The strike that could disrupt trade

There is a silent crisis looming over the US East Coast. Two of the largest labor unions representing dockworkers have threatened to strike if they fail to renegotiate their contracts in October. If the strikes were to take place, they would heavily disrupt imports to the US for weeks if not months until all parties can reach an agreement.

There are three players in this story. First, the two labor unions in question: the United States Maritime Alliance (USMX) and the International Longshoremen’s Association (ILA), both of which have reached impasses in negotiation wage increases. Second is the US Maritime Alliance, an association representing the majority of containerized ships across the East Coast and the Gulf of Mexico. Since 1977, when a 44-day strike paralyzed the East Coast, both parties have been able to negotiate a number of six agreements for thousands of workers with systematic wage increases. 

Yet this time, negotiations have taken a hostile tone. As early as November of last year, the ILA, which currently represents 70,000 workers across the East Coast, threatened to call on a coast-wide strike if needed to secure wage increases. This came after months of negotiations failed to reach an agreement between ports and unions. ILA’s president, Harold Dagget, has been an active proponent of the strikes, asking union members to join picket lines by October of this year if needed.

The motivation behind such demands is likely bolstered by growing shipping costs across the world caused by trade disruptions in the Suez Canal and an ongoing drought in the Panama canal. In a matter of months, the average cost of shipping a 40ft container went from $1,521 in mid December to $3,659 in mid February. Not to mention that 17 of the 25 largest container ports in the US are found along the East Coast, representing a large share of all trade to the country.

A line graph depicting the World Container Index from Drewry for the cost of transporting a 40ft shipping container.

We can understand the complications of current negotiations by looking at historic tendencies. In the past two master contracts in 2012 and 2018, the ILA secured meaningful wage increases of 34% and 38% respectively. In both cases, this implied increasing the hourly wages of portworkers by a dollar each year—although the 2012 agreement began such increases in 2014. Currently, a port worker earning the straight-time basic wage rate agreed upon by both parties would earn $39 per hour. If the ILA wishes to maintain its yearly increase in hourly wages of $1, it would have the average worker earn $45 by 2030—a 44% increase. Considering a total labor force of 70,000 workers, this would require an investment of $420,000 over six years—a larger number than in the previous two contracts. All of this without considering additional bonuses and benefits.

The protests themselves hold a double significance for the US and the world of supply chain logistics. First, if a strike were to be called, it would do so a month before the US presidential election in November, likely becoming a key point of tension between the candidates. Second, the threat of a strike could deter shipping companies from using East Coast ports and instead re-route to more reliable West Coast alternatives. If a strike does occur, it will happen with advanced warnings and the possibility of scarring shippers away from dozens of ports.

There are still six months until the current master contracts contract with the US Maritime Alliance are set to expire. Until then, the threat remains of large disruptions if a new contract isn’t reached.