Freight Rates Rise as Companies Consider Costly Strike at U.S. Ports

U.S. retailers, automakers and other businesses are facing rising freight rates as they make contingency plans in the event of a strike that threatens to close nearly three dozen ports next week.

The International Longshoremens Association, which represents 25,000 dockworkers at ports between Maine and Texas, said it plans to walk off their jobs early Tuesday unless port operators agree to significantly raise their wages and to limit automation.

The strike would close East Coast and Gulf ports that handle about half of containerized imported goods, including food, pharmaceuticals, consumer electronics and clothing, costing the U.S. economy up to $5 billion dollars a day, JPMorgan analysts estimate.

Such a shutdown could increase prices as the end-of-year holidays approach, businesses and officials fear. Any port congestion risks limiting the supply of ships and increasing the price that shipowners can charge their customers, which would ultimately drive up costs for American consumers.

Large retailers have accelerated the importation of much of their holiday merchandise and made reservations with West Coast shipping and rail carriers in hopes of avoiding any disruption. In the process, companies' transportation costs increased by as much as 20 percent due to the additional warehouse space needed to store increased inventory, according to Brian Pacula, a supply chain expert at the firm. West Monroe council.

The reality is that the entire U.S. port infrastructure is not designed to move 36 ports of volume to the West Coast… said Douglas Kent of the Association for Supply Chain Management.

As small businesses rush to import goods ahead of any strike, the average cost of shipping a 40-foot container on short-term contracts from Northern Europe to the U.S. East Coast has risen 29 percent to $2,376 since late August, according to data provider Xeneta. The cost of shipments from Asia, which can more easily be diverted to the West Coast, has not increased over the same period, but that could change if strikes continue, said Peter Sand, an industry analyst. leader of Xenetas.

He warned that blockades in the United States risk delaying overseas shipments and increasing transportation costs globally, in a year when trade has already been severely disrupted by attacks Houthi militant groups against ships in the Red Sea.

Brian Ossenbeck, an analyst at JPMorgan, said he would be surprised if the strike lasted more than a week. But if it lasts much longer, economists warn that consumers would find themselves faced with empty shelves and price increases unprecedented since the start of the Covid-19 pandemic.

The strike is expected to begin just a month before Election Day, with some voters already voting in some states offering early voting. Polls show the economy is voters' number one concern.

Biden administration officials are in contact with all parties to encourage them to negotiate in good faith, a White House spokesperson said.

The White House reiterated that President Joe Biden does not plan to invoke the Taft-Hartley Act to force longshore workers back to work, adding that the nation's supply chains are more resilient today than during the pandemic .

If the strike continues, I think it will have a political impact, said Seth Harris, Biden's former top labor policy adviser, now a senior fellow at Northeastern University's Burnes Center for Social Change.

Donald Trump, the Republican presidential candidate, has consistently attacked Vice President Kamala Harris, his Democratic opponent in the election, for the White House's handling of the economy, including high prices despite the steady decline inflation since its peak in 2022.

I think the Republicans are going to try to make hay, and they're going to try to blame President Biden and say he should have fixed this or he should go get an injunction, Seth Harris said.

White House source says it's still bad for the outgoing president [administration] when there is chaos and uncertainty. Even if the public doesn't blame Biden and Harris, the fact that there is unrest and disruption in the economy is not a good thing.

The Harris and Trump campaigns did not respond to requests for comment.

Businesses should have inventories to cover their needs until after the election, said Jennifer Harris, senior director for international economics at the National Security Council and Biden's National Economic Council.

But the threat of business shutdowns has already prompted companies to implement costly contingency plans to secure their supply chains in the event East Coast and Gulf ports close Tuesday.

The main shipowners have announced surcharges in the event of a strike, although these will not come into force immediately. Danish group AP Mller-Maersk plans to charge an additional $1,500 per 20-foot container leaving and entering affected ports from October 21, to cover higher operational costs in the event of disruption. Shares of Maersk and its German peer Hapag-Lloyd have risen by about a fifth over the past two weeks as investors anticipate higher revenues.

Whenever carriers or forwarders announce price increases, customers are hesitant to accept, a freight executive said. But in this case, there is no way around this problem.

Mia Ginter, head of North American maritime trade at freight group CH Robinson, said that while trade via longer shipping routes or by air is available, some customers cannot afford these options and send goods line up on the east coast.

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Meanwhile, alternative ports of entry into the United States will not be able to handle a rush of goods. The entire supply chain is going to be overwhelmed, Ginter said. The longer the strike continues, the more costs will be passed on to the consumer.

Chris Butler, chief executive of Christmas decoration retailer National Tree Company, said 15 percent of his company's goods would be stranded if ports closed on Tuesday and he estimated that each day of work stoppage would delay its shipments of five more days.

Alex Naumov, operational director of luxury car exporter West Coast Shipping, advised his customers to transport their cars through the Port of Oakland in California, as operations on the East Coast had already begun to slow down in anticipation of a strike.

Seth Harris warned that a shutdown would cost businesses.

This is going to cost them a gigantic amount of money, and that money will not be recoverable.

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