US dockworkers set to strike from Tuesday

Spooky season is upon us. And there is nothing scarier than a potential trade bottleneck right at the start of the holiday period. 

Around 45,000 port workers at 36 ports from Houston to Boston are threatening to walk off their jobs after their contract expires on Monday, which means a strike could commence as soon as this Tuesday (October 1).

Here’s what’s happening. 

The International Longshoremen’s Association (ILA) is locked in a wage dispute with the US Maritime Alliance (USMX), which represents cargo carriers and port operators.

The ILA is demanding a nearly 80% raise over six years and safeguards against the use of automation. ILA President Harold Daggett says his union wants a share of the fat profits earned by foreign shipping companies during the pandemic years.

For its part, USMX argues a payrise of that size would be way beyond the 32% bump secured by West Coast dockworkers just last summer.

Negotiations now appear to have broken down, port operators are already planning for a shutdown, firms are already diverting their cargo over to West Coast ports, shipping companies have already issued emergency surcharge notices, and markets are already betting this will drive shipping profits higher. So a strike looks inevitable at this point.

But what does it all mean?

Given these ports handle more than half the container traffic in and out of the US, the fallout would soon go national, with one JPMorgan piece forecasting $5B in costs per day. And given the US makes up more than a quarter of the global economy, that fallout would soon go global.

Here’s a quick snapshot of just some of the industries in the firing line:

• Agri-food – Three quarters of all US banana imports enter via East and Gulf Coast ports, and their short shelf-life and low unit cost rule out longer and/or costlier routes. That’ll also hit the producers located mostly in poorer markets like Guatemala. Meanwhile, American pork exporters across a dozen or so states rely on these same ports to get almost half their product out to international markets.
• Automotive – The nearest port to the US Midwest auto hub is in Baltimore which, together with others along the seaboard, handles three quarters of all US vehicle exports.You might think no big deal, six out of seven US-made vehicles are for the domestic market anyway. But… they rely on imported auto parts from places like Germany and India, which need East Coast ports like Savannah and Charleston.
• Pharmaceutical – But don’t let this data get you too sick with worry. Particularly because over 90% of containerised US pharmaceutical products enter via, yes, East and Gulf Coast ports.

On the brighter side, despite the East and Gulf Coasts including major energy hubs, oil and gas terminals shouldn’t be impacted directly by the strike action. But here’s a fun fact – something like one in every three containers exporting US plastics and other petroleum derivatives leaves from the Port of Houston (which will be hit by the strikes).

So what happens next? 

There hasn’t been an East Coast-wide strike since 1977, when the world’s total seagoing tonnage was maybe 400 million (gross registered tonnage). It’s now 11 billion.

And that strike went on for 44 days, ending only after the ILA won a 10% raise and a generous worker protection program. This time around, the volume and complexity of global trade means even a two-week strike would cause backlogs, shortages, and associated inflation stretching into 2025.

INTRIGUE’S TAKE

There are three other time cycles playing out right now:

On the political front, the US election is just 36 days after Tuesday’s strike kicks off. The White House has so far declined to use Taft-Hartley powers to impose an 80-day cooling-off period, likely wary of losing union votes. And given a strike would also hit consumers and employers, neither candidate seems to be highlighting the strike as a campaign issue right now. That might change once the port chaos kicks in.

On the technological front, these negotiations really stalled back in June when the union discovered several ports were using an automated gate system in violation of their current union agreements. And interestingly, the industry’s latest offer now preserves the same restrictions against automation, in a concession to workers worried about losing their jobs.

But that leads us to the geopolitical cycle, as other major global trading hubs in Asia, the Middle East, and Europe are already charging down the path of port automation, with direct impacts on their broader and longer-term competitiveness.

Also worth noting:

• Shipping company profits dropped after their pandemic spike, but rebounded to $10B in Q2 this year thanks to bumper volumes and freight rates.
• The union has previously hinted at the possibility of still unloading certain container types (eg, fresh food) during any strike.