US Port Strikes Could Jeopardize $5 Billion in Daily International Trade
Analysts at Goldman Sachs have developed a framework that suggests if the International Longshoremen's Association (ILA) and the US Maritime Alliance (USMX) fail to reach a new contract agreement by the end of September 30, a strike could erupt along East and Gulf Coast ports. This could put $5 billion in daily international trade at risk.
Jordan Alliger from Goldman Sachs informed clients on Thursday, "We analyzed the potential impact to trade value into the East Coast and Gulf Coast Ports if work disruption were to occur." He added that nearly $4.9 billion per day is at risk in international trade along these coasts. This could lead to supply chains becoming less fluid due to the emergence of congestion, which could result in a re-emergence of transport price inflation.
Potential Labor Action Could Impact Port Traffic
Alliger highlighted the scale of the potential labor action early next week. A strike would result in 45,000 ILA workers leaving container ports, which represent 52% of all port traffic in 2023. This could cause significant supply chain disruptions for the eastern half of the country.
The Goldman Sachs team shared their thoughts on the situation, noting that even without a work disruption, there have likely been some diversions to West Coast Ports and possibly even some Canadian ports. They also suggested that some pull forward in demand likely occurred to get ahead of any potential work disruption.
Impact on Companies and Inflation
The analysts also discussed the potential impact on companies and inflation. They mentioned that a work disruption could lead to more traffic being diverted to west coast ports, creating additional logistical burdens on shippers and potentially leading to a short-term spike in transport costs. This could also affect general inflation.
They also noted that companies with heavy exposure to the west coast, such as UNP/BNSF among rails, could see potential upside risk from added volumes initially. However, all the rails could see some business at some point, and there could be interchange with NSC or CSX.
Supply Chain Congestion Could Rise
The analysts warned that a potential work disruption could tighten up transport markets, and congestion could increase. This could result in price-related upside for truckers as trucks and drivers could become constrained on the west coast.
From an air and forwarder perspective, work disruptions have historically had a positive impact on forwarders. If shippers miss an ocean shipping window, it could require them to utilize more air capacity. Tighter capacity in air could also have a positive impact on parcel players (FDX, UPS), as well as possibly heavier weight cargo.
Bottom Line
While the analysts did not predict any potential outcome, they highlighted the various risks and potential upsides to a work disruption. Their analysis shows a risk to ocean goods value at up to $4.9 billion per day.
They estimate "that a potential work disruption could impact ~61% of total US ocean trade and 25% of total US daily trade in October."
Ryan Petersen, the CEO of Flexport, one of the largest US supply-chain logistics operators, recently warned about the potential impact of a port strike on the presidential election.
Goldman's Alliger also informed clients that US congestion at ports is 2 out of 10 ahead of potential strikes. Meanwhile, preparations for a strike are being made at the Port of New York-New Jersey, with officials urging shippers to wind down cargo business.
No details about contract proposals between ILA and USMX have been made public, with contract expiry set for Monday.
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