U.S. importers brace for higher freight rates amid strike threat

An impending union strike at ports along the U.S. East and Gulf Coast threatens to increase freight rates and cause massive disruptions in ocean container traffic, trapping U.S. importers in a vicious cycle.

See also: East Coast and Gulf Coast ports face strike threats as ILO suspends labor talks

The International Longshoremen’s Association (ILA) recently announced the suspension of labor contract negotiations with the United States Maritime Union (USMX). The current agreement will expire on September 30, sparking concerns about a strike.

“Shippers are already bringing forward imports ahead of the traditional third-quarter peak season due to supply chain concerns over the Red Sea conflict,” commented Peter Sand, principal analyst at Xeneta. “They are likely to accelerate these efforts, further complicating the situation, as the risk of disruptions at East and Gulf Coast ports increases.”

Increased frontloading of imports has led to severe congestion at ports in Asia and Europe, causing spot rates for ocean containers to rise by more than $2,000 per FEU. “Shippers are caught in a vicious cycle, and their efforts to protect their supply chains are likely to exacerbate the problem,” Sand noted.

According to Xeneta, spot freight rates from the Far East to the US East Coast have surged 64% since April 30, reaching $6,820 per FEU as of June 11. In the first four months of this year, a total of 2.44 million twenty-foot equivalent units (TEUs) were shipped from the Far East to the US East Coast and Gulf Coast, accounting for more than 40% of the total US container imports from the region.

Sand suggested shippers consider redirecting imports to the U.S. West Coast to reverse the trend during the COVID-19 pandemic. However, such a shift could tighten capacity and increase freight rates at the West Coast and other alternative ports such as Vancouver or Mexico, which have already seen a sharp increase in Far East imports over the past year.

Xeneta’s forward-looking data shows that the recent surge in spot prices from the Far East to the U.S. East Coast is expected to slow, with a modest 2.4% increase expected on June 15, compared with a 19% increase on May 1. Nonetheless, Sand believes the threat of shipping disruptions could keep spot prices elevated for an extended period.

“If the talks break down and more shippers rush to buy cargoes before the holidays, the spot market is likely to remain high,” Sand warned. He also pointed out that the rhetoric from the International Shipping Association was fierce, so the breakdown of the talks was not surprising.

Shippers that were well prepared, with sound risk management and supply chain strategies, may have anticipated this situation and brought forward imports. Sander stressed that while shippers are hoping for a resolution similar to last year’s West Coast labor negotiations, a strike amid continued pressure on the ocean network could lead to challenges in 2024.