Workers employed at ports in Maine are preparing for a strike commencement on Tuesday. Consequently, potential supply chain disruptions and increased costs might emerge.
The potential strike could halt the transfer of a multitude of products through the piers of nearly all significant cargo ports situated along the East Coast and Gulf Coast. This includes items ranging from bananas to European wine and spirits, in addition to clothing, toys, household items, and European vehicles. Moreover, the flow of essential components required for American factories to keep functioning and maintain employment of factory workers could also be disrupted.
One party involved in these negotiations is the US Maritime Association, also known as USMX, which represents the major foreign-owned shipping lines, as well as terminal operators and port authorities. They are facing a potential strike threat by the International Longshoremen’s Association (ILA), which represents roughly 85,000 members in total.
Even though the union claims that approximately 50,000 members fall under the contract, USMX argues that the actual number of jobs available at the ports is closer to 25,000, suggesting that there are not enough positions for all the union members to work daily.
If the union members do decide to walk out, as many anticipate, it will lead to the closure of around thirty locations at fourteen port authorites along the East Coast and Gulf Coast.
The length of the strike could result in shortages of both consumer and industrial products, potentially pushing prices up once again. This, in turn, could negatively impact an economy that is currently recovering from an inflation surge caused by the pandemic.
Moreover, the cessation of necessary components for American factories may cause disruptions in their operations and even lead to temporary layoffs.
Impact on imports and exports
The affected ports include the Port of New York and New Jersey, which is among the top three busiest ports in terms of cargo volume. In addition, they also manage specialized ports.
For instance, Port Wilmington in Delaware, often referred to as the nation's leading banana port, handles a significant share of the country's favorite fruit. Port Baltimore, temporarily shut down earlier this year due to the collapse of the Key Bridge when it got hit by a container ship, manages the highest volume of auto imports in the US. Furthermore, Port Charleston handles outgoing shipments of SUVs made at BMW's factory in South Carolina, which exports more vehicles abroad than any other US factory.
Though last experiencing an ILA strike against these ports in 1977, the labor peace has helped these ports capture a substantial market share from West Coast ports, which have traditionally been associated with more strained labor relations.
The union has assured that they will continue to handle military cargo even during a strike and that passenger ships will remain unaffected. However, oil tankers and ships carrying liquefied natural gas usually head to facilities not impacted by the strike. The majority of other ports along both coasts, however, may be adversely affected.
In case of a short strike, the financial impact is expected to be minimal, according to Patrick Anderson, president of Anderson Economic Group, a Michigan research firm with expertise in estimating costs of disruptions like work stoppages. But, a prolonged strike of several weeks or months could result in severe economic consequences.
"We would be exploring uncharted territories," he stated.
Bargaining positions
The USMX labels the union's demands as unreasonable. In a statement this week, the management group expressed their readiness for discussions but highlighted the lack of interest from the ILA in negotiating at the moment.
USMX has negotiated for wage increases amounting to over 40% throughout the six-year contract, one source with knowledge of the negotiations revealed. In contrast, the ILA is reportedly pushing for $5 an hour raises each year, which would translate to an immediate 12.8% salary increase on the current maximum pay of $39 an hour. If this $5 an hour raise is continued annually, it would lead to total salary hikes amounting to 77% during the contract period.
The union has refrained from commenting on the $5 an hour wage increase demand but claims that this equates to an average annual pay boost of about 10%, which is considered reasonable given the industry's profit margins.
"My ILA members will not accept the insulting offers that are nothing more than a joke, considering the work that my ILA longshore workers perform, and the billions of dollars in profits the companies make off their labor," said Harold Daggett, the ILA's international president and chief negotiator, in a statement.
Shipping rates witnessed a dramatic increase during and post-pandemic, driven by supply chain complications and an upsurge in demand. Analyst John McCown estimates that the industry made over $400 billion in profits from 2020 to 2023, which is believed to be more than the entire industry had previously earned since the introduction of containerization in 1957.
In the past, shipping lines were willing to pay to preserve labor peace, stated Peter Tirschwell, vice president of global intelligence and analytics at S&P Global Market Intelligence and chairman of the TPM shipping conference.
"They believed that they earned a profit when cargo was being transported, and they didn't want to upset the balance," he explained.
However, Tirschwell expressed that the shipping lines seem unwilling to pay the necessary amount this time. There are concerns regarding recent US legislation that the lines opposed, as well as the perceived hostility of the Federal Maritime Administration, the US industry regulator. In addition, the looming threat of tariffs curtailing trade, in case Republican Donald Trump wins the election, adds to their worries.
"They have begun to view the US as politically unfriendly," Tirschwell said. "The stance of the ocean carriers has shifted."
Meanwhile, the union views the recent profits as an opportunity to secure the substantial wage increases that they have not been successful in attaining in the past.
Certain businesses, particularly retailers, are actively stocking up their inventory ahead of the October 1 deadline, mentioned Jonathan Gold, the VP of supply chain and customs policy at the National Retail Federation. They're sprinting to get their shipping containers out of the ports before the deadline to prevent any delays. However, Gold warned, even with proper planning, there will still be disruptions.
"A one-day dispute takes three to five days to bounce back from," Gold stated.
The NRF is part of over 200 businesses that sent a plea to the White House this week, urging the Biden administration to prevent a potential strike. The country heavily relies on these ports for both imports and exports.
"The last thing the supply chain, corporations, and employees need is a strike or other disruptions due to an ongoing labor negotiation," the letter stated.
While the letter does not explicitly state the action required, it suggests that President Joe Biden use his powers under the Taft-Hartley Act to swiftly settle the strike – similar to President George W. Bush, who halted an 11-day strike of union workers at West Coast ports in 2002.
Economists believe that President Biden might take this action against the powerful union opposition.
"The prospect of a strike at East and Gulf Coast ports is unlikely to lead to significant economic disruption. We anticipate that, given the proximity to the elections and previous denials, President Biden would have few options but to intervene," stated Bradley Saunders, North American economist for Capital Economics, in his note this week.
However, the Biden administration has yet to acknowledge any plans to intervene.
Invoking the Taft-Hartley Act has the potential to upset union leaders beyond the ILA, and Biden, who made history by standing on a picket line during the United Auto Workers union strike last year, takes great pride in his pro-union stance.
Intervening on behalf of foreign shipping lines and against American blue-collar union members would also pose political risks. However, doing nothing and allowing a strike to disrupt the U.S. economy and inflate prices of certain goods would also carry political consequences.
Furthermore, if Biden does order an end to the strike, it's uncertain how smoothly operations will run at the ports. The workers can slow down freight movement by strictly adhering to contract rules, as per ILA's Daggett's video to members. If forced to return, Daggett suggested that they would only handle a small fraction of their usual cargo volumes.
Finally, the shipping lines are aware of the problem with President Biden forcing the union to return to work, according to Tirschwell.
"A senior ocean carrier executive told me yesterday, 'If they're forced back to work, they can make life miserable for everyone,'" he stated.
The potential strike could significantly impact the business operations of American factories, as the flow of essential components required for their functioning might be disrupted. This could potentially lead to temporary layoffs.
The Port of New York and New Jersey, one of the top three busiest ports in terms of cargo volume, could be heavily affected by the strike, potentially impacting the import and export of various goods, including bananas, European vehicles, and more.
