US east coast port strike would be a 'spot rate lifeline' for ocean carriers

Photo: ILA

With each week that passes, the risk of a US east and Gulf coast dock strike is heightened; but ILA president Harold Daggett’s pledge that his union members will “hit the streets” on 1 October could be a silver lining for ocean carriers.

Carriers privately admit that supply chain disruption from that strike could be the antidote to a rates collapse in the final quarter of the year.

Container spot rates from Asia to the US east coast have settled at around $9,000 per 40ft, and from Asia to the US west coast around $6,000 per 40ft – some 150% and 170% higher than a year ago, respectively, so there is a long way to fall if demand weakens significantly.

Indeed, a carrier contact told The Loadstar recently that just the threat of a US east coast port strike had been the main driver of the recent rate surge on the transpacific, and an actual “full-blown strike” would “see us through the winter”.

Publicly, of course, carriers will say that they will do all they can to adjust their networks to mitigate the impact of potential industrial action – however, the uncertainty will underpin pricing.

An early peak season caused by nervous shippers front-loading holiday season products has left carriers exposed to the reality of overcapacity on the major tradelanes, despite the continued Red Sea disruption.

Some 3.2m teu of newbuild capacity will have been added to the fleet this year, on top of the 2.5m teu added in 2023. All of this has, until now, been soaked up by the front-loading demand rush and the knock-on effect of port congestion and subsequent container pool rollings.

Even allowing for the extra tonnage required to re-route ships around the Cape of Good Hope, most analysts were predicting a serious overcapacity situation to emerge earlier this year, given the sheer numbers of new ships hitting the water. However, as a result of an earlier-than-usual peak season, the issue now seems likely to impact carriers in the final quarter and into the first three months of 2025 – at the very time that there is a seismic change in the alliance make-up.

And it follows that weak demand is not the ideal time for carriers to test the loyalty of shippers who have seen short- and long-term contracts abused by the lines cashing in on the lucrative spot market.

Meanwhile, the same carrier contact told The Loadstar they had been “astounded” by the strength of demand in June and July on both the transpacific and Asia-Europe trades, and that it was “like the Covid period all over again”.

The fear now is that the early peak season may make the forthcoming traditional slack season weaker than normal, with the obvious consequences for freight rates.

Nevertheless, privately, carriers may be encouraged by the words of Mr Daggett, who stated: “We will not entertain any discussions about extending the current contract, nor are we interested in any help from outside agencies to interfere in our negotiations.”