For the first time since 1977 the International Longshoreman’s Association (ILA), with its 45,000 members, enacted a strike at the three dozen seaports on the U.S. East Coast and Gulf Coasts, threatening to cripple the U.S. international supply chain, just a year after resolution of painful labor disruptions on U.S. west coast ports. The strike began on October 1^st and lasted three full days, ending on October 3^rd, after the ILA and the U.S. Maritime Alliance (USMX), failed to come to a new 6-year contract agreement, based on disagreement of desired pay increases (50% versus a 77% ask) and stout restrictions on the use of technology and automation in port operations. After three days of mounting pressures on both sides, the parties were able to come to a partial agreement, expanding wages by 62% during a new 6-year contract term, and extending the current contract through January 15^th, 2025. The agreement requires that dockworkers go back to work while negotiations continue around the future application of technology and efficiency measures. 

Pay and technology have been familiar sticking points in negotiations over the past two decades but holding back the application of technology in this part our economy, which has become ubiquitous across business sectors globally, represents a significant hurdle. The definition of technology and automation at the ports has been somewhat undefined or ill-defined thus far. While we expected that the pay aspect of negotiations could be worked out, the application of technology at the ports, over time, will take time, significant compromise, and possibly the continued involvement of various stakeholders (labor, ocean carriers, government and public). The advent of a larger super post-Panamax shipping fleet and the cranes to support them requires a certain level of advanced technology to support the efficient and safe flow of goods. US ports rank low in efficiency compared to the largest ports in Asia and Europe where technology and automation are more prevalent.^[1] With rapidly growing trade flows in the region, there are valid reasons to advance efficiencies on East and Gulf Coast ports, beyond labor costs. 

If agreements cannot be made in the coming months, future potential actions stand to disrupt the import of goods at ports that represent about 44% of all containerized imports to North America; in 2023 this was equivalent to 13 million TEUs (twenty-foot equivalent units) or about 6.5 million containers. Imports touch the supply chains for retailers, auto makers and a broad array of manufacturers and parts and equipment suppliers, as well as the agriculture industry. As we learned during the Pandemic, the U.S. economy is beholden to global trade. There are estimates that the strike would affect about $1.3 billion of exports and $3.0 billion of imports daily (LA times/RMS Consulting)^[2]. 

Ocean carriers have proven adaptable to what have become regular disruptive forces. Beginning in 2004 with the U.S. West Coast Ports lockouts, through economic shocks and geopolitical tensions, shippers have been able to diversify trade routes and ports of entry, enabled in part by the Panama Canal expansion in 2014. Goods producers and shippers have enacted resiliency measures, shifting production as needed and diverting trade flows away from port disruptions and/or distressed trade lanes to smooth the flow of goods and materials, at least partially. Beginning in 2018, with broad tariff enactments, what was once a reliable seasonal pattern of U.S. international import containers has been disrupted multiple times. To put scale to recent disruptions, the chart below exhibits container imports into the Ports of Los Angeles and Long Beach (the largest port complex in the nation with a 27% share in 2023).^[3] The seasonal pattern tends to break into four-month periods, high season (ending December), low season (ending April) and summer build-up (ending August).

 

Ports of Los Angeles & Long Beach Import Container Volumes (trailing 4 months)

 

 

Source: Ports of Los Angeles and Long Beach website, container statistics

 

The Ports of Los Angeles and Long Beach were not the only ports to see a bounce back of early season imports in 2024. All of the five largest ports in the U.S. had significant growth year-over-year. Based on this surge of imports through July and August of 2024, we believe that U.S. retailers and businesses who are most sensitive to imported product, anticipated some level of disruption, pulling forward needed products. Recent import volumes have been among the strongest in the past 10 years, nearly matching levels from the records of 2021. Year-to-date volumes were up 22.5% in LA/LB, 13.7% in NY/NJ, 13.6% in Savannah and 8.9% in Houston.^[4] This type of action can continue into the near term at west coast ports if needed until a completed contract is achieved between the ILA and USMX. There remains uncertainty about how long it will take to finalize the new contract. A protracted process would pose a risk in 2025. Only three days of strike in high season reportedly left 100,000 containers waiting to be unloaded at the Ports of New York and New Jersey and at least 35 container ships awaiting port arrival on the East Coast, so things can tie up quickly with work stoppages or slowdowns. As we have learned from west coast disruptions in 2022, even sporadic non-strike disruptions can create multi-week backlogs on the ports.

 

 

Source: Websites for Ports of Los Angeles, Long Beach, New York/New Jersey, Savannah and Houston, container statistics. As of August 2024.

 

At this point it is unknowable how negotiations will progress, but we expect that motivations will run high, so we are reasonably optimistic that the ULA and USMX can create a win-win scenario. In addition to import flows, the overall logistics system and economy need the efficient flow of goods. The U.S. exports about half as many laden containers as it imports, including important perishable food, as well as commodities and materials. The flow of empty containers back to Asia and other manufacturing centers is also an integral component of global logistics efficiency. Shipping containers tend to flow from west to east through the U.S., before heading back abroad. 

With all of these factors weighing on the USMX, ILA, politicians and the public, we believe that ultimately negotiations, as they have in the past, will progress and be resolved, most likely in the new year.

 

Real estate implications:

The potential for a strike has likely benefitted Southern California and the west/mountain west region, although we have not seen it show up in the absorption numbers. We believe that stronger import flows have helped absorb some excess capacity within leased stock. 

East Coast:  As was true in Southern California last year, delayed resolution will likely pressure warehouse occupiers, including third party logistics providers (which had a very tough year in 2023). A softer leasing environment this year might give occupiers an advantage over landlords in the near term. Over the longer term we believe in healthy demand support in the northeast, mid-Atlantic and southeast regions. 

Gulf Coast ports will probably have the most muted impact. Food and Petro-chemical exports will be impaired, but strong local drivers should outweigh this drag.