Freight rates rise as companies plan for costly US port strike

US retailers, automakers and other businesses face ballooning freight rates as they make contingency plans for a strike that threatens to close nearly three dozen ports next week. 

The International Longshoremen’s Association, which represents 25,000 dockworkers at ports between Maine and Texas, said it planned to walk off the job early Tuesday unless port operators agreed to substantially raise their wages and limit automation. 

The strike would close east coast and gulf coast ports that handle roughly half of the goods imported via container, including food, pharmaceuticals, consumer electronics and apparel, costing the US economy as much as $5bn each day, JPMorgan analysts estimate.

Such a stoppage could raise prices ahead of the festive shopping season, businesses and officials fear. Any port congestion risks constraining the supply of vessels and raising the price that shipowners can charge customers, which would ultimately drive up costs for US consumers.

Large retailers have pulled forward imports of much of their holiday merchandise and made reservations with west coast ocean and rail carriers in hopes of avoiding any disruption. In the process, businesses’ freight costs have risen by as much as 20 per cent due to the extra warehousing space needed to store expanded inventories, according to Brian Pacula, a supply chain expert at consultancy West Monroe.

“The reality of it is US port infrastructure at large is not set up to shift 36 ports worth of volume all the way to the west coast . . . ,” said Douglas Kent of the Association for Supply Chain Management.

As smaller businesses race to import goods before any strike, the average cost of shipping a 40ft container on short-term contracts from northern Europe to the US east coast rose 29 per cent to $2,376 since the end of August, according to data provider Xeneta. The cost of shipments from Asia, which can more easily be diverted to the west coast, has not risen over the same period, but this may change if the strikes go ahead, said Xeneta’s chief analyst Peter Sand.

He warned that hold-ups in the US risked delaying outbound shipments and driving up the cost of shipping globally, in a year when trade has already been severely disrupted by the Houthi militant group’s attacks on vessels in the Red Sea. 

JPMorgan analyst Brian Ossenbeck said he would “be surprised if the strike lasted longer than a week”. But should it stretch much longer, economists warn that consumers would encounter bare shelves and price rises not seen since the start of the Covid-19 pandemic. 

The strike is scheduled to begin just a month before election day, with some voters already casting their ballots in certain states that offer early voting. Polling shows that the economy is voters’ number one issue.

Biden administration officials have been liaising with all parties to encourage them to “negotiate in good faith”, a White House spokesperson said.

The White House reiterated that President Joe Biden was not considering invoking the Taft-Hartley Act to force the longshoremen back to work, adding that the country’s supply chains were more resilient today than during the pandemic.

If the strike drags on, “I think it will have a political impact,” said Seth Harris, Biden’s former top labour policy adviser, now a senior fellow at Northeastern University’s Burnes Center for Social Change.

Donald Trump, the Republican candidate for president, has persistently attacked vice-president Kamala Harris, his Democratic opponent in the election, for the White House’s handling of the economy, including high prices despite inflation’s steady fall since its peak in 2022.

“I think Republicans will try to make hay, and they’ll try to blame President Biden, and say ‘he should have gotten this thing fixed’ or ‘he should go and get an injunction,’” Seth Harris said.

A source close to the White House said “it’s always bad for the incumbent [administration] when there’s chaos and uncertainty”. Even if the public does not blame Biden and Harris, “the fact that there is unrest and disruption in the economy is not good”.

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

Businesses should have inventory to cover them until after the election, said Jennifer Harris, who was senior director of international economics on Biden’s National Security Council and National Economic Council.

But the threat of stoppages already has prompted businesses to implement expensive contingency plans to secure their supply chains should the east coast and Gulf coast ports shutter on Tuesday.

Leading shipowners have announced surcharges in the event of industrial action, although these would not come into effect immediately. Danish group AP Møller-Maersk plans to charge an additional $1,500 per 20ft container leaving and entering affected ports from October 21, to cover higher operational costs during any disruption. Shares in Maersk and its German peer Hapag-Lloyd have risen about a fifth over the past two weeks, as investors anticipated a revenue boost.

“Whenever carriers or freight forwarders announce price increases, customers are reluctant to accept,” said one freight executive. But in this instance, “there’s no way around it”.

Mia Ginter, head of North American ocean trade at freight group CH Robinson, said that although trades through longer shipping routes or by plane are available, some customers cannot afford these options and are sending goods to wait in line at the east coast.

Alternative entry points into the US, meanwhile, “are not going to be able to handle a rush of cargo. The whole supply chain is going to get overwhelmed,” Ginter said. “The more the strike goes on, the more the costs will pass on to the consumer.”

Chris Butler, chief executive of holiday decor retailer the National Tree Company, said 15 per cent of his company’s goods would be “stranded” if ports closed on Tuesday and that he estimated that each day of the work stoppage would delay his shipments by another five days. 

Alex Naumov, the chief operating officer of luxury car exporter West Coast Shipping, advised his clients to transport their cars through the Port of Oakland in California, as operations on the east coast had already begun to slow down in preparation for a strike. 

Seth Harris warned a stoppage would exact a heavy toll on companies.

“This is going to cost them a gigantic amount of money, and it’s money that is not recoverable.”