Container ship owners could see rates boosted after it was confirmed a port strike on the US east coast and Gulf of Mexico will go ahead from Tuesday.
The International Longshoremen’s Association (ILA) union said on Sunday that members will walk out at 36 terminals.
Reuters cited the union as saying: “United States Maritime Alliance (USMX)…refuses to address a half-century of wage subjugation.”
USMX represents employers and has accused the ILA of refusing to negotiate.
No talks were planned before the deadline at midnight on Monday, Reuters reported.
Earlier on Sunday, US President Joe Biden said he had no intention of becoming involved.
Container rates continued to fall last week, with the Shanghai Containerized Freight Index dropping nearly 10%.
The average spot rate now stands slightly above $2,100 per teu.
Rates may rise
Clarksons Securities said that rates have fallen about 43% since early July.
“Should the strike occur, freight rates may rise in the coming weeks as liner companies introduce additional surcharges,” analysts led by Frode Morkedal said.
AP Moller-Maersk has already announced a $1,500 per teu port disruption surcharge for cargo heading to US east coast and Gulf ports starting from 21 October.
“A prolonged strike could lead to significant port congestion, affecting global supply chains by tightening vessel capacity. The duration of the strike, if any, remains uncertain,” the analysts added.
“Although it has been nearly a month since the last Houthi attacks on ships in the Red Sea, vessel diversions around Africa continue, keeping the time-charter markets firm,” they said.
Fearnley Securities said a strike would be the first coast-wide walkout since 1977.
“Back then it lasted 44 days, though we believe it will be shorter this time around,” analysts Fredrik Dybwad and Nils Thommesen added.
The affected ports account for about 50% of US imports of containers.
Inefficiencies to rise
The analysts believe ripple effects will be created as congestion at ports ties up vessel capacity, volumes are redirected and inefficiencies increase.
Maersk has estimated that one week of strikes should lead to between four and six weeks of congestion.
“There should be continued upside risk on earnings for liners, particularly spot rate-heavy names like Zim,” the Fearnley team said.
Jeb Clulow, transportation partner at law firm Reed Smith, said: “Container freight — and container vessel demand and values — has increased due to the effective closure of the Suez Canal route due to the Houthi threat.”
“This is on top of recent dislocations due to the Panama Canal drought. A strike at east coast and Gulf US ports risks making that situation worse,” he added.
The lawyer explained that maritime transport contracts generally exclude a carrier’s liability for delay.
“However, there will be a host of associated contracts including sale contracts and other logistics contracts which may give rise to claims in the event of US port strikes,” Clulow said.
“This is particularly the case where strikes may cause significant business interruptions, particularly in sectors where just-in-time inventory systems leave little room for delay,” he added.
Clulow said there will be questions as to whether these contracts contain force majeure clauses and whether those will shield the breaching party in those circumstances. Such issues are likely to give rise to increased litigation, he believes.
He expects routes will be modified to include trips to US west coast ports, or overland routes from Mexico or Canada.
