Commentary

By Lars Jensen

If resilience means never risking a bottleneck due to labor action , that ’ s highly unlikely .

It could be said that global shipping dodged a bullet with the brief , three-day strike on the US East and Gulf coasts .

However , it should be noted that the operational ripple effects will be felt until mid-November , and the possibility of a new strike on Jan . 15 could create a market impact from mid-November until the end of the year . And it also raises questions as to whether we should be concerned about the resilience of the supply chain linking the US to the rest of the world .

First , the ripple effects from the short strike . The roughly 60 vessels that had to drop anchor and wait for ports to reopen will suffer a delay of at least three days . More vessels will suffer delays as the ports are unable to handle the backlog instantaneously . Consequently , those vessels will arrive back at origin in Europe , Asia and Latin America with a delay , in turn causing a drop in export capacity in those regions with a time delay equal to the usual transit time for cargo coming from the US .

The shortest impact will be in Europe and the northern reaches of Latin America where this delay will be felt within two weeks , and the time delay will be longest to Asia , where the effect will not be felt until mid-November .

The next issue would be a possible strike in mid-January . Chinese New Year is on Jan . 29 . Usual seasonality would see significant volumes loaded from China to the US from the end of December and during January .

If shippers are concerned about abother strike , we might expect to see a shift of some discretionary cargo away from the East Coast and over to the West Coast during this seasonal peak , as well as potentially earlier shipment of cargo than usual . This could place some pressure on the trans-Pacific trade from early December , particularly the Asia – US West Coast trade in January .

This issue can be avoided , of course , if the International Longshoremen ’ s Association ( ILA ) and United States Maritime Alliance ( USMX ) reach final agreement on a new master contract within the next month and a half .

But the broader question then arises : Is the supply chain to and from the US sufficiently resilient ? Not only did we have to manage the pandemic ripple effects , but 2024 alone has had its own share of issues with the Red Sea crisis , a strong early peak season causing a surge in spot rates , the last-minute cancellation of a rail strike in Canada and now the three-day strike at US East and Gulf coast ports .

If by resilience we mean that the supply chain always has ample capacity no matter which problems arise , then the supply chain is not 100 % resilient and it would be unrealistic to expect this to ever be the case , a practical example being the Red Sea crisis .

Global supply chain stakeholders were lucky that the crisis erupted at a time when the carriers had created a substantial overcapacity of vessels . This allowed for vessels to divert around southern Africa without major issues .

But had the carriers not over-ordered on vessels , 2024 would have looked very different as it would have been physically impossible to handle the full global trade volumes while having to divert around Africa .

How about resilience in the face of potential strike actions ? We have seen this issue multiple times in the past as well . We had the go-slow actions on the US West Coast in 2015 that led to an unprecedented pileup of vessels outside Los Angeles and Long Beach — only later superseded by the pandemic problems . We had the 10-day closure of West Coast ports in 2002 .

Labor action in different countries around the world is basically part of the normal way the market operates . This year has also seen port strikes in various places in Europe , as well as Australia .

If resilience means never having to risk a bottleneck due to labor action , that has clearly never been the case — and likely never will be the case . Market participants yearning for a market where adverse events never lead to major supply chain hiccups are essentially asking for a reality that has never existed .

Carriers over-ordered vessels based on their profits in 2021 – 22 , leading to significant overcapacity that caused freight rates to drop to loss-making levels for carriers in late 2023 . This was a clear illustration that there is not a willingness to pay for having resilience in the form of having excess capacity in case of a major disruption . In turn , this means that when such capacity is needed , it is expensive to tap into .

The baseline expectation for the market in the future should be that the major swings we have seen since 2020 are not necessarily unusual events . We might very well be looking at a future where we will see more of these large swings between overcapacity and loss-making carriers interspersed with capacity crunches and very high freight rates whenever the market is hit by external disruptive events .

email : lars . jensen @ vespucci-maritime . com

54 Journal of Commerce | October 21 , 2024 www . joc . com