Impact of Port Strike Surcharges on the US East and Gulf Coasts

As port strike surcharges loom, the shipping industry braces for significant disruptions and rate hikes along the US East and Gulf coasts.

The Genesis of Port Strike Surcharges

As the possibility of strike action at ports on the US east and Gulf coasts becomes increasingly likely, container shipping lines serving these regions have started to announce disruption surcharges. The surcharges are a preemptive measure to mitigate the financial impact of any potential work stoppage.

MSC was among the first to notify its customers of a $1,000 per 20ft and $1,500 per 40ft Emergency Operations Surcharge (EOS) effective from 1 October. This was followed by CMA CGM's announcement of local port charges for import and export shipments beginning from 11 October. Hapag-Lloyd also introduced a Work Disruption Surcharge of $1,000 per teu from 18 October. These surcharges comply with US Federal Maritime Regulations, which mandate a 30-day notice period before implementation.

Financial Implications for Importers and Exporters

The new surcharges are set to significantly impact both importers and exporters operating through the US east and Gulf coasts. Importers will face higher costs as the surcharges will be passed down the supply chain, affecting the prices of goods in the US market. For exporters, particularly in the automotive and agricultural sectors, the surcharges will add to their operational costs, potentially making their products less competitive globally.

The added financial burden comes at a time when many businesses are already struggling with post-pandemic recovery and rising inflation. The surcharges could lead to higher prices for consumers and reduced profit margins for businesses involved in international trade.

The Domino Effect on Global Supply Chains

The potential strike and the resulting port blockages could have a far-reaching impact on global supply chains. Vespucci Maritime's CEO Lars Jensen highlighted that the full effect of a port blockage might not be felt for weeks. Vessels stuck at US ports could cause delays in Asia, particularly affecting the pre-Chinese New Year rush.

The disruption in the US could lead to a ripple effect, causing delays and increased costs across global supply chains. This situation could exacerbate the already strained logistics networks, leading to further delays and higher costs for shippers worldwide.

Lessons Learned from Past Disruptions

The pandemic and other recent disruptions have taught carriers valuable lessons about pricing and managing capacity shortages. During the pandemic, carriers learned that they could raise rates higher and faster in a market with limited capacity. This knowledge was applied during the Red Sea crisis and will likely be utilized again if a strike occurs on the US east coast.

Carriers have realized that they do not have to price on a cost-plus basis; instead, they can leverage the scarcity of capacity to implement significant rate hikes. This approach helps them manage financial risks but also leads to higher shipping costs for customers.

Preparing for Future Uncertainties in the Shipping Industry

The looming port strike and the resulting surcharges highlight the need for businesses to prepare for future uncertainties in the shipping industry. Companies need to develop robust contingency plans to mitigate the impact of such disruptions. This includes diversifying supply chains, exploring alternative transport routes, and maintaining adequate inventory levels to weather potential delays.

Investing in technology and visibility platforms can also help businesses better manage their supply chains and respond more quickly to disruptions. As the industry continues to face challenges, proactive planning and adaptability will be key to maintaining resilience and competitiveness.