Dockworkers on the U.S. East Coast and Gulf Coast began a strike early on Tuesday, their first large-scale stoppage in nearly 50 years, halting the flow of about half the nation's ocean shipping after negotiations for a new labor contract broke down over wages.
The strike blocks everything from food to automobile shipments across dozens of ports from Maine to Texas, in a disruption analysts warned will cost the economy billions of dollars a day, threaten jobs, and potentially stoke inflation.
The International Longshoremen's Association (ILA) union representing 45,000 port workers had been negotiating with the United States Maritime Alliance (USMX) employer group for a new six-year contract ahead of a midnight Sept. 30 deadline.
The ILA said in a statement on Tuesday it shut down all ports from Maine to Texas at 12:01 a.m. ET (0401 GMT) and had rejected USMX's final proposal made on Monday, adding the offer fell "far short of the demands of its members to ratify a new contract".
The ILA's leader, Harold Daggett, has said employers such as container ship operator Maersk (MAERSKb.CO), opens new tab and its APM Terminals North America have not offered appropriate pay increases or agreed to demands to stop port automation projects.
The USMX said in a statement on Monday it had offered to hike wages by nearly 50%, up from a prior proposal. Daggett, meanwhile, said the union is pushing for a 61.5% pay increase, according to CNBC.
"We are prepared to fight as long as necessary, to stay out on strike for whatever period of time it takes, to get the wages and protections against automation our ILA members deserve," Daggett said on Tuesday.
"USMX owns this strike now. They now must meet our demands for this strike to end."
USMX did not immediately respond to requests for comment.
The strike, the ILA's first since 1977, is worrying businesses that rely on ocean shipping to export their wares or secure crucial imports, as it affects 36 ports that handle a range of containerized goods from bananas to clothing to cars.
Retailers in recent months have accelerated holiday imports and are moving other shipments to the U.S. West Coast where possible.
"We expect the strike itself to last for five to seven days until a government intervention... but the ripple effect is likely to be felt across the whole network into Europe, into Asia for at least into January, February," said Peter Sand, chief analyst at shipping pricing platform Xeneta.
Barclays researchers said they expect European automakers like BMW, Mercedes (MBGn.DE), opens new tab, Volkswagen (VOWG_p.DE), opens new tab and Volvo (VOLCARb.ST), opens new tab to be among the car companies whose imports would be affected, but noted that relatively high inventories will shield the immediate impact.
Automakers Hyundai and GM (GM.N), opens new tab said they were monitoring the strike and had contingency plans in place.
There are nearly 100,000 containers in New York City-area ports alone waiting to be unloaded, now frozen by the strike, and 35 container ships headed to New York over the coming week, said Rick Cotton, executive director of the Port Authority of New York and New Jersey.
The union is "holding the entire country over a barrel," said Steve Hughes, CEO of HCS International, which specializes in automotive sourcing and shipping. "I'm really afraid that it is going to be ugly."
The dispute is also wedging labor-friendly U.S. President Joe Biden into a virtual no-win position as Vice President Kamala Harris runs a razor-tight election race against Republican former President Donald Trump.
White House Chief of Staff Jeff Zients and top economic adviser Lael Brainard urged USMX board members at a meeting on Monday to resolve the dispute fairly and quickly, a White House official said. But Biden's administration has repeatedly ruled out the use of federal powers to break a strike in the event of an impasse.
U.S. Chamber of Commerce President Suzanne Clark urged Biden on Monday to reconsider, saying it "would be unconscionable to allow a contract dispute to inflict such a shock to our economy."
The White House on Tuesday said in a statement that it is monitoring the effects on the supply chain "and assessing ways to address potential impacts," noting the initial effect on consumers is expected to be limited.
Officials told Reuters on the condition of anonymity they are hoping for a short strike, pointing to the sign the two sides had resumed talks late on Sunday and had narrowed their differences on Monday.
The U.S. Department of Agriculture said Tuesday that it does not expect "significant changes to food prices or availability in the near term."
Economists at Capital Economics said the strike is "unlikely to trigger major economic disruption," though they added that a lengthy stoppage would force Biden to step in if the two sides cannot come to an agreement.
BACKUP PLANS
Retailers accounting for about half of all container shipping volume have been busily implementing backup plans as they head into their all-important winter holiday sales season.
Many of the big players rushed in Halloween and Christmas merchandise early to avoid any strike-related disruptions, incurring extra costs to ship and store those goods.
Retail behemoth Walmart (WMT.N), opens new tab, the largest U.S. container shipper, and membership warehouse club operator Costco (COST.O), opens new tab say they are doing everything they can to mitigate any impact.
New York Governor Kathy Hochul said the state expects no immediate impact on food supplies or essential goods but said impacts could widen depending on how long it lasts.
"It’s critical for USMX and the ILA to reach a fair agreement soon that respects workers and ensures a flow of commerce through our ports," she said on Tuesday.
Shares in Maersk dropped almost 5% on Tuesday in Copenhagen, with profit-taking following recent gains, as investors had been expecting significant increases in freight rates due to the strike, which would boost shipping companies' earnings.
The Danish company has said it would introduce a port disruption surcharge on all cargo moving to and from the U.S. East Coast and Gulf Coast terminals from Oct. 21 ranging from $1,500 to $3,780 a container.
