West Coast & Canada Port Issues 2023
As 2023 sails ahead, a veil of uncertainty surrounds the navigation of ocean freight rate contracts. While some ambiguity in such dialogues is ordinary international stakeholders are finding this year’s negotiations more challenging than usual. The underlying cause of this turmoil lies within the confines of the West Coast ports, where the International Longshore and Warehouse Union (ILWU) are in a tentative agreement stage of a new contract, stirring the maritime industry's dynamics.
Canada’s West Coast Port Strike: Implications and Resolutions
Canada's port industry faces significant disruption after strikes in the pivotal container gateways of Vancouver and Prince Rupert, the nation's first and third-largest. The impact is reaching worldwide with profound consequences on both the Canadian and U.S. supply chains.
- International Longshore and Warehouse Union (ILWU) Canada: Representing a majority of the port workers, the ILWU initiated the strike, highlighting significant discontent among the workforce. The strike notably targeted Vancouver and Prince Rupert, two major ports in the country.
- British Columbia Maritime Employers Association (BCMEA): Acting as a primary negotiator for the waterfront employers, the BCMEA was instrumental in working towards a resolution.
- The Vancouver Fraser Port Authority: Responsible for overseeing the operations of Canada's busiest harbor, their role was crucial in navigating the disruptions and ensuring a return to normalcy.
Resolution and Implications:
By July, a way forward emerged. The BCMEA announced that operations at the ports of Vancouver and Prince Rupert would recommence "as soon as possible." A new labor deal, lasting four years, had been reached, though it awaited ratification by both parties. The agreement's specifics remain under wraps, but its genesis came after a federal mediator interjected, urging both parties toward compromise.
Despite this progress, the strike's aftermath lingers. Spanning nearly two weeks, it caused a significant interruption in containerized movements from the affected ports to the U.S. Even as operations gradually return to full capacity, U.S. imports via these Canadian ports will face residual effects. Realigning to normal operations could span weeks or even months, making East Coast operations even more favorable.
US West Coast Port Strikes: Implications and Resolutions
- Pacific Maritime Association (PMA): PMA is an organization that represents shipping companies and terminal operators who operate on the West Coast of the United States, including ports in California, Oregon, and Washington. Formed in 1949, the PMA plays a vital role in negotiating labor contracts and handling labor relations with the International Longshore and Warehouse Union (ILWU), the union representing dockworkers at these ports.
- The International Longshore and Warehouse Union (ILWU): The ILWU is a labor union that primarily represents maritime workers on the West Coast of the United States, Hawaii, Alaska, and Canada.
- Julie Su: Julie Su is President Biden's Acting Labor Secretary. She is currently involved in mediating communication between labor and port management representatives, working to broker a deal amidst increasing tensions at West Coast ports. Prior to this role, Su served as the secretary for the California Labor and Workforce Development Agency until 2021. Her experience in that position, along with her longstanding relationships with both sides, has positioned her as a key figure in helping to maintain communication at the bargaining table.
- Contract Negotiations: The ILWU began negotiations with the PMA for a new contract in May 2022, a challenging process as the previous contract expired in July of the same year. The negotiations encompass various aspects of working conditions, pay, benefits, and other pertinent issues. The expiration of the previous contract led to legal ambiguities and tensions between the two sides, which necessitates prompt and careful negotiation.
- Work Stoppages: Recent worker stoppages that closed some West Coast port terminals have been disruptive. Such stoppages can have significant economic impacts, delaying shipments and affecting both national and international supply chains. The reasons for the stoppages could vary, including protests, strikes, or disagreements over working conditions.
- Work Disruptions: Additional to stoppages, other disruptions have affected ship schedules and container dwell times. This means that cargo is sitting longer than usual at ports or in containers, possibly leading to increased costs, delayed deliveries, and potential damage to perishable goods.
- Pay Raise: The ILWU has secured a substantial 32% increase in wages over the six-year contract. Such a raise represents a significant victory for the port workers, reflecting their value and the hard work they contribute to the industry.
- Bonus: In recognition of the efforts during a challenging pandemic period, the ILWU received a $70 million bonus. This bonus likely acknowledges the risks and additional workload undertaken by the members of the union during a global crisis.
- California Port Problems: The ILWU's decision to decline the dispatching of "lashers" who secure cargo for trans-Pacific voyages has resulted in vessels sitting idle at the docks. This decision may have been the result of safety concerns, disagreements over pay, or other underlying issues. The idling of vessels contributes to delays and could have broader ramifications for international trade.
- Ratification Process: The ratification of the tentative agreement is a multi-step process that begins with a contract caucus convening delegates from the 29 locals up and down the West Coast. These delegates review the new agreement and make a recommendation to the rank and file, who then have the final say through a vote. This democratic process ensures that the views and interests of the union members are considered and that the final agreement is one that meets the collective needs and values of the workforce.
What Does This Mean for Shippers, NVOs, & Freight Carriers?
Traditionally, during the Transpacific contract season, shippers and their NVOs or ocean carriers would convene to discuss the most suitable contract or spot diversification strategy. However, the current climate has shifted the conversation. The focus is now on whether yearly contract rates, quarterly contract rates, spot rates, or hybrid contract/spot models are suitable for the remainder of 2023. This sea change in contract negotiation is a response to the Biden administration's push for more robust supply chain measures.
Yearly fixed, contracted rates:
Whether direct with an ocean carrier or fixed rates with an NVO, contract rates are now expected to trend higher than spot rates. Since the fixed market has been trending so much higher than the spot market, importers have balked at shipping on those rates, let alone signing new contracts.
Of course, we know that the spot market will not remain significantly lower throughout the entirety of 2023, given anticipated Q3 and Q4 return of “normalized” ordering and projected continued capacity constraints. Even today, there are fresh signs of GRIs in the FAK market making these waters even murkier.
If demand doesn't increase and capacity remains wide open, clients who sign fixed contracts for 100% of their freight will wish they hadn't.
However, if demand increases throughout 2023-albeit at lower or “normalized” levels and ocean capacity tightens, clients shipping on contracted rates will come out winning. That is, however, if they choose the right partner who will honor signed rates. If we learned anything during COVID, many freight partners seemed to forget what rates were agreed upon when freight prices skyrocketed...
Quarterly fixed, contracted rates:
A quarterly contract is exactly what it sounds like: a contracted rate that resets every quarter.
Clients that signed quarterly contracts won’t get the lowest of the low rates, but they'll have stability in rates for 3 months.
The issue here is that if rates trend higher, the next quarterly rate you'll be expected to sign will be higher than what you've been shipping on for the past 3 months, offering very little hedge against increases.
If rates trend downward, clients won’t be able to take advantage of the dropping market for 3 months.
With a quarterly contract, clients will not have an opportunity for a big win in either direction as the market moves.
Spot rates are exactly that. They're subject to the changing market, and as we've seen since March 2020, these can fluctuate significantly, and do so every 15 days.
Right now, spot rates are low, and capacity is wide open. However, this is unlikely to continue throughout the year. Threats of April 15 or May 1 GRIs are real and gaining steam, but it is yet unknown if they will hold and maintain traction.
The question of a rising spot market isn't a question of if, it's a question of when.
Clients who continue shipping exclusively on the spot market will win if the market stays where it is, the floor.
They'll lose when the market inevitably trends higher, and space tightens up.
Split contract/spot rate agreements:
If we assume that the market cannot possibly stay at the pre-COVID rate and capacity levels, but clients aren't ready to commit fully to a fixed contract, then a healthy mix of the two makes sense.
By agreeing on a 70/30 contract/spot freight plan, for instance, clients can still take advantage of the current spot market while also protecting 70% of their freight when the market inevitably shifts.
East Coast vs. West Coast Ports: Where Does the Balance Lie?
A comparative analysis of the East Coast and West Coast ports reveals distinct advantages and challenges that significantly impact the decisions of importers and exporters.
East Coast Ports: A Rising Tide
East Coast ports, Charleston, Savannah, New York, etc., have seen a surge in popularity and use in recent years. One of the key reasons is the west coast disruptions discussed above along with the expansion of the Panama Canal, which has made it more feasible for large cargo ships to reach the East Coast from Asia.
Unlike the West Coast, labor relations on the East Coast have been relatively stable, contributing to more predictable operations and less likelihood of significant disruptions due to strikes or slow-downs.
Furthermore, East Coast ports have been investing heavily in infrastructure improvements, such as increasing berth size and buying larger cranes to accommodate bigger vessels. They have also been expanding their rail connections, which improves the efficient movement of goods inland.
East Coast ports have also been keen to adopt automation, which has led to increased efficiency and faster turnaround times. For instance, the Port of Charleston boasts the fastest turnaround time on the East Coast, further enhancing its appeal for importers and exporters.
Given the ongoing issues on the West Coast, many importers and exporters are considering diversifying their port strategy and moving more cargo through the East Coast ports. These ports, with their robust infrastructure, efficient operations, and more stable labor relations, offer a viable and often advantageous alternative to their West Coast counterparts.
In this era of supply chain disruption and uncertainty, businesses need reliable, efficient, and predictable logistics solutions. Therefore, East Coast ports are increasingly being seen as a more favorable choice for both imports and exports, promising a more streamlined and stable supply chain management.
Plotting Your Course in 2023's Ocean Freight Landscape
As the year progresses, it is clear that a multifaceted approach involving predictive analytics, understanding the American economy, and intuition is required. Here are some steps to consider:
- Foster trust with your ocean carrier or NVO.
- Initiate transparent discussions about your inventory replenishment strategies.
- Consider a split contract/spot agreement to diversify your ocean freight.
In conclusion, relying solely on the spot market may result in clients scrambling for space at high rates. However, a more diversified approach could be the safest bet, especially with the ongoing labor negotiations, contract talks, and supply chain disruptions seen on the West Coast. These complex dynamics call for shippers to be mindful of the industry's collective bargaining landscape and the impact of the contract's ratification process on the terminal operations, and the country's supply chain as a whole.
Navigate the waters with a reliable, experienced, and proactive partner.
ASF: A Leading Freight Forwarder
ASF Global Logistics is a leader in global logistics that offers a comprehensive range of services to help businesses navigate the complex world of transportation and shipping. Here's how ASF can assist you in navigating various logistical challenges:
With relationships with some of the world's largest ocean carriers, ASF offers global coverage for ocean freight, land transportation solutions, air freight services, custom brokerage, cargo insurance, contract management, and more. Our team takes a human-first approach to freight forwarding, ensuring that customers and partners receive a consistent, steady, and high level of service. Contact us today for more information.
Meet Our Expert
This article is reviewed by Jeffrey D. Plumley, Chief Commercial Officer and Licensed US Customs House Broker.
Jeff has an extensive background in global logistics, spanning various freight forwarding executive management positions. As a Licensed US Customs House Broker, he has managed regulatory compliance and is a worldwide expert in Flexitank transportation logistics.
In addition to his strong forwarding and Flexitank background, Jeff was also Head of Regulatory Compliance and Sales for a major global logistics software provider. He has over 30 years of logistics experience and a strong leadership background having graduated from the Citadel.