services from South America to the United States have been discharging US cargo in the ports of Altamira, Mexico, and Cartagena, Colombia. As the strike continues, it should be expected that more US-bound cargo will be discharged in the major regional hubs in Panama, Cartagena, Kingston, Caucedo and Freeport. This will quickly result in congestion problems in those ports and thus have a knock-on impact, especially on Central American import and export services.

Container carriers have announced new surcharges from around the middle of October, typically ranging between 2,000-3,000 USD/FFE for cargo originating anywhere in the world going into the US East and Gulf Coasts.

Container carriers have announced new surcharges from around the middle of October, typically ranging between 2,000-3,000 USD/FFE for cargo originating anywhere in the world going into the US East and Gulf Coasts.

It should be noted that the impact on the rest of the world will happen at a time delay. To take the Transatlantic as an example, inbound vessels now anchoring outside New York are the same vessels that were planned to arrive back in Northern Europe in mid-October. Obviously, they will not arrive in Northern Europe at that time. Hence, two weeks from now, there will be an extremely sharp drop in available capacity for European exports going to the US. For South America, this will happen with a time delay of 3-4 weeks. For Asia, this will happen with a time delay of 6-7 weeks. When the delay has passed, all export trades globally will see a shortfall in capacity going to the US, driving up spot rates sharply.

Additionally, the weekly vessel capacity coming into the US East Coast and US Gulf Coast ports amounts to 1.6% of the global fleet capacity. This means that for each week the strike lasts, we will see a removal of 1.6% of global fleet capacity. Due to the Red Sea crisis, there is no material excess capacity available. Hence, it will result in a shortfall. Additionally, due to existing bottleneck problems and delays, we have 6.2% of the global fleet capacity being unavailable even prior to the port strike.

Should the strike have a duration of four weeks, the global capacity shortfall will reach a magnitude matching the very worst seen during the pandemic ripple effects. In that case, spot rates are likely to rise sharply in the second half of October and into November and could, in the short term, exceed the rates seen during the peak in July 2024. Should the strike persist longer, spot rates could continue to increase towards levels seen during the pandemic peak in late 2021/early 2022.

Should the strike have a duration of four weeks, the global capacity shortfall will reach a magnitude matching the very worst seen during the pandemic ripple effects. In that case, spot rates are likely to rise sharply in the second half of October and into November and could, in the short term, exceed the rates seen during the peak in July 2024. Should the strike persist longer, spot rates could continue to increase towards levels seen during the pandemic peak in late 2021/early 2022.

Once the strike is called off, it will be a very lengthy process to clear the bottlenecks that have been created; and bottlenecks will appear not just in the US ports directly affected. The time-delayed capacity shortage at the export areas around the world will also lead to a pile-up of export cargo in those locations, which can create bottlenecks affecting trades not related to the US East Coast at all.

Presently, it appears there are only two resolutions possible. Either USMX gives in to any and all demands from the union, which would include agreeing to no automation or semi-automation in the ports and salary increases significantly in excess of the already proposed 50%, or US President Biden invokes the Taft-Hartley law and forces labour back to work. However, the political ramifications of such an intervention could jeopardise the Democrats’ presidential campaign as November's election nears and hence might be politically risky in the final weeks of their campaign.

Although we can hope for a short-term strike for minimum disruption, the odds appear to be leaning towards a longer-term problem.

Although we can hope for a short-term strike for minimum disruption, the odds appear to be leaning towards a longer-term problem.

This port strike comes on top of a Red Sea crisis which is now entering its 10th month with no sign of a resolution. Following a four-week period with no attacks, Houthies resumes attacks on 1 October impacting two different merchant vessels in the Red Sea. Consequently, the global capacity crunch caused by the crisis is highly likely to continue well into 2025.

About Lars Jensen, CEO, Vespucci Maritime

Lars is a leading expert and thought leader in analyzing global container shipping markets. Lars has 20 years’ experience hereof the last nine within multiple companies he has founded, with the main focus as CEO of Vespucci Maritime.
 

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