Upcoming Port Disruption Could Have Major Impacts on U.S. Economy

Two hands holding a cardboard sign saying "STRIKE".

A potential strike at East and Gulf Coast ports threatens severe disruption to the U.S. supply chain and economy.

At a Glance

  • Port strikes on the US East and Gulf coasts will cause severe supply chain disruptions into 2025
  • Government intervention may be required to avoid major economic fallout
  • 36 ports are preparing for a complete stoppage if no new deal is reached with the International Longshoremen’s Association by September 30
  • The strike could disrupt U.S. supply chains and impact the holiday shopping season

Impending Disruption and Economic Consequences

The looming strike involving up to 45,000 workers at ports along the U.S. East and Gulf coasts threatens to grind crucial trade operations to a halt starting October 1. The disagreement over wages between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX) is set to come to a head as their contract expires on September 30. If unresolved, this standoff could introduce significant chaos into the supply chain, affecting the nation’s economy and the upcoming holiday shopping season.

East and Gulf Coast ports account for over 40% of total containerized goods entering the U.S. The potential stoppage could redirect an enormous volume of cargo, causing congestion at alternative ports and stretching the capacity of West Coast facilities. The average spot freight rates from the Far East to the U.S. East Coast have already surged by more than 300% from December 2023 to early July 2024. Such dramatic rate hikes highlight the vulnerability of the U.S. supply chains to further disruptions.

Government’s Preparedness and Business Impacts

Business leaders and trade associations are urgently calling for government intervention to avoid catastrophic outcomes. With 177 trade associations clamoring for a resumption of negotiations, the stakes are undeniably high. The Biden administration, while monitoring the situation and encouraging continued negotiations, is reluctant to invoke the Taft-Hartley Act to force the workers back, albeit reserving this measure if the crisis escalates.

“More than 40% of total containerized goods enter the U.S. through ports on the East Coast and Gulf Coast, so the stakes could not be higher.”

The ripple effects of a potential strike would go beyond immediate shipping delays. Ryan Peterson, CEO of Flexport, warns that a prolonged strike could trigger extensive capacity shortages, leading to economic setbacks across various sectors. Judah Levine of Freightos cautions about resulting West Coast congestion and the broader impact on shipping schedules, further exacerbating rate pressures and capacity shortages at origin ports in Europe and Asia.

Containment Efforts and Strategic Responses

Ports along the East Coast are stepping up their efforts in anticipation of the strike. Measures include extending operating hours and instituting strict deadlines for container movements. Simultaneously, ocean carriers are suspending new export bookings and implementing surcharges for East Coast-bound containers. The Federal Maritime Commission (FMC) has issued warnings against excessive detention and demurrage fees during the strike period, hoping to mitigate the financial burdens on already stressed shipping operations.

“There are ships on the ocean right now carrying billions of dollars of cargo heading to ports on the U.S. East and Gulf Coast. These ships cannot turn back and they cannot realistically re-route to the U.S. West Coast. Some may divert to ports in Canada or even Mexico East Coast, but the vast majority will simply wait outside affected ports until the workers return.”

Ultimately, the outcome of this labor dispute holds significant implications for the U.S. economy. Prolonged port disruptions could trigger waves of economic implications, from supply shortages to inflationary pressures. Eric Clark of Accuvest Global Advisors predicts that even a one-week strike would create logistical bottlenecks, affecting ships’ schedules from the Far East and causing a backlog that could last into late December and January.

Sources

1. Port strikes on US East Coast will cause major supply disruption into 2025

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