US East and Gulf Coast Port Strike Causes Major Supply Chain Disruptions

As the port strike along the US East and Gulf Coasts enters its third day, container supply chain analysts are beginning to assess the growing disruptions to global logistics networks. This industrial action is expected to have wide-reaching implications, not only for the US domestic market but for global shipping, potentially creating significant delays and cost increases that could affect supply chains far beyond the immediate region.

Mounting Vessel Congestion: A Looming Problem

Sea-Intelligence Consulting, a leading analyst of global container shipping trends, has released data estimating the potential extent of congestion caused by the strike. According to the firm's CEO, Alan Murphy, the first week of the strike could see around 60 vessels, carrying a combined 775,000 TEU (twenty-foot equivalent unit), held up at anchorage as they await berthing opportunities on the US East and Gulf Coasts.

"The first week is where the impact will be most acute," said Murphy. "Due to the vessels already in transit to the affected ports and those arriving from international origins, the bottleneck will cause an immediate spike in delayed capacity. After this, the subsequent three weeks will see a more incremental rise in congestion as only 'new' arrivals are counted."

Murphy added that should the industrial action continue into the remainder of October, the effects would be felt globally, with significant consequences for international trade and shipping routes.

"If this strike lasts four weeks, it could tie up nearly 7% of the global container fleet along the US East Coast alone. This would create a profound imbalance in the global supply and demand equation," Murphy explained.

Broader Impact on Global Shipping Capacity

Sea-Intelligence's research suggests that during the strike, a total of 331 deep-sea container vessels are scheduled to make 981 distinct port calls across 20 East Coast ports in the US and Canada. These vessels are spread across 68 different deep-sea liner services, of which 62 are directly impacted by the strike on US soil. These services carry goods across some of the most critical global trade lanes, including the Asia-US corridor, which is a lifeline for many industries, especially during the lead-up to the holiday season.

When factoring out the Canadian port services, Sea-Intelligence concluded that over 400,000 TEU of capacity could be delayed for each additional week the strike continues. If the strike were to last the entire month of October, it could immobilize up to 2.22 million TEU of container shipping capacity, effectively removing 7.2% of the global container fleet from active service.

This reduction in capacity would not only impact US importers and exporters but would reverberate throughout global supply chains, particularly for goods traveling between Asia and North America, as well as Europe. The longer vessels remain tied up at US East Coast ports, the greater the strain on global shipping networks.

Freight Rates Set to Spike Dramatically

The knock-on effect of this capacity loss is already being modeled by Sea-Intelligence and other industry analysts. Based on pricing models developed during the pandemic and the Red Sea crisis periods, a clear correlation has been established between the loss of global fleet capacity and spot freight rates. Sea-Intelligence reported a 90% correlation between capacity loss and rate hikes during previous disruptions, which serves as a reliable indicator of what might happen now.

For every percentage point of global fleet capacity lost, spot rates have historically risen by approximately $993 per 40-foot container on Asia-to-US East Coast routes and $805 on Asia-to-US West Coast routes. If this trend holds, the first week of the strike could result in a $2,000 per 40-foot container increase in spot rates for shipments to the West Coast and $2,500 for shipments to the East Coast.

Murphy explained that the incremental losses of capacity in the following weeks would likely drive rates higher, with each subsequent week seeing an additional $1,100 per TEU (twenty-foot equivalent unit) increase on Asia-US West Coast routes and $1,400 per TEU increase on Asia-US East Coast routes.

The potential for these price spikes is alarming for many businesses, particularly those in retail, manufacturing, and consumer goods industries that rely heavily on just-in-time supply chains. A prolonged strike could lead to skyrocketing transportation costs, forcing some companies to either absorb the higher rates or pass them along to consumers, which would likely cause price inflation on various imported goods.

Force Majeure and Contract Implications

As the strike grinds on, legal provisions such as force majeure are being enacted by shipping lines to shield themselves from penalties associated with delays and non-performance. Carriers such as ONE, CMA CGM, and APL have already invoked force majeure clauses, citing the unforeseen and uncontrollable nature of the strike as justification for not meeting their contractual obligations.

Force majeure clauses typically excuse a party from fulfilling contract terms when events outside their control, such as natural disasters, wars, or strikes, prevent them from doing so. According to Matthew Gore, a partner at the law firm HFW, this legal mechanism is likely to be invoked frequently during the current strike.

"Force majeure can excuse a carrier from performance if it is prevented from fulfilling its obligations due to a strike," said Gore. "The key question will be the specific language of the contracts between shippers, carriers, and other stakeholders. If strikes or labor disputes are explicitly listed as qualifying events, carriers can invoke force majeure to avoid penalties."

This legal maneuver, while protecting carriers, leaves shippers in a difficult position. Many shippers will be forced to absorb the additional costs associated with delays, such as storage fees, rerouting charges, and increased freight rates. James Hookham, director of the Global Shippers Forum, acknowledged the challenges facing shippers during this time.

"The cargo that's already on the water will just have to wait it out," said Hookham. "Most shipping contracts have clauses that allow carriers to suspend carriage or even reroute goods to alternative ports, but with the scope of this strike, there aren't many viable options."

Hookham added that the situation is likely to become more expensive for shippers as carriers impose surcharges to offset the costs of delays. "Carriers and refunds are two words rarely seen in the same sentence in the container shipping industry. Shippers will likely bear the brunt of these additional costs."

The Timing Could Not Be Worse

With the fourth quarter holiday season just around the corner, the timing of this strike could not be worse for retailers and manufacturers. Many businesses rely on the months leading up to the holidays to receive critical inventory, and any significant delay could result in stock shortages, missed sales opportunities, and disappointed customers.

While force majeure provisions may offer shippers some legal protection if they are unable to meet minimum volume commitments, these clauses offer little solace in the face of lost business. And as Hookham noted, the decision to declare force majeure lies solely with the carrier, not the shipper.

"If a shipper disagrees with a carrier's force majeure declaration, their only recourse is to challenge the decision in court, and that could take years to resolve," said Hookham.

The long-term effects of the strike will depend largely on how quickly a resolution is reached. Until then, shippers and carriers alike must navigate the increasingly complex and costly logistics landscape caused by the ongoing port closures.

Global Supply Chains Brace for Extended Disruptions

As the strike continues, the consequences for global supply chains will only grow more severe. The congestion at US East Coast ports is already causing ripple effects across global shipping networks, with delayed vessels disrupting schedules and reducing the available capacity for new shipments.

With no immediate resolution in sight, businesses around the world must prepare for the possibility of extended delays, higher costs, and an increasingly uncertain supply chain environment. For many, the strike is yet another challenge in what has already been a tumultuous year for global logistics.