Shortages mere days away as ports strike cripples shipping

A port strike from Maine to Texas that began Tuesday could lead to surcharges and inflation. The ripple effect raises concerns for many.

“All of us in the warehousing portion of the business,” said Gary Goldfarb, chief strategy officer of Miami-based Interport Logistics, “have customers’ inventories that may last three, four, five, six days without additional freight, but then afterwards you’re going to start having shortages. Not only us, the cruise lines are going to have shortages, and all the Caribbean is going to have shortages because they feed themselves from us. You’re impacting 33 countries.”

“Mexico may be a way to bring freight in through ports of Mexico and then truck it or rail it to Laredo,” he said, “but … that’s a long way. Canada longshoremen have already gone on strike, so Canada is not an outlet either. If it lasts more than three to four days, there’s going to be some serious disruptions to the economy, and inflation is going to go wild.”

The East Coast and Gulf of Mexico work stoppage strike impacts ports from Maine to Texas. The International Longshoremen’s Association (ILA) and the United States Maritime Alliance’s (USMX) unresolved negotiations on a new master contract led to the potential strike threatened this week as the six-year contract expired at midnight on Sept. 30.

“I can tell you that we just have a few things to finalize in Miami,” said Jorge Rovirosa, president of Miami-based Farovi Shipping Corp. and Florida Stevedoring, speaking before the strike call was final, “but we’re pretty much ready to go as well as in Port Everglades. I mean, there are some minor outstanding issues, but what’s holding things up is the wage scale, and what the ILA has demanded of USMX is a 70% wage increase over six years.”

“We have a six-year contract,” he said, “and we’ve been working under six-year contracts for quite a while now, and we’ve always seemed to work things out way before the end of the contract. This particular time, it has not been, I guess, so easy, and they have demanded a 70% increase over the six years.”

However, preparations in anticipation took place.

Mr. Goldfarb shared before the strike began that Interport Logistics has an operation in Los Angeles in order to be bicoastal and not permit a stoppage to freeze it. “We’ve moved a lot of our freight that would otherwise come to Miami to Los Angeles, and we’re trucking it across or railing across.” However, this is not possible with the ships that are already loaded.

There are many ships that have been loaded, he said, and will arrive past Oct. 1. A ship is “almost like a cooperative where all of the depositors of that particular ship are responsible for what happens to the ship. God forbid you have a loss, everybody shares the loss. If you have a delay, everybody shares a delay, therefore the surcharges. The surcharges are over $1,000 per container, per ship.”

The lack of dock space on the West Coast has raised concerns.

The fact is that this country has been living under high inflation, said Mr. Rovirosa, and the work stoppage will just add on to it.  To get this train going again, “it takes a huge effort in terms of catching up.”

The more cargo waiting to come in, the longer it’s going to take to handle through these ports, Mr. Rovirosa said, “and my understanding is that on the West Coast, they are chock-a-block. In other words, they’re to the max right now. So to think that this stuff can come in through the West Coast, I don’t know how, with the lack of space and to handle additional cargo through the US West Coast.”

Mr. Goldfarb said some of his customers are bringing in goods by air freight to avoid the strike. The cost of air freight, compared to ocean freight, is 10 to one, he said. “It’s $10 in freight versus $1 in freight of any kind of magnitude. Imagine you’re going to bring something that normally comes by ocean freight, and it’s going to be 2, 3, 4 times more expensive, and it becomes a real problem.”

The use of the Taft-Hartley Act of 1947 could also impact the conversation.

“This administration doesn’t want to get into it,” said Mr. Goldfarb. “We have Taft-Hartley Act, which means that the federal government can compel the unions back to work while they negotiate, but this administration doesn’t seem to me like they’re going to get involved, simply because they want the union vote. But it’s a real problem for the rest of the economy, and somebody has to worry about the rest of the economy. Something has to give.”

The possibility to grow exports would also be impacted by the strike.

The value of the dollar compared with other currencies is down, and has been for the last month or so, said Mr. Goldfarb. This means exports are up, “because our products become cheaper. We have had a deficit in exports for a long time, and it would have been nice to enjoy the fact that our products are less expensive, therefore we start getting back into the export business and growing the exports. But if we have a strike, we can’t grow the exports, because we can’t ship the stuff out, and that’s important for Miami, very important for Miami, because Miami has forever been an export port.”

Cruise passenger vessels are expected to be taken care of.

“The good news is that the International Longshoremen Association,” said Mr. Rovirosa, “they have come out publicly – and I’m glad they did – that they will maintain their pledge to handle cruise passenger vessels, irrespective of what else is going on the cargo side, which is a great use, because that industry took it on the chin and came close to a precipice fall … with covid, that industry was totally shut down, and it hurt quite a bit…. And, of course, they will also continue [to] work military cargo, anything like that they will continue to work.”

Mr. Goldfarb explained the circumstance that before covid shipping lines were having a difficult time making a profit. As a result, the longshoremen were kept “sort of down without a raise for a while. The longshoremen make a lot of money anyway. I mean, a longshoreman makes over $100,000 a year.”

“During covid,” he said, “a lot of them had a difficult time, but the steamship companies started to make a substantial amount of money and report $600 million profit, a billion-dollar profit, report very gleefully, and nobody focused on the fact that they were showing the union that now the steamship companies were making a substantial amount of money, so they threatened a West Coast strike.”

The West Coast carriers made a deal at the last minute and averted a strike, said Mr. Goldfarb. However, the East Coast and Gulf longshoremen decided that the program the West Coast longshoremen had agreed to “wasn’t good enough, so they’re trying to strike here in all of the East Coast and the Gulf Coast – there’s almost no escape points – to demand more wages and no automation.”

“We pretty much came up with what the West Coast ILA got,” said Mr. Rovirosa, “which was 30% over their contract. The other thing that they’re demanding, of course, is guarantees. They don’t want any automation. They feel that it will eliminate jobs. Those things need to be negotiated.”