Earlier this week, 159 trade associations representing key supply chain stakeholders sent a letter to the Biden administration and relevant congressional committees calling on the U.S. government to intervene in the stalled labor contract negotiations between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX). On June 10, the ILA issued a press release announcing its refusal to continue negotiations due to an outstanding dispute with a terminal operator involving one Gulf Coast port. The ILA has signaled its willingness to call for a coastwide strike if a new contract agreement is not reached prior to the expiration of the current contract, which covers roughly 45,000 dockworkers at seaports on the U.S. East and Gulf Coasts.

The current contract expires on September 30, 2024.

The trade associations’ letter urges the Biden administration “to immediately work with both parties to resume contract negotiations and ensure there is no disruption to port operations and cargo fluidity.”

The union’s decision to leave the bargaining table has coincided with a period of great volatility in freight shipping rates. The Freightos^® Baltic Index recently surpassed $4,000 for the first time since late 2022, signaling a return of the supply-chain concerns that troubled global businesses during the pandemic. The proximate cause of the rate rises—attacks on shipping in the Red Sea by Houthi rebels—has had a severe impact on international commerce, sending most vessels on a weekslong diversion around the Cape of Good Hope in South Africa. In addition to the spike in freight rates, the disruption has led to congestion and a lack of equipment at overseas ports and carrier capacity issues. While many experts anticipate these disruptions are short term in nature, the threat of a massive labor stoppage by dockworkers in the U.S. could complicate and/or compound the risk of further supply chain disruption well into 2025.

For many manufacturers and retailers, the threatened strike could not come at a worse time. As September draws to a close, many companies are topping off holiday season inventories; therefore, logistical issues could imperil their most profitable time of the year.

Furthermore, the macroeconomic outlook is cloudy at best for many enterprises, and some will be tempted to delay for as long as possible committing to inventory levels for the holiday season. After all, no one wants to get stuck with unsold goods come January; however, the uncertain supply chain status will push many to procure goods ahead of any potential strike.

Let’s hope cooler heads prevail and that some agreement can be reached, but the longer this squabble persists, the more likely it will set in motion events that greatly increase supply chain risk well into next year.