There is a high likelihood that port workers on the U.S. East Coast will go on strike on October 1st, prompting some shipping companies to significantly raise freight rates on the U.S. West and East Coast routes. These companies have already filed plans with the Federal Maritime Commission (FMC) to increase rates by $4,000, which would represent a hike of over 50%.
A senior executive from a major freight forwarding company revealed critical details regarding the potential strike by U.S. East Coast port workers. According to this executive, on August 22nd, an Asia-based shipping company filed with the FMC to increase the freight rate by $4,000 per 40-foot container (FEU) on the U.S. West and East Coast routes, starting October 1st.
Based on current rates, this hike would mean a 67% increase for the U.S. West Coast route and a 50% increase for the East Coast route. It is expected that other shipping companies will follow suit and file for similar rate hikes.
Analyzing the potential reasons for the strike, the executive pointed out that the International Longshoremen’s Association (ILA) has proposed new contract terms that include a $5 hourly wage increase each year. This would lead to a cumulative 76% increase in maximum wages for dockworkers over six years, which is unacceptable for shipping companies. Moreover, strikes tend to push freight rates higher, so it is unlikely that the employers will easily compromise, and a strike cannot be ruled out.
Regarding the U.S. government's stance, the executive predicted that the Biden administration might lean towards supporting the union’s position to appease labor groups, increasing the likelihood of a strike actually happening.
A strike on the U.S. East Coast is a real possibility. Although theoretically, goods from Asia destined for the East Coast could be rerouted through the West Coast and then transported by train, this solution is not feasible for goods from Europe, the Mediterranean, or South Asia. The rail capacity cannot handle such a large-scale transfer, leading to severe market disruptions, which is something shipping companies do not want to see.
Since the pandemic in 2020, container shipping companies have made substantial profits through freight rate increases, including additional gains from the Red Sea crisis late last year. If a strike does occur on October 1st on the East Coast, shipping companies may once again profit from the crisis, though this period of increased profits is expected to be short-lived. However, considering that freight rates might drop quickly after the strike, shipping companies will likely seize the opportunity to raise rates as much as possible in the meantime.
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Post time: Aug-28-2024