Threatened port strike could benefit air cargo

The port employers and dockworkers on the U.S. East and Gulf coasts appear deadlocked as they attempt to negotiate a new contract. [caption id="attachment_57145200" align="alignright" width="300"] (Courtesy/Canva)[/caption] The International Longshoremen’s Association (ILA), which represents more than 85,000 dockworkers on the U.S. East and Gulf coasts, has threatened to strike Oct. 1 if a deal is not reached by Sept. 30, when the current contract expires. While a prolonged port strike could hamper U.S. trade, it could benefit air cargo carriers, analysts said. In anticipation of the strike, the East and Gulf coasts have seen a 27% year-over-year increase in vessel volume from July through Sept. 22, according to supply chain visibility platform FourKites . A strike seems increasingly likely as ports operator United States Maritime Alliance Ltd. (USMX) and the ILA air their differences in the media. USMX filed an unfair labor practice charge with the National Labor Relations Board (NLRB) Sept. 26 accusing the ILA of refusing to return to the bargaining table. USMX has requested that the NLRB require the union to resume bargaining. The ILA responded the same day in a statement accusing USMX of unfair labor practices and calling its leadership “poor negotiating partners.” Potential impact of strike on economy Logistics technology and data company Container xChange estimates that the supply chain disruptions from a strike could cost the U.S. economy more than $1 billion each day. There are many ships carrying billions of dollars of cargo heading to the U.S. East and Gulf coasts that cannot turn back at this point, Peter Sand , chief analyst at ocean and airfreight rate analytics platform Xeneta , said in a release. While some could divert to the West Coast, Canada or Mexico, many will likely wait out a strike, Sand said. “The consequences will be severe, not only through congestion at U.S. ports, but importantly these ships will be delayed returning to the Far East for the next voyage,” Sand said. “A strike lasting just one week will impact schedules for ships leaving the Far East on voyages to the U.S. in late December and throughout January.” Shifting from sea to air A shift to air has already begun in low volumes, according to some analysts. Many designer brand companies have already shifted to air despite the higher cost, according to Container xChange. Freight forwarders are beginning to reroute freight to the U.S. West Coast and Mexico to avoid containers being delayed in eastern ports and to look to air, according to Airforwarders Association Executive Director Brandon Fried . “Of course, the higher cost and less capacity prohibit the shifting of all ocean cargo to air, but the certainty of goods avoiding port delays and arriving on time may be worth the price,” Fried told Air Cargo Next . Xeneta Chief Airfreight Officer Niall van de Wouw said that, even if the strike is averted, airfreight will still be affected. “Shippers anticipating the strike are already embargoing shipments to and from these U.S. ports, which results in supply chain disruptions, which then increases the need for airfreight in response,” van de Wouw told Air Cargo Next . Analysts expect modest impact on air However, high airfreight prices may lead some shippers to choose delays over expense. “Capacity in the airfreight market is tight already with all the e-commerce coming over from Asia, as well as what’s going on in the Middle East ,” air cargo and express consultant Cathy Roberson told Air Cargo Next . “I don't see [the strike] really impacting airfreight as significantly.” Roberson said there will always be people “willing to pay a pretty steep price to move something by air in or out of the impacted areas” but she believes most shippers have brought in enough inventory already to see them through a potential strike. “I don't see the strike going for a significantly long period of time, if anything,” Roberson said. “What will happen first would be that shift from the East and Gulf Coast ports to the West Coast. Then you'll see airfreight coming in.” While October leads into the Black Friday and Christmas peak periods, October itself is not a peak period. “Traders tell us a strike would need to last a week before it impacts air cargo,” Neil Wilson , airfreight price reporting agency TAC Index editor, told Air Cargo Next . “The other thing they say to bear in mind is that when the Golden Week holiday in China starts in the first couple of weeks in October, factories there close down, and only start to spool up again around Week 3 and [are] not back into full production until Week 4 of October. So, this should offer a little buffer before demand rises again.” Shift to air won’t be smooth sailing A shift from sea to air will likely cause congestion and delays, analysts said. “The market has been quite strong all summer, with the global [Baltic Air Freight Index] up 9.4% YoY to Sept. 23,” Wilson said. “The outbound Hong Kong index is up a lot more at 18.7% YoY, outbound Shanghai up 21.3% YoY, and rates out of other places in Asia such as Vietnam, Thailand and India all up a lot more than that. “With a lot of forward capacity through block space agreements already sold for the peak season period, and some big orders for goods like mobile phones and solar panels known to be coming through, sources have been expecting a strong peak season spike this year," he said. The air cargo market is already facing high demand and pre-purchased capacity, which means “importers could start moving to air even earlier to avoid fiercer competition for space,” Judah Levine , head of research at Freightos , told Air Cargo Next . “The surge of B2C e-commerce volumes out of China to the U.S. has kept air cargo capacity tight and rates elevated for much of the year,” Levine said. “The Freightos Air Index rates for China-North America were at $5.43/kg last week and have been in the $5-$6 range for most of the year. These rate levels are typically reserved for air cargo’s peak season months of November/December, but this year volume and rates have been at peak season levels straight through the typical slow season months. “So, transatlantic importers shifting from ocean to air due to the strike will likely face difficulty securing space and could face rate increases beyond the already elevated starting point," he said.

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