Some comments on the US port strike, from Maxine Darmet. Senior Economist at Allianz Trade for US, France and the UK;
- Last week, an agreement has been reached between the ports administrators (USMX) and the Union (ILA) representing 45,000 dockworkers at 36 seaports in the East Coast of the United States. As a result, dock operations have resumed, relieving the stress that a prolonged strike could have generated on supply chains.
- Two main requests were over the table: salary increases of +77% and protection from automation that would threaten dockworkers’ jobs. On Monday, the USMX offered a +50% pay raise for the next 6-year contract, which was initially refused by the ILA. Yesterday, both parts agreed a +61.5% of salary increases, while the dialogue on port automation is still ongoing. For the time being, the expired 6-year contract has been extended through January 15th to provide time to negotiate a new one.
- The macroeconomic impact of the 3-day strike is minimal. The strike affected the container shipping segment (cruise operations, military cargo and oil trade remained untouched), on ports representing around 20% of goods imports and exports in value terms (roughly 2.1% and 1.4% of GDP respectively). In theory, stalled port activity should thus have a slightly positive impact through net trade on GDP, but it is likely offset at the same time by a decline in domestic inventories. Overall, estimates of the impact of a week-long strike range between 0.1pp to 0.3pp hit to quarterly annualized US GDP in Q4. That translates into up to between USD4bn and USD9bn of losses for the three days of strike.
- Several factors have aligned and served as buffers for the shock. On the one hand, companies have anticipated the situation, restocking for a longer-than-planned strike. This has been evidenced by the increased cargo volume handled by the major seaports in the west (Los Angeles & Long Beach) and east coast (NY and Savannah) over the past month. In parallel, a reliable level of inventory-to-sales ratio (I/S) at US businesses has also provided room to absorb the temporary paralysis of marine transport. However, retail is the sector that may have felt the effects of a prolonged strike first and harder, since it has not only the lowest I/S level among all sectors (particularly food retail at 0.73x), but also it has not managed to increase this ratio back to pre-pandemic levels (at 1.3x vs 1.5x before). Rerouting vessels coming from Europe and South America – through the Panama Canal – has also played a role. Indeed, the recovery of trade flow through this choke point came at an opportune time, as last year this solution would not have been possible due to the severe drought that prevented the passage of ships via the Canal. Finally, air cargo – although more expensive – has also helped to move time-sensitive and higher-value freight such as those needed in the pharmaceutical & healthcare industry.
- As the strike ended, current dockworkers’ task is to reduce the backlog accumulated from three days of ports closure. For their part, the carriers have the power to accelerate the speed of the containerships so that the delivery times can be reduced. Regarding sea freight prices, this week no impact has been perceived on spot rates, even despite the escalation of the situation in the Middle East. Conversely, prices have continued to fall (-27% from a month ago), as new containerships continue to be added to the global fleet. The situation – even if it has ended – will continue to be monitored in order to double-check that no major impact has indeed been or will be evident.
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