The cost of transatlantic freight has surged as tens of thousands of American dock workers go on strike, with analysts warning that prolonged disruption risks delaying toy shipments before Christmas.
At midnight on Tuesday, members of the International Longshoremen’s Association (ILA) walked out from ports along the US east coast and the Gulf of Mexico amid a row over pay and automation.
The protest has brought loading and unloading of shipping containers to a complete halt and is forcing vessels laden with cargo to drop anchor and queue at sea.
It is the first time since 1977 that members of the ILA have gone on strike. The industrial action also comes as global shipping is still grappling with the fallout of attacks by Iran-backed Houthi rebels on commercial vessels that have made the Red Sea a no-go area.
Key products that risk being affected include everything from the UK’s Scotch whisky exports, to the consumer electronics, toys and cars that are frequently shipped from the US to Europe.
The eastern ports typically handle three quarters of alcohol imported to America, including Scotch, as well as two fifths of spirits such as bourbon that are exported, according to the Distilled Spirits Council of the United States.
JP Morgan said the US strikes, which President Joe Biden has declined to intervene in so far, will cost the domestic economy up to $4.5bn (£3.4bn) a day.
The impact on the UK and Europe is expected to be more muted but it has already pushed shipping costs higher in recent weeks, as companies rush to avoid disruption ahead of the crucial holiday season.
In the past month, the price of sending a 40-foot container from northern Europe to American ports such as New York or Houston has jumped almost a third as retailers scramble to avoid the impact of industrial action.
The price stood at about $1,788 per container at the end of August but had increased to $2,354 as of last Thursday, according to the Xeneta Shipping Index.
Prices for freight travelling from North America to Europe have also increased, though not as dramatically, from $554 per container to $572.
While the strike unfolds, companies with time-sensitive goods will likely divert cargo to ports such as Long Beach on the west coast of the US, where workers are represented by different unions that are not on strike, according to David Jinks, of delivery giant ParcelHero.
But that will add both time and costs. While a typical shipment from UK ports to New York takes 12 to 15 days to arrive, sailing to Los Angeles takes between 30 and 39 days.
“It’s going to take longer, and it’s going to be more expensive too, because they’re going to end up using more fuel getting there,” adds Jinks, who is the former editor of the Lloyds Shipping Index.
“Another potential problem is that there’s going to be much more demand at the west coast than previously. We’ve already seen that Long Beach has had its busiest ever month last month, because people were getting prepared for these strikes.
“And so a lot of ships are already diverting. But there’s only so much excess capacity that ports can take.
“For that reason, you may see more people switching to air freight and so it suddenly becomes more difficult to secure air freight slots as well.”
Many Christmas goods will have already been delivered to European retailers, reducing the risk of empty shelves.
But if the dispute drags on it risks causing problems further down the road, as ships held up by the delays fall behind on their schedules, says Peter Aylott, director of policy at the UK Chamber of Shipping.
With global shipping capacity already being strained due to other disruptions, it also risks pushing up prices in the long term.
“You do have a tight capacity at the moment that’s going to be impacted by this activity,” Aylott says. “But in terms of the flow of goods, most of ours are coming from the east, not from the west.
“So the impact, in terms of actual deliveries, I don’t think will be particularly high.”
How bad things get will depend on how long the strike lasts, however.
“During the pandemic, when we had displaced containers and holdups in ports for various reasons, that did still affect the whole flow of movements [globally], so we may see some delays caused by that,” explains Aylott.
“Longer-term, if these strikes go on then the UK will see problems. Because ships will be displaced, containers will be displaced, activities will be delayed.”
Several US eastern ports began closing on Monday evening after staying open for longer than usual in the preceding days to help get as many deliveries away in trucks as possible.
However, some 100,000 shipping containers will still be stranded on the docks at the Port of New York and New Jersey for the duration of the strike, port officials said.
At the same time, three dozen cargo ships are expected to arrive in the coming week and will instead have to drop anchor and wait. The port is the largest affected by the strike.
How long the industrial action will drag on for remains up in the air.
The dispute centres on the ILA’s argument that dockworkers have been denied their fair share of the huge profits reaped by the shipping industry in recent years.
A contract between the union and the United States Maritime Alliance (USMA), which represents the ports, governs pay and working conditions but it expired on Tuesday.
Ahead of that deadline, the ILA and the USMA had been locked in talks.
The ILA has demanded a 77pc pay rise over six years for its members – who currently make a base salary of $81,000 per year – as well as guarantees that ports will halt efforts to introduce automation that could cost dockworker jobs.
For example, the union wants a total ban on automatic gates, cranes and trucks used to move containers.
The USMA made an 11th-hour offer of a 50pc pay rise for dock workers on Monday evening but the ILA has not responded publicly yet.
One way the strikes could be ended, according to analysts, is for President Biden to intervene.
Although Biden is a Democrat who likes to trumpet his pro-union credentials, researchers at Capital Economics note that he has “a well-established history of intervening in transportation disputes to avoid disruption” and is likely to do so “before the strike gets out of hand”.
Last year, labour secretary Julie Su intervened in union negotiations at west coast ports, while in 2022 Biden signed a congressional bill that imposed a national settlement on rail freight companies and workers, they say.
It has also been claimed that Biden could invoke the 1947 Taft-Hartley Act, which gives him the power to order an 80-day cooling off period – suspending the strikes – if he deems the industrial action a danger to US economic heath.
On Sunday, however, the president said “no” when asked if he planned to intervene to do this.
“Because it’s collective bargaining, I don’t believe in Taft-Hartley,” he told reporters.
However, with US elections so close, the president may also be wary of making life harder for Kamala Harris, his vice-president and the Democratic presidential nominee.
Although neither Harris or Donald Trump, her Republican rival, have publicly commented on the strikes yet, no government wants to preside over price rises as voters go to the polls.
“There is little chance that the administration would risk jeopardising its recent economic successes just five weeks before a tightly-contested election,” analysts at Capital Economics note.
On both sides of the Atlantic, business owners will be hoping they are right.
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