The International Longshoremen’s Association (ILA), representing 45,000 port workers, commenced a strike today, impacting 30+ seaports from Maine to Texas. Some economists estimate the work stoppage could cost the U.S. economy $5 billion per day, while others say the measure of the impact depends on how long ports are closed.
“If it’s one week it’s no big deal,” said Tim Fiore, chair of the ISM’s monthly manufacturing business survey and chief procurement officer at Ryder System Inc. “The longer it goes it becomes a bigger deal. Typically, a one-month strike means three months of disruption. I feel this won’t go on longer than a month.”
The U.S. White House has so far declined to intervene in the strike. “The administration is pro-labor and not inclined to get involved,” said Fiore. “But the strike impacts a lot of workers. The longer it stretches out the harder it will before the government has no choice but to intervene.”
There’s a lot of work ahead for the ILA and the U.S. Maritime Alliance (USMX). The ILA is negotiating a six-year contract, Fiore explained, and metrics, such as the cost of living, change dramatically over that period of time. Dockworkers are seeking a 77 percent pay raise over the life of the new contract.
“The U.S. dockworker strike across the Gulf and East coasts could snarl supply chains, setting up a scenario reminiscent of the pandemic-era logistics crisis,” said Lauren Saidel-Baker, an economist at ITR Economics. “While shortages and delays are possible, the greatest economic impact will be in pricing, with greater inflationary impacts more likely the longer the strike persists.”
Shipment costs will increase
Ocean freight rates have been on the decline for several months as global demand for manufactured goods remains soft. During periods of disruption, however, ocean carriers may add surcharges and air freight, in general, is more costly than sea. In fact, cargo marketplace Freightos reported surcharges have already appeared. “Some carriers stopped accepting reefer bookings for the East Coast and are rolling out surcharges for container bookings in October, which are likely – together with congestion and delays – to push East Coast rates up even while ports are closed.”
Manufacturers that rely on the disrupted seaports can consider rerouting shipments through alternative routes, such as the Panama Canal, or turn to air freight, despite higher costs, to ensure the delivery of essential goods, according to Loren Johnson, risk evangelist at Aravo.
“We’ve seen this approach work before, such as when medical supplies, including early Covid-19 vaccines, were flown into the U.S. to avoid delays. Flexibility and preparedness are key to navigating such challenges,” she said.
Helena’s aftermath & the chip industry
Vessels were starting to queue up outside of major U.S. ports as of October 1, according to Mirko Woitzik, director of intelligence solutions at Everstream Analytics, particularly off the coast of Savannah, Charleston, Norfolk and New York. More than 38 container vessels were waiting at designated anchorage areas near the ports. That number has grown from 21 on September 30 and just 3 on September 29.
Source: Everstream Analytics
“Currently, we are not seeing many diversions to other ports, so the number of waiting vessels could well exceed north of 100 by the end of this week, if the strike continues,” Woitzik said.
The port strike started just as the Southeast United States is cleaning up after a devastating hurricane. There have been ripple effects on the semiconductor industry, Everstream reported, largely related to materials:
- Hurricane Helene has devastated a specific area (Spruce Pine) in North Carolina that is home to the only two high-purity silicon quartz mines (HPQ) globally. The suppliers are Quartz Corporation (yet to confirm damage) and Sibelco/Unimin (confirmed production impacts).
- If production is back within a few days, no shortages should be anticipated. But if the disruption goes on for weeks, the cost for silicon wafers could go up, affecting the price and availability of semiconductors.
- This could ripple through many industries relying on semiconductors and high-purity quartz including electronics, solar panels, construction, automotive and others.
- A previous fire in 2008 at one of the Spruce Pine mines disrupted global supplies, causing polysilicon prices to spike and triggering a ripple effect across the solar and semiconductor industries.
Saidel-Baker warns the port strike could have an impact on inflation. “Overall inflation has been declining in recent months but with underlying differences between goods inflation and services inflation,” she explained. “Goods costs have been well-controlled, with relatively stable commodity prices and, at least until recently, lower shipping costs. On the service side, labor market tightness has driven higher wages, resulting in more persistent rates of inflation.”
The port strike could cause renewed goods-side inflation, she said, although the impact would not be immediate. Many businesses still contend with elevated inventories in the aftermath of pandemic-era disruptions and bounce-back, which will likely create a cushion in the near term.
It remains to be seen, said Freightos, if there will be a sustained wide scale strike or shutdowns at only at some ports, only on certain days, or just a slowdown of operations as the ILA seeks to both pressure operators and avoid government intervention. A prolonged strike and a significant shift of demand to the West Coast could lead to congestion that would further slowdown operations, tie up capacity and push rates up on the West Coast as well.
The strike has already pushed some shippers, especially of perishable goods, from ocean to air cargo.
While recent memory of one supply chain disruption makes this strike less palatable for the American consumer, the very fact of that event has prepared many businesses for a recurrence, Saidel-Baker concluded. “The 2020 disruption presented unforeseen challenges but encouraged many firms to diversify their supply chain and seek backup sourcing: preparation that will likely soften the blow of the dockworker strike.”
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