Freight rates increased as companies planned costly strikes at US ports

U.S. retailers, automakers and other businesses face soaring shipping rates as they make contingency plans for a strike that threatens to close nearly three dozen ports next week. next.

The International Longshoremen’s Union, which represents 25,000 dockworkers at ports between Maine and Texas, said it plans to quit early on Tuesday unless port operators agree to a significant pay increase. and limited automation.

the beat JPMorgan analysts estimate closures at east and gulf coast ports, which handle about half of containerized imports, including food, pharmaceuticals, consumer electronics and apparel , causing the US economy to lose up to 5 billion USD per day.

Such a halt could increase prices ahead of the holiday shopping season, businesses and officials worry. Any port congestion risks limiting ship supply and increasing the prices shipowners can charge customers, which would ultimately increase costs for American consumers.

Big retailer has pushed to import much of its holiday goods and booked ahead with West Coast rail and ocean carriers in hopes of avoiding any disruptions. In the process, businesses’ freight costs have increased by up to 20% due to the need for more warehouse space to store expanded inventory, according to Brian Pacula, a supply chain expert at the consulting firm West Monroe.

“The reality is that the U.S. port infrastructure as a whole is not set up to move the volumes of 36 ports all the way to the west coast. . . ,” said Douglas Kent of the Association for Supply Chain Management.

As small businesses race to import goods before any strike, the average cost of transport According to data provider Xeneta, a 40ft container on short-term contracts from Northern Europe to the US East Coast has increased 29% to $2,376 since the end of August. Xeneta’s chief analyst, Peter Sand, said know shipping costs from Asia, which can more easily be diverted to the west coast, have not increased over the same period, but this could change if strikes continue.

He warned that delaying goods in the US risks delaying export shipments and driving up shipping costs globally, in a year when trade has been severely disrupted by attacks. attacks by the Houthi militant group on ships in the Red Sea.

JPMorgan analyst Brian Ossenbeck said he would be “very surprised if the strike lasts more than a week.” But if it lasts much longer, economists warn that consumers will face empty store shelves and price increases not seen since the Covid-19 pandemic began.

The strike is scheduled to begin just a month before election day, when some voters are already casting ballots in several states that allow early voting. Polling shows the economy is the number one issue for voters.

A White House spokesman said Biden administration officials have been in contact with all sides to encourage them to “negotiate in good faith.”

The White House reiterated that President Joe Biden is not considering using the Taft-Hartley Act to force longshoremen back to work, adding that the country’s supply chain is more resilient today than it was before. with the pandemic period.

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

Donald Trump, the Republican candidate for president, has repeatedly criticized Vice President Kamala Harris, his Democratic opponent in the election, for the White House’s handling of the economy, including High prices come despite a steady decline in inflation since its peak in 2022.

“I think Republicans are going to try to make hay and they’re going to try to blame President Biden and say ‘he should have handled this’ or ‘he should have gone begging,” Seth Harris said. ban'”.

A source close to the White House said “this is always bad for the incumbent.” [administration] when there is chaos and uncertainty.” Even if the public does not blame Biden and Harris, “the reality is that there is economic uncertainty and disruption that is not good.”

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

Jennifer Harris, senior director for international economics for Biden’s National Security Council and National Economic Council, said businesses should have inventory to cover until after the election.

But the threat of shutdowns has prompted businesses to make costly contingency plans to secure their supply chains if ports on the east coast and Gulf coast close on Tuesday.

Leading shipowners have announced surcharges in the event of a strike, although these will not take effect immediately. Denmark’s AP Møller-Maersk plans to charge an extra $1,500 per 20ft container leaving and entering affected ports from October 21, to cover higher operating costs during any disruption . Shares of Maersk and its German peer Hapag-Lloyd have risen by about a fifth in the past two weeks as investors forecast rising revenue.

“Whenever carriers or freight forwarders announce price increases, customers are reluctant to accept,” said a freight executive. But in this case, “there is no other way”.

Mia Ginter, head of North American ocean trade at shipping group CH Robinson, said that while it is possible to trade via longer shipping routes or by plane, some customers cannot afford it. pay for these options and are shipping to wait in line on the east coast.

Meanwhile, alternative entry points into the United States “will not be able to handle the rush of goods. The entire supply chain will be overwhelmed,” Ginter said. “The longer the strike goes on, the more costs will be passed on to consumers.”

Chris Butler, chief executive of holiday decorations retailer National Tree Company, said 15% of his company’s goods would be “stranded” if ports closed on Tuesday and he estimated that every The shutdown date will delay his shipments by another five days. day.

Alex Naumov, chief executive officer of luxury car exporter West Coast Shipping, has advised his customers to ship their cars through the Port of Oakland in California, as east coast operations have begun slow down to prepare for a strike.

Seth Harris warns the shutdown will be devastating for companies.

“This will cost them a huge amount of money and that money cannot be recovered.”