So far, the story is lurking below the radar. The International Longshoremen’s Association (ILA) is threatening a strike on Oct. 1, shutting down all U.S. East Coast and Gulf Coast ports if there is no approved contract.
Supply chain experts say that would be a devastating blow to the U.S. economy, affecting not just consumers but businesses, large and small.
Making a strike more likely is the fact the ports and the union are far apart. The ports have offered a 40% pay increase, the union is reportedly seeking a 77% increase. Should a strike occur, ports from New York to Houston would be closed to traffic, stopping both imports and exports.
"I'd argue that the mere threat of a strike is already significantly impacting the U.S. economy,” Mike Klage, vice president of NTG Supply Chain Solutions, told ConsumerAffairs.
“Evidence shows importers and manufacturers increasing inventory through larger orders in July. They're also implementing contingency routings via the West Coast for Asia and Canada and Mexico for Europe, either partially or wholly. These actions, while warranted given the lack of progress toward a deal, are having a material negative financial impact on U.S. firms."
The potential damage
OEG Group is a provider of logistical services to shippers. James Vanderloo, head of OEC Group's Milwaukee Branch, tells us that the thirteen affected ports on the East Coast bring in about 20 million containers per year or around 55,000 containers per day.
“Many importers, who learned from past strikes, have been rerouting containers via the West Coast in preparation for this, but as the East Coast ports can reach a higher proportion of the U.S. population relative to the West Coast, a four week or longer port strike could be devastating,” he said.
“Each day of a strike the congestion at ports compounds, which takes months to recover from. If retail goods are not on the shelves in time for the holidays, it could result in billions of lost revenues, which would affect small businesses disproportionately.”
Yes, we have no bananas
Many perishable goods, both imports and exports, would have to be suspended during the strike. Vanderloo said the U.S. agriculture producers would be extremely limited in exporting food products. Some imports, such as bananas, might disappear from store shelves.
“Looking at the strike that occurred several years ago on the West Coast can provide insight into the potential ramifications of this,” he said. “Most experts agree that the strike on the West Coast cost the U.S. economy about $2 billion dollars per day, so a four week or more strike could result in losses of $60 billion dollars or more, and that’s not including the residual effects.”
While the Federal Reserve is trying to tamp down inflation, Klage says the serious threat of a strike has already raised transportation costs.
“Ocean carriers are capitalizing on unusual demand spikes on transatlantic and Asia-West Coast routes, driving rates up,” he said. “Trucking rates from the West Coast are also increasing. This is just a glimpse of what's to come should the threat of a strike materialize and then potentially become prolonged.”
Remember how the pandemic snarled supply chains in 2020, resulting in a new car shortage? Well, history could repeat itself.
“It takes only one part from one supplier running short on inventory to bring an OEM line down,” Klage said.
He says air freight will certainly become a major alternative, especially on European lanes where alternative ocean routings are limited. However, Klage says that won’t solve every shortage, particularly if a strike extends from days into weeks.