After talks broke down between the International Longshoremen's Association and United States Maritime Alliance (USMX) on August 22, industry analysts worry that ILA workers may go on strike once the contract expires on September 30. The ILA represents dock workers all down the East Coast, the Gulf, and the Great Lakes, and World Trade 100 estimates that a strike by the organization could cost over $200 billion this peak shipping season.
While negotiations have resumed, the debate remains contentious. West Coast ports are already operating near capacity, so shippers looking to divert their operations may find a capacity squeeze.
“Our utilization into West Coast ports is already in the mid- to high 90s so there is almost no capacity left,” Thomas Knudsen, Maersk Line’s Asia Pacific CEO, said. “We can take a little more, but not a major overflow.”
Knudsen also notes that Maersk Line, along with many other West Coast carriers, has filed precautionary congestion surcharges with the Federal Maritime Alliance in case of a strike. Analysts worry about the cost of hiring extra crew and administration, which surcharges seem unlikely to cover in full, and the burden of idle vessels and equipment may bog down lines for weeks.
Bonnie Chan, a senior analyst on the industrials & transportation team at Macquarie Equities Research, stresses that “it took [shipping lines] over a month to clear out the congestion when US West Coast ports were shut by strikes for 10 days in 2002.”
The strike, if prolonged, may cause severe inventory shortages for the holiday season as well.
For more information on this topic, please read:
World Trade 100, “Port Strike Could Affect $200 Billion in Trade”
The Journal of Commerce, “ILA Negotiations to Resume,” “West Coast Faces Capacity Squeeze if ILA Strikes, Maersk Says,” and “Analyst Calls ILA Strike Scenario a ‘Black Swan Event’”
This post was published on September 7, 2012 and updated on May 12, 2014.
