US port strike poses fresh inflation risk

A prolonged strike by US port workers risks a new wave of freight-led inflation, according to experts.

The walkout, at each of the 36 major ports along the US east and Gulf coasts, is the first since the 1970s and explained by a failure to agree new collective contracts covering the next six years.

In addition to a disagreement over pay, the International Longshoremen's Association (ILA) union also wants guarantees over port automation that it says is threatening jobs among its 45,000 members.

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The United States Maritime Alliance (USMX) employer group said it had made a "final" offer of almost 50% over the contract period, but that had been rejected by the union.

ILA's leader, Harold Daggett, told reporters when the strike began early on Tuesday: "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".

No talks between the union and employer group are planned.

It is estimated by JP Morgan that the strike will cost the US economy $5bn a day.

Half of the country's ocean shipping is affected and the number of ships waiting to offload is growing.

Data from Everstream Analytics showed more than 38 container vessels waiting at anchor outside ports by Tuesday evening.

Shipping costs were already a concern before the strikes took hold - rising by more than 300% early in 2024 for transit from Asia to Europe.

Disruption to vessels in the Red Sea caused by attacks from Iran-backed Houthi rebels in Yemen have been forcing freight to re-route around Africa, adding longer than a fortnight to some journeys, for almost a year.

Data from the S&P Global manufacturing PMI report for the UK earlier this week showed factory gate input cost inflation at a 20-month high.

That was mostly explained by the higher cost of importing goods, according to the report which also said it had led to manufacturers pushing up their own prices to compensate.

The US National Retail Federation has responded to the strike by calling on president Joe Biden to use federal powers around critical infrastructure to end the action, warning that it could have "devastating consequences" for the economy.

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The White House has urged the shipping sector to settle and refused, thus far, to intervene.

Commentators, however, believe that the looming presidential election will force him to act if contingency plans by importers fail to prevent shortages and lead to price increases.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said of the dispute: " It will cause supply disruptions and increase the price pressures before November presidential elections.

"And we know from the beginning that there won't be a quick end to the negotiations because the Biden administration is not willing to intervene."