Assessing the potential of a port strike

Nearly one year ago, Acting U.S. Secretary of Labor Julie Su stepped in and helped the International Longshore and Warehouse Union (ILWU) bridge the differences with the Pacific Maritime Association and prevent a West Coast longshoreman port strike. Now, the same scenario may be playing out on the East Coast and given the differences between the two sides, it may take government intervention to prevent a shutdown of East Coast and Gulf Coast ports.

The timing of this potential strike—just barely more than a month before Election Day—increases the chances the government may intervene if the sides can’t reach agreement. But what if it isn’t? How will the impact of a port strike impact the supply chain?

Richie Daigle, supply chain evangelist at Tive, tells Supply Chain Management Review that the complexity involved—from the people and processes involved, along with technology and environmental factors—opens up the supply chain to a multitude of possible disruptions.

“Whenever there is an impact to one of these variables, the effects can ripple—as systems react and change to absorb the shock of the unforeseen change,” he says. “The greater the initial impact, the bigger the ripples—and the further they travel. Oftentimes, in the same way coastal communities deal with tsunamis, companies can do little if anything to prevent impacting events from occurring, which leaves them exposed to the incoming ripples and waves—which means that awareness and timing of that awareness is key to being able to make adjustments to lessen impacts.”

Daigle adds that some of those impacts, such as detention and demurrage, are possible if a strike occurs.

“The more quickly companies can become aware of these issues as they occur, the better positioned they will be to make adjustments to lessen the pain,” he says. “Whether it be modern IoT devices or enhanced API data integrations, there are technologies available today that can help raise the overall awareness for supply chain teams.”

The big issues

The Master Contract between the United States Maritime Alliance (USMX) and the International Longshoremen’s Association (ILA) expires on Sept. 30, 2024. The talks have been ongoing since 2022. In a recent statement, the USMX noted its latest proposal “would provide industry-leading wage increases, boost employer retirement contributions, offer new employees higher starting wages, raise employer contributions to local benefits, and continue to provide premier health carecoverage. It also retains the existing technology language that created a framework for how to modernize and improve efficiency while protecting jobs and hours – a priority for our members and the ILA.”

The ILA is insisting it will not work past Sept. 30 without a new contract. In an Aug. 11 statement, ILA President Harold Daggett said the union continues to negotiate in good faith, but port employers “like APM Mobile have been dragging their feet on resolving critical issues. One such issue is their use of Autogate in TIR Lanes, which we consider a clear violation of our Master Agreement. This isn’t just happening in one location; many other ports are facing similar challenges in getting local management to agree on terms and conditions for local supplemental agreements.”

Daggett went on to say the two sides are “very far apart, particularly on the economic issues. In fact, we are at an impasse.”

The current labor deal covers approximately 14,500 workers. A strike would impact operations at 36 ports on the East Coast and along the Gulf Coast.

“The greater the initial impact, the bigger the ripples—and the further they travel. Oftentimes, in the same way coastal communities deal with tsunamis, companies can do little if anything to prevent impacting events from occurring, which leaves them exposed to the incoming ripples and waves—which means that awareness and timing of that awareness is key to being able to make adjustments to lessen impacts.”

The automation component was a sticking point in the West Coast labor negotiations that were settled last fall, and it is again. Money is also an issue. According to reports, ILA members at the port of New York/New Jersey make about 55% of what ILWU members make, and that is still nearly double what Virginia ILA members make. ILWU members make a reported $200,000 a year.

Global strike impacts

If a strike happens, its impacts could be significant. In an interview with the Journal of Commerce last week, ZIM CFO Xavier Destriau said a lengthy work stoppage would have a global impact similar to the Red Sea diversions to avoid Houthi rebel attacks.

While much of the focus is on the U.S. ports, workers in India are also expecting to go out on strike this week. Workers at the 12 largest ports in India had set an Aug. 28 deadline for employers to accept their labor terms or a strike will commence, but that was averted when a new deal was reached on Aug. 27.

In the meantime, all this labor unrest is changing container traffic. Matt Muenster, chief economist at Breakthrough, said they recorded a 7% year-over year increase in May imports across both East Coast and West Coast ports, with traffic up another 20% in June.

The National Retail Federation is predicting a “near-record surge” in container traffic in August as retailers race to get merchandise into the country ahead of a potential strike. “Retailers don’t want to be caught back-footed,” said Jonathan Gold, NRF vice president for supply chain and customs policy.

S&P Global Market Intelligence Economist Paul Bingham told Logistics Management that a potential strike is already impacting business decisions. “We have already seen impacts in supply chain managers attempting to mitigate risks by advancing shipments and utilizing West Coast port gateways more this year,” he said. “Supply chain managers’ recent experience with the West Coast ILWU-PMA longshore labor contract implications for their businesses, plus the broader challenges companies lived through in the freight congestion during the shipping boom during the pandemic has led to proactive steps by companies to minimize their risks from potential 2024 port disruptions on the East and Gulf Coasts.”

It could take months, though, to clear a backlog of freight should a strike linger. According to analysts at Sea-Intelligence, it would take four to six days to clear the backlog for each day a strike lingers.

After the ports of Los Angeles and Long Beach, the next five busiest ports in the U.S. are New York/New Jersey, Savannah, Houston, Virginia and Charleston. All are covered by the ILA/USMX labor contract. Christian Roeloffs, co-founder and CEO of Container xChange, said there may be an uptick in freight rates.

“In the mid-term, we could face increased volatility in freight rates, with potential spikes driven by supply chain bottlenecks and congestion. Shippers and cargo owners should prepare for higher costs and possible delays as the industry adjusts to these challenges,” he said.

What happens next?

Axios reported the White House is monitoring negotiations but is willing to let them play out for now. The ILA has set a meeting for Sept. 4-5 in New Jersey. Axios reported that Moses Kopmar of Moody's Ratings doesn’t believe a strike is likely.

But, supply chains are already starting to make adjustments. Aylin Basom, CEO of Supplier.io, tells Supply Chain Management Review that its data is already showing the impacts of a potential strike.

“Global supply chains are increasingly fraught with risks, from labor disruptions to logistical bottlenecks. Our latest data reveals that nearly 45% of companies are already confronting risks linked to labor conditions, underscoring the crucial need for comprehensive supplier visibility and intelligence,” she says.

The last East Coast port strike was in 1977—10 contracts have successfully been negotiated since then.

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