West Coast Labor Standoff Continues
On June 2, 2023, a sudden absence of dockworkers led to disruptions in several West Coast ports’ operations. The dockworkers’ absence has caused significant interruptions in the movement of goods, affecting various sectors of the economy. This incident is a part of the ongoing International Longshore and Warehouse Union (ILWU) – Pacific Maritime Association (PMA) labor negotiations, which commenced in May 2022. The negotiations primarily focus on wages and working conditions and aim for an agreement that would produce a new contract, with the previous one having expired in 2022. This dispute has resulted in the longest labor-related disruptions at the West Coast ports since 2015.
The dispute is centered around the division of carriers’ pandemic-era profits in a market that has returned to rock-bottom freight rates.
In light of these disruptions, the National Retail Federation, a leading retail trade association, has called for the Biden Administration’s intervention in the labor negotiations. This call was made due to concerns about the potential impact on the upcoming holiday season and the broader economy. These ports are critical nodes in the global supply chain, and their efficient operation is essential for the smooth flow of goods.
In addition to the National Retail Federation, the National Association of Manufacturers has also called on the White House to intervene in the labor dispute. They have expressed concerns about the potential economic loss and endangerment of thousands of manufacturing jobs if a temporary shutdown occurs at the West Coast’s busiest ports. The White House has stated that it closely monitors the situation and encourages all parties to work towards a fair contract.
If the dispute continues, it could have far-reaching consequences. One potential outcome is the diversion of trade from the West Coast ports. To avoid disruptions, businesses may start rerouting their goods through other ports or even opt for different modes of transportation. This could lead to decreased traffic at the West Coast ports and an increase at alternative ports. Over time, this could shift trade patterns and potentially impact the economic viability of the West Coast ports. It’s this potential long-term impact that underscores the urgency for a resolution to the dispute.
West Coast Labor Disputes Extend to Canada
The ongoing labor negotiations that have been causing disruptions at ports along the U.S. West Coast are now resonating in Canada. The International Longshore and Warehouse Union (ILWU) Canada, which represents over 7,000 members working at various ports in British Columbia, including Vancouver and Prince Rupert, is considering a strike. The decision will be made through a vote scheduled for June 9 and 10, 2023.
The crux of the dispute in Canada revolves around several issues. The union members have been operating without a contract since July 2022, and the negotiations with the employers over a new contract have reached a stalemate. After the union declared a dispute in March due to insufficient progress in the talks, a federally mandated conciliation process was initiated. Currently, both parties are in a period of temporary truce that lasts until June 21, which means the earliest possible date for a strike would be June 24.
The potential for a strike poses a significant threat to the operations at these Canadian ports, which serve as crucial links in the global supply chain. A strike could result in business delays and increased costs, disrupting the seamless flow of goods. Given the potential impact on the global supply chain, businesses, and trade associations are keeping a close eye on the situation.
The labor dispute in Canada is a matter of concern not only for Canadian importers and shippers but also for U.S. businesses. A significant portion of the container imports at these ports are intermodal volumes destined for the U.S., particularly the Midwest. This marks the first instance of contract negotiations posing a threat of disruption on both sides of the Canada-U.S. border.
“Revitalizing Rail Infrastructure: A Strategic Move for U.S. Trade”
The current U.S. administration has pledged over $570 million to the Railroad Crossing Elimination (RCE) Grant Program, which is managed by the Federal Railroad Administration (FRA). This funding, announced in early June, is set to support 63 rail infrastructure projects across 32 states, with a focus on reducing train-vehicle collisions and rail crossing blockages.
This development is expected to streamline supply chains by reducing delays and improving the efficiency of goods transportation across the country. The FRA has also allocated additional funds for future project development and design activities, indicating a sustained commitment to rail safety and passenger rail network expansion. This strategic investment in infrastructure is expected to strengthen the U.S. trade landscape in the coming years.
“East Coast Terminal Operations Affected by Wildfire Smoke”
The Port Elizabeth container terminal in New York had to temporarily halt operations on June 7 due to a significant drop in air quality caused by wildfires in Canada. Canada is struggling with more than 400 active fires, and more than 200 of them are out of control. Managed by APM Terminals, the terminal was impacted by smoke from numerous wildfires in Canada, which was carried across the East Coast by prevailing weather patterns. Normal operation was scheduled to resume on June 8.
“U.S. Container Imports: Echoing 2019 Levels Amid Challenges”
U.S. container import volumes are maintaining a steady pace, aligning closely with the levels seen in 2019. This pattern is largely supported by imports from China, Vietnam, and other South and Southeast Asian countries. However, the global supply chain is grappling with increasing disruptions, including extended port transit times and labor disputes within the International Longshore and Warehouse Union (ILWU).
For importers and exporters, these developments are of significant importance. The Port of Los Angeles reported the largest overall increase in container volume compared to the previous month, while the Port of Tacoma saw the highest percentage increase. Chinese imports, despite being 22.2% lower than the peak in August 2022, showed a month-over-month increase of 5.1% in May, representing 37.2% of total U.S. container imports. These trends highlight the need for businesses to stay adaptable in the face of evolving supply chain dynamics and potential disruptions.
“Air Cargo Rates Dip Amid Surplus Capacity and Sluggish Demand”
In the midst of 2023, the air cargo sector is grappling with a significant downturn. Rates for air cargo originating from Asia have plunged to a three-year low, largely due to an influx of summer capacity in the market. This surge in capacity, coupled with a lackluster demand that isn’t expected to rebound until the year’s end, has led to a challenging situation. The return of belly capacity, the cargo space in passenger aircraft, has further complicated matters as passenger flights resume for the summer season.
For those in the import and export business, this scenario presents a complex landscape. The oversupply of belly space, especially during the summer, is anticipated to drive cargo rates even lower. This is a result of the seasonal uptick in passenger travel, which leads to an excess supply of cargo space, while freight networks are simultaneously reaching a low point due to inventory destocking. As a result, the market is expected to be oversupplied with belly space, leading to a trough in cargo rates in the coming months. However, this slack capacity is predicted to persist into 2024, indicating that the pressure on rates will likely continue to be a theme for the remainder of 2023. This could potentially impact the profitability of importers and exporters, as well as their ability to plan for future operations.