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With less than a month until the September 30th deadline for dockworkers on the U.S. East and Gulf coasts to agree on a new contract, the ocean shipping industry is bracing for a potential strike, which could cause disruption reminiscent of the Red Sea Crisis. As of the time of writing, no further talks have been scheduled.
October 1 could see a potential halt of 60% of U.S. container volume across 36 ports. The looming strike has already impacted the freight market, with U.S. retailers frontloading cargo ahead of this deadline, importers shifting volume to the West Coast, and East Coast spot rates plunging more rapidly than in previous years. If a strike occurs, it would be the International Longshoremen's Association's (ILA) first multi-coast strike since 1977, and there is uncertainty about whether the Biden administration will intervene, as it did in the 2023 West Coast negotiations.
The latest development comes in the form of surcharges that container shipping lines are implementing to mitigate anticipated disruptions. MSC announced a $1,000 Emergency Operations Surcharge for 20ft containers and $1,500 for 40ft containers starting 1 October, followed by CMA CGM and Hapag-Lloyd also introducing various charges for shipments. Experts warn that the effects of a strike could significantly impact supply chains, particularly for US automotive and agricultural exporters, leading to potential production slowdowns and increased food prices.
Maritime employers are expressing growing pessimism about the possibility of avoiding a shutdown. On September 6th, the United States Maritime Alliance (USMX), which represents maritime employers, issued a statement affirming its commitment to resuming negotiations with the International Longshoremen's Association (ILA), representing labor, for a new master contract. However, the ILA responded the next day, rejecting the offer as inadequate, with a significant divide related to wages. According to the Journal of Commerce, maritime employers have proposed a 39% wage increase over a six-year term, while the ILA is reportedly seeking double that amount.
In the event of a port strike, companies importing cargo are expected to bear the brunt of the disruption. It is crucial to implement contingency plans immediately if they are not already in place. Below are tangible recommendations to help shippers minimize their exposure:
- Identify and implement trade lane alternatives: Shifting volumes to the West Coast is an obvious option, but the capacity there is limited. Consider rerouting cargo through non-union ports (i.e., Portland, ME, Chester, PA) and establishing air freight optionality for the most critical goods.
- Prioritize freight: Establish a system to prioritize shipments internally, as space on alternative shipping routes will be limited. This allows importers to make swift decisions without needing extensive input from cross-functional stakeholders, ensuring that valuable shipping opportunities are not lost.
- Build up inventory: Front-load orders and stockpile inventory to mitigate the effects of a multi-week port strike. This may require securing additional warehousing space to store both extra inventory and rerouted freight until the supply chain normalizes.
- Build and leverage relationships: The shipping industry relies heavily on solid relationships between shippers and carriers. In times of disruption, well-established partnerships can help secure capacity at manageable costs. These relationships should extend beyond ocean carriers to include rail, air, and trucking services, all of which may face capacity constraints during a potential ILA port strike.
- Create a communication plan: Proactively communicate with customers if service issues occur. Importers across the landscape will be facing the same challenges and setting expectations as early as possible is welcome in a time of disruption.
We encourage all shippers to be prepared and to launch mitigation plans today. Building a robust contingency plan is crucial for a resilient supply chain. However, there is no need to panic yet—an agreement between the ILA and USMX is still possible. There is hope for a resolution, and we should remain optimistic while preparing for the worst.
