The first day of a significant strike by dockworkers from Boston to Houston has had economists scrambling to quantify the supply chain disruptions, with estimated daily losses ranging from $1 billion to $5 billion.
Starting October 1, dockworkers on the US East Coast and Gulf Coast began their largest strike in nearly 50 years due to a breakdown in new labor contract negotiations over wage issues, halting approximately half of the nation's ocean freight.
The Biden administration has refused to use its power to end the strike and has pressured employers to increase their contract offers to reach an agreement. Conversations between the parties continued, but no active negotiations were held later, extending the strike into the following day.
Industry insiders interviewed do not expect a quick resolution. Roger, involved in California shipping, noted that shipping companies had already started announcing stoppages on export bookings, particularly on rail transport from inland US.
He mentioned that shipowners have limited options and whether to reroute vessels depends on the strike's duration. If the strike ends quickly, there's no need to reroute. If vessels wait at anchorages, port authorities will likely manage ship unloading similar to the 2021-2022 port congestion events.
Roger predicted that a strike lasting a week could take 4-6 weeks to recover from, with longer strikes potentially causing negative impacts extending into the next year.
The International Longshoremen's Association (ILA), representing 45,000 port workers, had been negotiating a six-year contract with the US Maritime Alliance (USMX) employer group, with the talks ending on September 30.
USMX proposed a 50% wage increase over six years while retaining automation clauses, but ILA rejected the offer and shut down all ports from Maine to Texas starting midnight October 1.
ILA leader Harold Daggett stated that employers like Maersk had not offered appropriate wage increases or agreed to halt job-threatening automation projects. This strike is the ILA's first large-scale work stoppage since 1977, worrying businesses reliant on ocean freight exports and critical imports.
The strike affects 36 ports, including New York, Baltimore, and Houston, handling a variety of container goods from bananas to cars. Bloomberg's analysis shows daily GDP losses up to $3 billion, with a week-long strike potentially reducing annual GDP by 0.3 percentage points. JPMorgan estimates daily economic damages of $5 billion, impacting retail and supply chains.
John Wrenn, COO of New York-based MHW Ltd., expressed concern about timely product deliveries during the holiday season, with shipping costs already spiking 30-40% due to surcharges. Walmart and Costco have prepared for disruptions, with Costco pre-shipping holiday goods ahead of the strike.
US auto manufacturers and other businesses relying on foreign-made parts and exports have also activated contingency plans. Toyota and General Motors are monitoring the situation and have built extra inventory, while Hyundai is implementing emergency measures to ensure stable processing and delivery.
Past experiences suggest that strike impacts might not be immediately visible. Roger explained that missed opportunities to return empty containers to Asia could create logistics issues around the 2025 Chinese New Year.
Union leader Daggett stressed the need for significant wage increases, while USMX noted that their wage hike proposal addresses inflation. The White House has sided with the union, emphasizing that workers should share in the economic gains during the pandemic.
Labor Secretary Julie Su and Transport Secretary Pete Buttigieg have both urged negotiations to proceed and called for the elimination of potential strike surcharges, although USMX has declined to comment.
Political considerations also play a role, as the White House seeks to avoid alienating voters or providing ammunition for Republican attacks during the election period.
