Will International Longshore and Warehouse Union(ILWU) Strike Affect Container Freight(SCFI)?

 In July 2014, the sabotage was prolonged due to the start of a strike by the western port unions in the United States, causing major disruptions to logistics in 2015. At that time, an agreement could not be reached, and due to the strike, many ships were unable to dock at LA Port, waiting at sea, and unable to unload. The situation is very similar to the current congestion at the Port of Los Angeles after Covid-19.

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1. Overview

 

 The port of LA/LB on the West Coast of the United States is a very important gateway, accounting for more than 10% of the total trade volume of the United States. West LA is geographically close to Asian countries such as Korea, China, and Japan, and it is also a very important port because California, the largest economy in the United States, is also located. After the coronavirus, ships entering the West Coast of the United States failed to berth at the terminal and waited for a long time in front of the sea, resulting in a logistical disruption.

 

The agreement between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritiem Association (PMA) is scheduled to be renewed in July 22. As in 2014, the majority think that an agreement will not be easily reached. Of course, since the strike in 2014, Asian manufacturers and logistics companies have considered a lot of shipping through alternative routes using ports in the eastern United States, Mexico, and Canada rather than the West Coast of the United States. It is not easy to rule out exports to the port of LA/LB.

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2. Simulation

Before : Average monthly freight for the past 3 years(2011, 2012, 2013), Strike Period : From July 2014 to February 13, 2015, After : Average monthly freight for the past 3 years(2016, 2017, 2018)

 The simulation result is as follows. Looking at the graph at the time of the strike, there was an effect of a 19% increase in freight rates in August, a month after the strike price in July. However, there was no significant movement for five months after that, and at the end of the strike, in February 2015, there was an 11% increase compared to the previous month (January 2015). In other words, there are various variables affecting the SCFI movement, but if you look at the movement under the above conditions, it can be seen that the synergistic effect of the SCFI according to the strike was limited because a strike was already foreshadowed. Nevertheless, when comparing the period before/after, the SCFI freight was higher on average in the strike period.

 

To summarize: 1) The rise in freight rates is not dramatic due to the advance notice of strikes. However, the overall average freight is higher than in the previous year. 2) Despite the advance notice of strike, there was a large increase in SCFI when the strike actually took place (one month later) and when the strike was prolonged (at seven months). Therefore, if a strike actually occurs in July of this year, a dramatic increase in freight rates is not expected as the current freight rate is much higher than in the past. However, if the strike period is prolonged, it is likely to have a significant impact on freight rates.

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3. Port Congestion situation

 In April-22year, the congestion index of western US ports was 0.76. This is a 24.7% decrease from the peak of 1.01 in November-21year. And it was confirmed that the current congestion level is similar to that of January 21st (0.78).

Of course, at a higher level of congestion, strikes are likely to have a greater impact on SCFI. We will have to keep an eye on this as the situation continues to improve after peaking.

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4. Conclusion

 Ahead of the negotiations in July of this year, demand for a wage increase due to high inflation in the US is also expected to grow stronger. In addition, the terminal operator seems to be pushing for the introduction of process automation for the reason of cost reduction, but the union will of course argue that the introduction of automation is impossible due to job reduction. In a situation where there is still a setback in the work of the International Longshore and Warehouse Union (ILWU) is expected to use this opportunity to make stronger demands. Therefore, it would be helpful to apply this article after making it a known fact that strikes will occur to some extent.