The Far-reaching Dockworker Strike​

By John D. McCown

Editor’s Note: This article was written and scheduled for publication prior to the announcement last night that ILA and USMX had reached an agreement to extend the current master contract and continue negotiations through January 15^th, 2025 based on a tentative wage agreement.

This article is published here in its original form to provide the reader with important insight into and context for the now-suspended strike an ongoing negotiations.

“If we have to be out here a month or two months, this world will collapse.”  That is what Harold Daggett, President of the International Longshoremen’s Association (ILA) said in an interview Tuesday morning, the initial day of the first ILA strike in 47 years. While his statement contained a fair amount of hyperbole, Daggett is most certainly correct that the economic impact would be devastating if the strike covering all East and Gulf Coast ports were to extend a month or more. The impact would be felt not just in the United States—the ramifications would spread throughout the world.

The trade landscape in the United States has changed since 1977 when the ILA last went on strike. Then, total trade represented 16.42 percent of U.S. Gross Domestic Product (GDP) while the latest annual figures place the proportion at 27.36 percent. The role of container shipping as an integral part of U.S. supply chains has grown even by an even greater amount. It is hard to think of a product in the United States that is not in some way connected to or derived in part from cargo that arrives in this country in containers.

In 2023, the 24,531,437 twenty-foot equivalent units (TEU) of total inbound volume with cargo worth $54,493 per TEU on average had a total value of $1,336 billion. To put just those inbound container loads into perspective, they were 21.6 percent of the $6,193 billion goods portion of U.S. GDP. In addition, the 11,294,403 TEUs of total outbound loads equate to another $615 billion in value. All of these box movements are invariably linked to American jobs and together they represent $2 trillion in annual commerce linked to almost one-third the tangible goods part of the U.S. economy.

The East/Gulf Coast ports affected by the ILA strike represent 59.7 percent of the total loaded container volume that moved over American ports. While the top 10 ports—evenly split between West Coast and East/Gulf Coast ports—handled 86 percent of that volume, there are some 30 smaller U.S. ports that have regular scheduled container service. With few exceptions, all of those smaller ports are on the East and Gulf Coasts. The ILA represents dockworkers at all of those ports. ILA dockworkers earn an estimated average annual total of $155,005, significantly less than the $218,000 average reported by their West Coast counterparts, who are represented by a separate union which renegotiated its own new six-year contract in 2023 and is not party to the current strike.

The actual financial results of the container shipping industry over the recent past bring to mind Charles Dickens’ line: “It was the best of times, it was the worst of time”. Container shipping has gone from being the worst-performing industry based on net income-to-revenue margins before the COVID-19 pandemic to being one of the best when net annual losses were replaced by multi-hundred-billion-dollar windfalls in 2021 and 2022. After a regression towards the norm in 2023—the industry’s 1.2 percent loss in Q4 2023 is almost identical to pre-pandemic negative profits—industry profits are rising once again due to the situation in the Red Sea forcing longer voyage times around Africa that reduced overall global shipping capacity by eight percent.

The two sides of the strike differ on wages, but also other key issues. The ILA has reportedly been offered a 50 percent raise over the contract life but is asking for a 77 percent increase. A key issue for the ILA is concern regarding automation that would reduce jobs. From industry’s perspective, port owners have realized significant benefits from upgrading terminals in Asia and Europe to reduce costs by using digital automation and remote vehicles. The ILA wants strengthened language to preclude that while the carriers see a widening gap between labor costs at U.S. terminals versus terminals worldwide.

The average terminal labor cost in the U.S. for a loaded container was $305 per TEU in 2023.[1] That amount is equal to 22.7 percent of the average revenue per TEU of $1,346 in 2023 of a major carrier in the transpacific trade, the United States’ largest container route. [2] At that level, terminal labor costs are approaching the 25 percent that total vessel costs represent to many carriers’ bottom lines. The issue of automation and how it is addressed—both now and in the future—may very well eclipse the wage issue in terms of reaching a settlement.

With ports from Maine to Texas now shut down, a growing number of large container ships will wait at anchor hoping the situation is resolved soon. The direct impact on trade commerce will amount to $3.2 billion per day, $22 billion per week, and $97 billion per month. The knock-on economic impact of such a strike will grow as assembly lines shut down and distribution channels go slack. The cataclysmic economic impact of a broad, coastwide strike that drags on for weeks would produce even larger knock-on effects for the overall economy than the figures above.

One factor that could cause this strike to drag on is its pricing effect, which militates against compromise. As the pandemic demonstrated and the Red Sea situation reinforced, major global capacity constraints can push shipping pricing up significantly, boosting profits for carriers. The container trade lanes involving the East and Gulf Coasts represent 16.2 percent of worldwide TEU-miles. In other words: with those ports shut down, the immediate effect is that global container shipping capacity is reduced by one-sixth. There is simply not enough alternative port capacity to reroute traffic—and even if there were, due to the distances involved the effect on global shipping capacity would be negligible compared to the most likely approach of ships waiting at anchor for ports to reopen.

The United States will experience the brunt of a strike that continues for weeks, but the linkage to one-sixth of the worldwide container shipping capacity would also cause reciprocal issues for other countries as trade lanes backup around the globe. The 16.2 percent factor noted above is twice the ongoing industry capacity reduction from the Red Sea situation and will be stacked on top of that existing capacity reduction. If past is prologue, that will lead to a pricing spike that spreads worldwide due to the network effect of container shipping.

Simply put: carriers will be able to charge more per container due to the reduced capacity of the system, giving them little incentive to compromise with the union and restore normal operations.

A longer-term impact of labor disruption at U.S. ports will likely be an increased interest in utilizing alternative ports in Mexico and Canada. Establishing container supply chains is something that takes time, so this is not a quick fix; however, long after the ILA situation is resolved, it will be remembered and play a role in decisions made in the traffic departments and boardrooms of shippers.

Additionally, beyond the economic consequences, container terminals with free-flowing boxes and available reserve capacity are vital for national security reasons.

This strike is a big deal. If it continues at all ports for as long as Daggett suggests in his interviews, the economic repercussions will be catastrophic. A unique factor at work here is the resulting pricing impact. The higher rates go, the more likely it will be that carriers will be inclined to hold their positions rather than make concessions.

[1] $10.924 billion in total labor cost based on earnings times workers divided by 35,815,841 loaded TEU’s

[2] COSCO based on $5,733 billion transpacific revenue divided by 4,260,271 transpacific TEU volume

John D. McCown is a Non-Resident Senior Fellow at the Center for Maritime Strategy. Mr. McCown has four decades of experience related to the shipping industry. His research, analysis and writings for the Center for Maritime Strategy focus on the intersection of merchant shipping and maritime commerce with national security.

The views expressed in this piece are the sole opinions of the author and do not necessarily reflect those of the Center for Maritime Strategy or other institutions listed.