Sea-Intelligence: ILA currently has the upper hand in standoff with USMX

The International Longshoremen’s Association (ILA) finds itself in a fortified position against the United States Maritime Alliance (USMX) as the logistical reality tightens around the US East Coast and Gulf Coast ports which have been shut down since October 1 due to the union strike. With no viable alternatives to the East Coast for the influx of cargo, the ILA is leveraging its negotiating power against a backdrop of looming political stakes, as the Biden administration navigates the potential fallout of an extended strike ahead of crucial elections in November.

Niels Madsen, Vice President of Product & Operations at Sea-Intelligence, a Danish consultancy specialising in container shipping, told WorldCargo News that with all 30-plus East Coast ports effectively joining forces in this strike, the ILA currently holds a significant upper hand in negotiations.

Approximately 70+ container vessels arrive at East Coast ports each week, but the strike’s escalation complicates their ability to offload cargo.

“You can’t just start sending those into Montreal or Toronto or somewhere in Canada, neither can Canadian ports or West Coast ports handle the overflow,” Madsen said. The impact of the strike is yet to be seen, however, it all depends on how long the strike will last.

“It’s a little too early to see any real trends,” Madsen explained, indicating that the impact would soon manifest. “What we can see is vessels sailing slower across the Pacific, and across the Atlantic, than they normally would in anticipation of what will happen.“ “If this lasts one week, we expect to see a backlog of import containers that will not be cleared until mid-November. If it lasts two weeks, that backlog could extend to February.”

The repercussions of an extended strike could ripple through the entire US economy, with Madsen warning of a potential recession. “This situation may lead to a real risk that the entire US economy can hit a recession simply because no cargo will be moving in and out of the East Coast,” he said.

The Biden administration is taking a hands-off approach, which may be rooted in the political implications of the strike, with many port workers residing in swing states.

“I think the Biden administration is probably going to keep their hands off as long as possible. They can’t afford to have a potential recession hit the American economy in the middle of an election period,” Madsen noted.

Price increases

Shipping companies have been implementing surcharges in response to the current strike, with the US Department of Transportation recently calling for their removal. Madsen ascribed the surcharge introduction move to shipping lines wanting to keep the freight rates relatively stable and compensating for costs associated with lying idle, keeping containers still, etc. He explained that if the surcharges are eliminated, “the more boxes and the more container vessels that will be lying still outside of the US East Coast, the more the price will increase,” impacting freight rates not just on the East Coast, but also affecting the West Coast and other routes due to the resulting capacity constraints.

“There won’t be enough capacity on South American trade and eventually on the Asia-Europe trade, because the East Coast strike will simply absorb all this capacity.“

This potential stalemate not only threatens timely cargo delivery but also risks consumer price increases. Madsen remarked, “Any increase in transport, whether it’s surcharges or freight rates, eventually will end up somewhere on the consumer’s table.” He pointed out that while the cost impact might be minimal on individual items, the availability of goods in the lead-up to critical holidays could suffer.

Coming to terms with automation

As the ILA seeks wage increases and presses for discussions around automation, the industry braces for a turbulent few weeks ahead. Commenting on the automation aspect of union requests, Madsen stated that unions will have to come to terms with the fact that manual labour is no longer sustainable in the modern port environment. As operations increasingly shift towards automation and semi-automation, he emphasised the importance of re-skilling workers to adapt to new technologies rather than fearing job losses. Consequently, some degree of semi-automation will need to be integrated into any new agreements.

“We’re living in a world now where the demands for ever faster productivity in the ports, it’s not a requirement anymore, it’s a must,“ Madsen added. “Ports don’t want to lose business because the carrier can find a better and faster and potentially cheaper port, you know, 200 kilometers up the coast.“

Schedule reliability impact

Madsen pointed out that current global schedule reliability stands at approximately 50-55%, which is expected to remain stable for September. However, if the strike extends beyond two weeks, a significant decline in reliability is anticipated, potentially dropping below 40%. A one-week strike could result in a 2-3% decrease globally, but prolonged disruptions would likely affect operations across the board, especially on the Pacific East Coast trade.

The ILA currently has the upper hand, but if the strike drags on, public opinion could shift against them, weakening their negotiating position, Madsen concluded.