As ILA-USMX Contract Negotiations Intensify, Maritime Freight Rates May Rise in 2025 if Strike Persists
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With the countdown beginning for contract negotiations between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX), if the strike lasts long enough, ocean freight rates could rise into 2025. Mary A. Brown / Getty Images
A dockworkers’ strike on the East Coast and Gulf ports at midnight Tuesday is almost inevitable as both sides remain deadlocked, with carriers and ports preparing for expected cargo disruptions.
Reuters reported that no negotiations were scheduled to represent the 45,000 ILA dock workers by Monday before the deadline.
The lack of negotiation means U.S. retailers and brands may soon have to pay higher fees for goods entering the country via ocean freight.
If a strike occurs, especially from Asia to the East Coast, rates could rise again after several weeks of decline and this increase might extend into 2025.
Drewry Supply Chain Advisors’ General Manager Philip Damas said: “Recent history shows that any capacity-shortage-induced disruptive event provides carriers with a platform to raise freight rates regardless of underlying supply-demand fundamentals. Therefore, we believe the East Coast/Gulf ports strike will lead to price increases for the remainder of this year and into next year, depending on its duration.”
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Damas and other freight analysts predicted last month that rates would soar if there was a strike. At the time, Damas said the strike could add “several hundred dollars” to container prices from China and Europe.
According to one subset of the Drewry World Container Index – data from Shanghai to New York – global rates have continued to decline over the past ten weeks, with Asia-to-East Coast 40-foot container rates falling by 37% during this period due to weakened demand.
However, Damas noted that Transatlantic rates avoided such a decline despite the looming strike.
“Over the last ten weeks, the spot rate of the Transatlantic Rotterdam-to-New York index has performed better, actually increasing by 6%, with some minor fluctuations,” said Damas.
Flexport’s Vice President of Global Ocean Procurement Nerijus Poskus stated in a webinar on Wednesday that the ILA strike is the biggest driver for any freight rate changes.
“If there is a strike on the East Coast, its duration will affect everything,” said Poskus. “This will impact global congestion and equipment availability at origin – this is what we should be most concerned about.”
This issue has been exacerbated by cargo being moved to West Coast ports in advance throughout the summer.
Freightos Research Director Judah Levine told Sourcing Journal, “A strike of a few days may not have a significant or lasting impact on ocean freight rates, but if it lasts more than a week, it will first significantly affect West Coast rates and eventually East Coast rates once the strike ends due to backlogs slowing operations and occupying capacity.”
According to Freightos Terminal data, last week’s rates from Shanghai to Long Beach and New York/New Jersey were approximately $5,300 and $6,300 per 40-foot container (FEU), respectively, far below the July peak of about $8,300 and $9,600. However, Levine noted that these figures are “more than twice typical levels for off-peak months.”
“The Red Sea rerouting has absorbed a lot of capacity, pushing up ocean freight rates across the market,” said Levine. “So any rate increase will be based on already high levels.”
Levine acknowledged that overall demand for cargo could mean rates may not necessarily spike according to National Retail Federation forecasts predicting a 10% decline in imports from September to October.
“This could be a mitigating factor for the extent of any rate increase as there won’t be as much urgent demand in October,” he said. “Additionally, this week’s Chinese National Day holiday means that shipments will pause during the week.”
BSI Americas’ Director of Supply Chain Security and Resilience Tony Pelli stated that if container rates do rise, companies have a greater potential to pass these costs on to consumers.
“It may take several weeks for U.S. goods prices to be affected,” said Pelli. “In some cases, companies might have increased inventory in U.S. warehouses or moved cargo to West Coast ports as much as possible ahead of time to prepare for such events.” “Retailers are unlikely to raise prices yet, but if there is a strike, this could happen very quickly because the West Coast ports do not have the capacity to handle additional freight flows.”
After weeks of speculation, President Biden told reporters on Sunday that he does not intend to intervene in the strike before Tuesday. He said: “This is collective bargaining. I don’t believe in using the Taft-Hartley Act.”
The White House has urged both sides to return to the negotiating table and engage in negotiations in good faith.
If the strike lasts more than a few days, Biden’s administration may change its stance. A JPMorgan analysis estimates that the strike could cost the U.S. economy up to $5 billion per day.
Invoking the Taft-Hartley Act would extend contract negotiations by 80 days, delaying the strike and requiring the ILA to return to work.
Ironically, potential rate increases will benefit ocean carriers, which has angered the ILA before the contract expires. The union is seeking wage hikes commensurate with record profits made by companies during the pandemic.
The ILA’s demands are primarily focused on two issues: wages and the use of automated equipment at 36 ports from Maine to Texas. The union denies claims that it seeks a 77% pay hike for the next contract period. Despite long-standing opposition to automation, recent reports suggest that the ILA is seeking a complete ban on automated equipment in ports.
With an agreement seemingly out of reach, USMX filed unfair labor practice charges against the ILA with the National Labor Relations Board (NLRB) on Thursday, demanding that negotiations resume.
The expected shutdown has overshadowed other labor actions in Canada as about 350 dockworkers at Montreal’s port began a three-day strike at 7:00 AM Monday morning.
Two terminals of the port will remain closed until 6:59 AM Thursday. Entry to these terminals is prohibited, and no rail, vessel, or truck services are provided.
All other Montreal Port terminals continue to operate normally.
The Montreal Port Authority (MPA) expressed disappointment in a statement that maritime employers and the Canadian Union of Public Employees Local 375 failed to reach an agreement to avoid the shutdown.
According to the MPA, each day’s disruption risks $90 million worth of economic activity and deprives some Quebec and Canadian companies of about 40% of their container handling capacity on the St. Lawrence River.
Source: Sourcing Journal
