A critical date is fast approaching for the U.S. economy. The master labor contract between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX) is set to expire on September 30th. If an agreement on new terms is not reached, the possibility of a full-scale strike or a slowdown looms large.
To understand the potential economic impact, it’s helpful to revisit past events.
In 2002, a 10-day lockout between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) on the West Coast had a significant impact, costing the U.S. economy over $2 billion per day. This lockout severely disrupted U.S.-Asia trade, prompting a federal judge to issue a temporary restraining order to end the dispute.
The situation in 2015 was somewhat different. That year, unions began slowdowns in November, reducing the number of workers sent to docks. By January and February, employers started cutting evening and weekend shifts, questioning the value of paying extra for work that was already slowing down. According to the paper “West Coast Longshoreman Strike Synopsis—The Bad, the Ugly, and the Uglier” published by The Maritime Law Association of the U.S., the impact was profound:
- Agricultural Exports: 20% of the U.S.’s 2015 fresh fruit and vegetable exports to Asia were delayed by three to four weeks.
- Retail Costs: Retailers incurred an estimated $7 billion in costs and losses due to the slowdowns.
- Meat Industry Losses: The U.S. meat industry reported losing approximately $85 million every week during the delays.
- Export Decline: U.S. exports dropped by 15% in January 2015 compared to the previous year.
- GDP Impact: The U.S. GDP growth in the first quarter of 2015 was a mere 0.6%, with U.S. exports declining by over $11 billion, nearly 6%, between May 2014 and February 2015.
Looking at the current economic landscape, the stakes are even higher.
According to USTradeNumbers.com, in 2023, U.S. trade totaled $2.12 trillion through its seaports, with approximately 72% of that trade flowing through ports that could be affected by the upcoming ILA and USMX dispute.
The National Association of Manufacturers estimates potential losses of $500 million per day if a strike occurs, with a 15-day strike potentially leading to 41,000 job losses in the manufacturing sector alone. These figures do not account for the broader impact on other industries like retail and food.
There are also significant differences between 2015 and today.
In 2015, global trade routes were more accessible, with the Panama and Suez Canals fully efficiently operational. Today, issues in the Red Sea continue with no solution on the horizon. The Panama Canal is fully utilized in the light of some route changes to Panama instead of the Cape of Good Hope. So, global shipping capacity is already strained. An exporter, that would like to ship from the U.S. to Europe, has to take a route through the West Coast, Asia, and the Cape of Good Hope that could lead to untenable costs and delays, which may practically not be possible.
Moreover, the financial position of ocean carriers has drastically changed.
According to Statista, the global container shipping industry’s operating profit from 2010-2020 was $37.5 billion.
However, from 2021-2023, this figure skyrocketed to $316.5 billion. Carriers like Maersk are expecting substantial profits in 2024, with forecasts ranging between $9 and $11 billion in operating profit for the year. So, when we compare where carriers financially stand today versus 2015, it’s also completely opposite.
For those of us directly impacted by this potential dispute, there is little we can do to influence the outcome.
Both sides have their grievances—carriers argue that labor unions are demanding higher pay and restrictions on automation, while unions question why carriers are not sharing their recent windfall profits with their hardworking members. The responsibility now lies with both parties to reach an agreement or find a compromise that avoids disrupting port activities. Otherwise, countless individuals will lose their jobs, and the economy could suffer billions of dollars in losses over the coming weeks and months.
