Strike in the ports on the east coast, work stoppage by the ILA union leads to billions in losses in trade

Billion-dollar trade came to a screeching halt at U.S. East and Gulf Coast ports after members of the International Longshoremen’s Association (ILA) walked off their jobs after 12:01 a.m. ET on Oct. 1. The ILA is North America’s largest longshoremen’s union. About 50,000 of the 85,000 members are making good on their threat and striking at 14 major ports covered by a just-expired framework agreement with the United States Maritime Alliance (USMX), and picketers are beginning to appear at ports. The union and the port owners group were unable to agree on a new contract by midnight in a protracted battle over wage increases and the use of automation.

In a last-ditch attempt on Monday to avert a strike that would cause significant damage to the U.S. economy if it lasted longer – at least hundreds of millions of dollars a day in the largest ports such as New York/New Jersey – the USMX offered one A wage increase of almost 50% over six years was rejected by the ILA, according to a source close to the negotiations. The port owners group said it hoped the offer would lead to a resumption of collective bargaining.

The 14 ports where strike preparations have been made are Boston, New York/New Jersey, Philadelphia, Wilmington, North Carolina, Baltimore, Norfolk, Charleston, Savannah, Jacksonville, Tampa, Miami, New Orleans, Mobile and Houston.

New York Gov. Kathy Hochul said in a statement released shortly after midnight that “the first large-scale longshoremen’s strike in the East in 47 years has begun at ports from Maine to Texas, including at the Port Authority of New York and New Jersey. “In preparation for this.” Right now, New York is working around the clock to ensure our grocery stores and medical facilities have the essential products they need.”

The ILA leadership’s rhetoric was aggressive in the weeks leading up to the strike. ILA President Harold Daggett, who was a member of the union during the union’s last strike in 1977, told rank-and-file members who voted unanimously to authorize a strike – in a recent video message: “We will destroy them.”

In a video posted to an ILA Instagram account, Daggett addressed union workers at Maher Terminals in Elizabeth, New Jersey. “What we do here goes down in history,” he said. “They can’t survive for too long,” he added.

Currently, it is the supply chain and the US economy that will suffer the immediate damage.

Shana Wray, lead solutions architect at supply chain intelligence company FourKites, tells CNBC that the strike comes at the worst possible time as it impacts supply chain congestion and exacerbates the devastation left by Hurricane Helene.

“Helene caused delays in the opening of the ports of Charleston and Savannah as well as power outages at intermodal facilities in Savannah, Charleston and Atlanta,” Wray said. “This resulted in congestion of ocean, truck and rail transportation at Southeast and Gulf ports.”

Logistics experts have told CNBC in recent months that there has been an exodus of cargo from the East Coast to the West Coast and companies have increased their orders for the peak shipping season because of the threat of strikes. Both economists and logistics managers say the impact of the strike depends on how long the work stoppage lasts.

“A disruption of a week or two will create some backlogs, but the widespread impact will be minimal except for some very port-dependent areas, including Savannah,” said Adam Kamins, an economist at Moody’s Analytics. “But anything that takes longer will lead to shortages and increasing price pressure,” he said.

The food and automotive industries would have the biggest problems, Kamins said, because they are particularly dependent on the ports that will be closed. While a rise in inflation is highly unlikely even in a prolonged strike, even a modest rebound could create uncertainty and force the Federal Reserve to be more cautious in cutting interest rates, weighing on the overall outlook for job growth and investment.

A week-long strike could cost the U.S. economy $3.78 billion and cause supply chain slowdowns by mid-November, according to a Conference Board analysis. In total, the ports threatened by strikes handle $3 trillion in U.S. international trade annually.

Many industries are preparing for significant impacts. Noushin Shamsili, CEO and president of Nuco Logistics, which specializes in pharmaceutical imports and exports, said the strike comes at a critical time for inventory replenishment in the pharmaceutical sector.

“Almost the entire industry is on time,” Shamsili said. “Raw materials are supplied to complete drug manufacturing. These ships carry medical supplies for clinics and hospitals. For a while, importers weren’t bringing in much cargo because they were overwhelmed with supplies following the coronavirus crisis. Now they have started reordering medical equipment, gloves, syringes and tubes.”

Shamsili also said that the East Coast ports are a gateway for Indian-made generic drugs. Approximately 48% of active pharmaceutical ingredients used in the United States are imported from India. Without these active ingredients, no medicines can be produced. APIs are also manufactured in Europe, where East Coast ports are also used as US entry points.

Steve Lamar, CEO of the American Apparel and Footwear Association, said these ports are critical to retail. In 2023, East and Gulf Coast ports accounted for 53% of all U.S. imports of apparel, footwear and accessories, valued at over $92 billion.

“The clock is ticking,” Lamar said. “Each day of strike brings five more days of disruption as our consumer-driven economy faces backlogs at ports, especially at the start of the heavy holiday shopping season. Both sides must come back to the table and the administration must be ready to use all its tools to ensure that this happens is the No. 1 task for all parties.”

Importers like Walmart – the No. 1 importer in the affected ports – as well as other top importers including Home DepotIkea, Samsungand LG Electronics will find little or no opportunity to move trade to Canada or the West Coast because other unions support the ILA’s industrial action.

According to data from ImportGenius, these companies are among the top importers in the 14 major ports that would be affected by an ILA strike.

During the ILA’s last strike in 1977, the ILWU union at West Coast ports supported it by allowing ILA members to go to the Port of Los Angeles to stop the unloading of diverted ships. ILA President Daggett, who was involved in these actions as a young union member, cited this historical example in recent communications with the rank and file.

The ILA has also made it clear that all of its members, including those not covered by the expired treaty, will close ranks. “You can be assured that the ILA’s 85,000 members will support their sisters and brothers,” ILU spokesman James McNamara recently told CNBC.

The Teamsters issued a statement Monday night from its president, Sean O’Brien, in which he said they stand “100%” with the ILA in the fight for a new contract and reminded their members that the Teamsters do not picket exceed. “The shipping companies are striking against themselves after failing to negotiate a contract that recognizes the value of these workers,” O’Brien said, adding some harsh words about any federal government effort to interfere in the labor disputes.

The National Retail Federation said items on ships arriving Oct. 1 and traveling afterward will be restocked, items for the holidays, as well as just-in-time products such as auto parts and pharmaceuticals.

Between 43 and 49 percent of all U.S. imports and billions of dollars in monthly trade volume are currently affected by failed talks over a new union contract, which collapsed in June amid allegations from the ILA that ports were violating rules related to the use of ships Automation.

The White House has engaged senior officials since late last week, including Transportation Secretary Pete Buttigieg, acting Labor Secretary Julie Su and National Economic Council Director Lael Brainard, to bring the ILA and USMX back to the negotiating table to negotiate a quick deal.

Late Monday evening, USMX released a statement saying it had exchanged counteroffers with the union in the past 24 hours, including an offer to increase wages by nearly 50% over six years, employer retirement contributions to triple the workforce and strengthen workforce options in healthcare and maintain current contract language around automation and semi-automation.

The union had already said in a statement at 11 a.m. ET on Monday that “the ocean carriers represented by USMX want to make whopping billions in profits in 2024 while offering ILA Longshore workers an unacceptable wage package that we reject.” The statement added that the union believes USMX “intends to trigger a strike at all ports from Maine to Texas in nearly 12 hours.”

The Biden administration finds itself in a delicate political moment with the presidential election just a month away and President Biden has vowed that he will not use existing labor law to force union members to return to work, which is required under the Taft -Hartley Act falls within its powers.

The Taft-Hartley Act, passed in 1947, was a revision of U.S. law governing labor relations and union activity that gave a U.S. president the authority to suspend a strike for an 80-day “cooling off period” if “national health or… “Security” is at risk.

The White House has reiterated its position several times in recent days: “We have never called on Taft-Hartley to break a strike and are not considering doing so now.”

Cruise operations and military operations in ports will continue.