US East Coast strike risk could mean more spikes in freight rates

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US East Coast strike risk could mean more spikes in freight rates

According to the latest container shipping report from the Baltic Exchange, there is a significant risk of labor disruptions at US East Coast ports due to the breakdown in negotiations between the union and the terminals in June.

In the report, Vespucci Maritime CEO Lars Jensen stated that any strike at US East Coast ports would dramatically worsen global supply/demand dynamics, leading to significant port congestion and vessel delays.

Jensen noted that the incident with Ever Given becoming stuck in the Suez Canal triggered the second stage of rate increases—amid the pandemic and the 3Q peak—leading to extremely tight markets in late 2021 and early 2022 with record rates reaching US$15,000 per FEU on some trades.

He wrote: “Should there be a strike on the US East Coast in September, this could trigger the same effect, and market stakeholders would face a similar second phase, with rates once more reaching such record-high levels.”

The International Longshoremen Association (ILA), which represents some 85,000 port workers on the US East Coast and US Gulf, suspended talks with the US Maritime Alliance in June, due to a disagreement on automation.

The current labor agreement expires on September 30, and the ILA is also seeking salary increases of around 40%, citing substantial profits by liner operators.

In another Baltic Exchange report, Freightos’ research lead Judah Levine stated that Transpacific demand is expected to peak in August, and rates are likely to continue climbing. General rate increases and surcharges could push rates to about US$10,000/FEU. Yang Ming Marine Transport has already announced a US$2,000/FEU GRI from 1 August.

The ongoing Red Sea crisis will hold up tonnage, lending support to freight levels.
A resumption of Red Sea transits or a collapse in demand would see the reversal to overcapacity, but this appears unlikely in the short to medium term.

Jensen wrote: “It’s time for stakeholders to contemplate a scenario where the major container vessels continue around Africa not for a few more months but for several years to come. Conflicts in the Middle East tend to be resolved only on very long timescales and it is evident that the Western military presence has failed to change the situation in the southern part of the Red Sea and the Gulf of Aden. It’s possible that this could persist for several years to come and, as a consequence, shippers need to contemplate how to structure not only their supply chains but also their sourcing patterns should such a scenario unfold.”

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