On September 5, delegates from the International Longshoremen’s Association (ILA), the largest union of maritime workers in North America, unanimously affirmed its President Harold Daggett’s call for an East Coast and Gulf Coast work stoppage beginning October 1, 2024, should the union and the United States Maritime Alliance (USMX) fail to finalize a new contract before the September 30 deadline.

The potential work stoppage creates tremendous risk for global supply chains—especially on the eve of a busy holiday season. Read on for Flexport’s breakdown—what we know, what’s at stake for U.S. supply chains, and our advice for Flexport customers.

What’s Happening?

The multi-month negotiations have escalated between two parties: the ILA, which represents 45,000 workers at major U.S. East Coast and Gulf Coast container ports, and the USMX, which represents employers across the area’s longshore industry (including carriers, marine terminal operators, and port associations).

Ongoing negotiations have centered around pay, marine terminal automation, and healthcare and retirement benefits.

Let’s break down the latest developments:

• The ILA and the USMX came to an impasse in June, after the ILA discovered that various ports had implemented automation technology that processes trucks without union workers’ labor. According to the ILA, such actions breached its existing contract with the USMX.
• Later, the International Longshore & Warehouse Union (ILWU)—which represents more than 23,000 dockworkers at U.S. West Coast ports—pledged support for the ILA in its negotiations, implying that the ILWU would likely not work vessels originally destined for the U.S. East Coast.
• In August, the ILA and the USMX each filed a notice with the Federal Mediation and Conciliation Service (FMCS), a U.S. government agency that provides arbitration assistance for labor disputes. There was no agreement concerning actual mediation.
• On September 4, 2024, ILA President President Harold Daggett published a speech outlining the union’s stance. “The ILA most definitely will hit the streets on October 1 … if we don’t get the contract we deserve,” he stated.

• If the ILA and the USMX do not finalize a new master contract by the end of the day on September 30, 2024—when ILA workers’ existing contracts expire—the union intends to proceed with a work stoppage at 12:01 a.m. on October 1.
• Shippers may have already factored in the potential work stoppage, with container volumes from Southeast Asia to North America hitting a record-breaking 500,000 TEUs in June, suggesting an early peak season. A segment of the market is diverting shipments to the U.S. West Coast, while others—namely, those with healthy inventory levels or less flexibility in cargo routing—are staying the course.

What Are the Implications for North American (and Global) Supply Chains?

An ILA work stoppage—should one persist for more than a few weeks—could upend North American supply chains, resulting in logistics bottlenecks that could surpass 2021-2022 backlogs. Consider the following:

• In 2023, U.S. seaport trade totaled $2.12 trillion—72% of which routed through ports involved in the potential work stoppage. The U.S. East Coast and Gulf Coast are home to five of the busiest ports in North America. After the ports of Los Angeles and Long Beach, the busiest ports in the U.S. are New York/New Jersey, Savannah, Virginia, Houston, and Charleston. The economic impact of a potential work stoppage could be massive: U.S. East Coast ports—all of which are covered by the ILA/USMX labor contract—would handle 2.3 million twenty-foot equivalent units (TEUs) in October. This freight would exceed $3.7 billion each day, based on MDS Transmodal's estimate of $50,000 per container.

• In the event of an ILA work stoppage, the ILWU will likely take solidarity action. This could lead to wide-ranging impacts, including slowdowns at U.S. West Coast ports.
• Another likely outcome of the work stoppage: on the brink of the peak holiday season rush, businesses may begin to ship via air instead of ocean. Air freight prices will likely surge, while capacity will continue to tighten in an already-strained market.
• A one-day work stoppage by the ILA would take six whole days to recover from, according to Sea-Intelligence. And a one-week work stoppage in October—when millions of businesses prepare for the holiday rush—could lead to bottlenecks until mid-November.
• An even longer work stoppage may trigger pandemic-level disruptions. A massive influx of rerouted shipments would quickly overwhelm U.S. West Coast ports, resulting in container pile-ups and strained railroads. Shippers would face chassis shortages, skyrocketing trucking rates, potential General Rate Increases (GRIs), and additional detention and demurrage (D&D) and accessorial costs.
  • In 2015, for example, negotiations between the ILWU and 29 U.S. West Coast ports spanned nine months, leading to massive disruptions on the docks. It took several weeks to clear the backlog of cargo containers, and several months for freight traffic to normalize, even after the dispute was settled.
• The most important lesson of the 2021-2022 supply chain crisis was the unpredictability of bottlenecks around the world. And all those bottlenecks—with ships queuing at ports—were caused by a 20% increase in the number of containers being shipped.
• Another lesson from the pandemic-induced supply chain crisis: if ships that are currently en route to U.S. East Coast or Gulf Coast ports go out of rotation, the effective capacity of the world’s container shipping network would fall. All of the cargo that would’ve been carried by those ships at their port of call will be delayed. There won’t be containers where they’re needed, as they’ll be sitting on ships off the East and Gulf Coasts of the United States. In short, this could lead to container and other equipment shortages that may take months to resolve.
• A work stoppage could severely disrupt the intermodal market, with U.S.-East-Coast-destined containers flooding the railroads via U.S. West Coast rail gateways. Importers may seek to leverage the interior point intermodal (IPI) market as a means of shipping cargo eastbound into inland markets to avoid coastal ports.
  • During the pandemic, when rail volumes increased 15-20%, we saw rail congestion cause more than 3 weeks of dwell before loading onto trains. Rail transit times increased 3-4 times—from 3-5 days to as many as 13-15 days in core lanes.
  • In addition, customers may seek to terminate cargo at U.S. West Coast ports, transload, and truck via FTL to their final destination. As this was another highly leveraged solution during the pandemic, warehouses and cross-dock facilities were operating at 100%+ capacity, resulting in slower transload throughput and increased street dwell of chassis and containers.
  • Due to higher operating costs during the pandemic, drayage rates increased 20%+, with total spend rising as much as 80% due to increased accessorial exposure. Port congestion, driver wait times, and excess chassis and yard storage days could all become pervasive charges again. Full truckload spot rates increased as much as 56%, which, if repeated, would have material impact on transload outbound shipments.
• While no industry would be completely immune to disruptions from an ILA work stoppage, certain sectors would feel the impact more intensely. For industries that rely on just-in-time inventory systems—like automotive and pharmaceuticals—even a two-day strike could severely disrupt operations. A large portion of auto parts and components come through East Coast ports; production delays would pose significant risks.
• On the export side, shipments bound for Europe, Latin America, and the Indian subcontinent primarily depart from U.S. East Coast ports. A work stoppage would complicate operations for exporters in these trade lanes.

How Likely Is a Strike?

Statements from the ILA suggest that the union is far from reaching a deal with the USMX. In fact, negotiations are not presently taking place, according to a statement from the USMX. Based on public statements, it is unlikely that the ILA and the USMX will agree on the terms of a deal by the deadline unless negotiations quickly resume. It’s also possible that the current U.S. administration under President Biden could intervene to prevent a work stoppage in the middle of the upcoming presidential election.

Government intervention could take many forms. What’s most likely: the U.S. administration would step in to convince both sides to accept an extension for some period beyond the election. How long such an extension might last is anyone’s guess, but kicking the can down the road may prevent disruptions during the peak holiday shipping season. Even so, it’s fair to say that a mere extension of the current contract would not resolve the fundamental disputes between labor and management concerning hourly wages, healthcare costs, performance monitoring, and—most of all—the automation of ports.

Such intervention is not without precedent. Just last month, the Canadian government ordered arbitration between Canada’s two largest railways and the Teamsters union, reopening the country’s rail freight network a mere 16 hours after the lockout began. And since the passage of the Railway Labor Act in 1926, U.S. Congress has intervened in rail labor negotiations 18 times. These interventions include status quo extensions, binding arbitration, and specially appointed boards and panels.

Guidance for Flexport Customers

At Flexport, we’re closely monitoring developments and consistently sharing updates with all our clients to mitigate the impact of delays and additional cost exposure.

Our guidance is to run a scenario planning exercise with your key partners. A good scenario plan starts with an evaluation of your inventory levels, sales forecast, upcoming product launches and promotions, and inventory in transit. We recommend briefing your finance, sales, and marketing counterparts early and often.

Here are key decisions to make as a team:

• Review all your inventory in transit to East Coast and Gulf Coast ports, and perform a risk assessment. Your key decision is whether you should reorder critical SKUs and route them via the West Coast, or move them via air freight to diversify your risk.
• Decide if upcoming shipments traveling to Midwest and East Coast locations can be delayed until you have more information. Any decision made today is made with incomplete information, so if you have sufficient inventory, stay put.
• For shipments that cannot wait, decide whether you should book via East Coast and Gulf Coast ports, West Coast ports, or a blend of the two—and decide whether you want to use rail or transloads to get to your final delivery location.
• Decide if you want to book urgent cargo via air freight or premium fast boat services. This decision should be governed by your gross margins, current inventory levels, and the risk of lost sales.

We will continue to update this live blog with news and updates. This situation is changing fast, so your biggest advantage is preparation, adaptability, and clear decision-making. Flexport is here to help you navigate the risks.