Key insights:

1. ILWU actions shut down Long Beach’s largest terminal through Monday, have slowed operations across West Coast ports since Friday and are expected to continue today.

2. Freight rates have increased slightly, and so far there is no build up of waiting vessels.

3. A prolonged slowdown would likely cause significant congestion, delays and increases in ocean prices. Some volumes would be shifted to the East Coast, though low-water levels in the Panama Canal would limit the extent and increase the cost of such a shift, with congestion and higher prices to the East Coast also likely.

4. Strategies used to dig out from the Covid-driven backlog in 2022 – like off-port storage and new scheduling technology – could reduce the amount of time it would take to recover, relative to the last major labor disruption in 2015.

Ocean rates:

• Asia-US West Coast prices (FBX01 Weekly) increased 1% to $1,324/FEU. This rate is 88% lower than the same time last year.

• Asia-US East Coast prices (FBX03 Weekly) ticked up 1% to $2,351/FEU, and are 84% lower than rates for this week last year.

• Asia-N. Europe prices (FBX11 Weekly) fell 7% to $1,319/FEU, and are 88% lower than rates for this week last year.

Analysis

The latest breakdown in ILWU - PMA negotiations, now focussed on wage levels, resulted late last week in the shutdown of Long Beach’s largest container terminal, TTI, and slowdowns at many terminals in Long Beach, LA, Oakland, Tacoma, Seattle and Hueneme. TTI remained closed through Monday afternoon, and though it was meant to reopen Monday night, closure of other terminals at Long Beach and disruptions elsewhere will reportedly continue Tuesday.

Shipper groups are already urging the White House to intervene, but if operations do not resume soon, the impact of the actions will ultimately depend on how widespread and prolonged they prove to be.

Prolonged action will significantly impact truckers’ ability to both pick up and drop off containers, and cause delays and increased storage fees for export containers and for imports already at container yards or unloaded during a slowdown.

They would also cause delays and congestion in the form of ships waiting to dock – which will tie up capacity and put upward pressure on freight rates – and a possible buildup of containers in container yards, which could in turn slow the speed at which ships will be unloaded and further impact trucking.

So far, there is no build up of waiting ships and transpacific ocean rates were stable last week, though daily prices so far this week are showing signs of increase with the latest rates to the West Coast climbing 9% to $1,441/FEU and East Coast rates increasing 4% to $2,452/FEU. These increases could be responses to the slowdowns and the impact carriers expect potential delays to have on effective capacity levels. East Coast increases may also reflect low-water surcharges for containers using the Panama Canal.

The larger the backlog, the longer it will take to clear and restore normal levels of operations.

The last major industrial actions by the ILWU were taken in early 2015 after negotiations for a new agreement stalled. After two weeks of terminal shutdowns and disruptions at the ports of LA/Long Beach in early January there were 15 ships waiting for a berth, reaching a peak of 30 ships six weeks later.

Once disruptions eased it took a month and half for that number to drop to zero but reportedly took another six months until operations had completely returned to normal.

The last time there were 30 ships waiting in San Pedro Bay was in April of 2022. That number was down from the pandemic-driven record of more than 100 at the start of the year, and – working down many previous months worth of backlog – it took four more months to get to zero. With a backlog of 30 ships in April of 2022, Freightos Baltic Index Asia - US West Coast rates were at about $6,000/FEU, about 4X the norm.

But the fallout may be not as extreme from previous impacts for a few reasons. Back in 2015, the Panama Canal as well as East Coast and Gulf ports were not yet equipped to function as alternatives for the larger container vessels. In response to the severe West Coast congestion and threat of labor disruptions in early 2022, shippers were able to shift volumes over to the East Coast and Gulf port alternatives, though eventually the extent of this move caused record congestion and higher prices to those lanes instead.

This time, however, with East Coast and Gulf ports operating normally and overall volumes down significantly from 2022 levels, some volumes could successfully be diverted to those ports, though – as 2022 showed – a significant enough disruption would likely cause some congestion and higher rates at the alternatives and still leave some backlog at the West Coast ports that normally handle about 40% of the nation’s containers.

Low water levels in the Panama Canal could also limit the volumes that can be diverted and is already putting pressure on rates to the East Coast. FBX Asia - US East Coast rates have already increased 4% or about $150/FEU so far in June as carriers introduce surcharges for containers traveling via the canal.

But the recovery from a significant slowdown could also be shorter than in 2015 due to new Covid-era strategies like off-site overflow yards and improvements in truck scheduling that could help unclog terminals themselves and speed the rate at which waiting ships can be unloaded and cleared.