As freight rates soar, dock workers get bigger pay raises

Earlier this week, 159 trade associations representing key supply chain stakeholders sent a letter to the Biden administration and relevant congressional committees, calling on the U.S. government to intervene in the stalled labor contract negotiations between the International Longshoremen’s Association (ILA) and the United States Maritime Union (USMX). On June 10, the International Longshoremen’s Association issued a press release announcing that it refused to continue negotiations due to an outstanding dispute with a terminal operator at a port on the Gulf Coast. The International Longshoremen’s Association has expressed its willingness to call for a coast-to-coast strike if a new contract agreement is not reached before the expiration of the current contract, which covers approximately 45,000 longshoremen at ports on the East and Gulf Coasts of the United States.

The current contract expires on September 30, 2024.

In the letter, the industry associations urged the Biden administration to “immediately work with both parties to resume contract negotiations to ensure that port operations and cargo mobility are not impacted.”

The union’s decision to walk away from the bargaining table comes at a time of wild volatility in freight rates.^® The Baltic Index recently broke above $4,000 for the first time since late 2022, indicating a return of supply chain issues that plagued global businesses during the pandemic. The rise in freight rates is a direct result of Houthi rebel attacks on Red Sea shipping, which has had a severe impact on international trade, causing most ships to sail around South Africa’s Cape of Good Hope for weeks. In addition to the surge in freight rates, the disruption has also led to congestion and equipment shortages at overseas ports and capacity issues for carriers. While many experts expect these disruptions to be short-term, the threat of a massive strike by U.S. dockworkers could complicate and/or exacerbate the risk of further supply chain disruptions in 2025.

For many manufacturers and retailers, the strike threats come at an inopportune time. September is drawing to a close and many companies are restocking their holiday season inventories; therefore, logistical issues could jeopardize their most profitable period of the year.

Furthermore, the macroeconomic outlook is cloudy to say the least for many businesses, and some will be inclined to hold off on adding inventory for the holiday season as long as possible. After all, no one wants to be stuck with unsold goods in January; however, uncertain supply chain conditions will force many businesses to purchase goods ahead of potential strikes.

We hope that everyone stays calm and reaches some kind of agreement, but the longer this bickering goes on, the more likely it is that it will set off a chain of events that will significantly increase supply chain risks over the next year.