Port Strike Threat Drives Container Spot Rates Down Amid Competitive Market Conditions

The ongoing threat of a potential port strike has resulted in a significant front-loading of shipments, placing downward pressure on container spot rates from Asia to the U.S. East Coast. This rapid decline is more accelerated than in previous years, driven by fears of a dockworker strike on the East and Gulf coasts, scheduled for October 1. Retailers, anxious about the potential disruptions, have been shifting their discretionary cargo to the West Coast, contributing to a plunge in container spot rates.

This week alone, rates dropped by $2,300 per FEU (forty-foot equivalent unit) as peak-season shipments, typically strong during this time, have tapered off. Importers and freight forwarders paid a reduced rate of $6,200 per FEU, down from $8,500, according to Platts. These steep discounts are largely attributed to the deployment of “bullet” rates, a pricing strategy carriers are using to aggressively compete for shrinking volumes in the Asia-to-East Coast trade lane. Bullet rates, along with special commodity and voyage-specific rates, are being utilized as carriers grapple with declining demand.

Advisors to non-vessel-operating common carriers (NVOs) noted that carriers, wary of excess capacity later in the year, are approaching select customers with offers to lock in these reduced rates through service contracts that extend into 2025. Typically, around 60% of eastbound trans-Pacific imports are moved under lower-cost contract rates, though this figure can drop to as low as 45% during times of capacity constraints.

On the West Coast, spot and Freight All Kinds (FAK) rates also saw declines, falling by $600 per FEU to $4,800. However, these rates could stabilize or even increase in the coming weeks as retailers prepare for holiday shipments and the threat of a strike looms over the East Coast. Some speculate that West Coast rates could rise depending on the developments with the International Longshoremen’s Association (ILA) strike.

Over the past two years, East Coast spot rates have typically decreased by about $1,000 per FEU in mid-September compared to late August, signaling the end of the peak season. However, the current year’s rate drop is more substantial due to the heightened competition among carriers. Carriers have launched or reinstated multiple services from Asia to the West Coast and have also introduced extra-loader vessels to handle the cargo surge, offering shippers access to special, heavily discounted rates.

Although no new services have been added to the East Coast, many retailers moved their holiday merchandise earlier in the year to avoid potential strike disruptions. Bullet rates on the East Coast have dropped to between $5,500 and $5,800 per FEU, while West Coast bullet rates ranged from $4,400 to $4,900. Forecasts for U.S. imports in September predict a strong month, with a 14% increase year-over-year. In October, a smaller but still notable increase of 1.3% is expected.

The risk of a port strike continues to loom large, with contract negotiations between the ILA and the United States Maritime Alliance (USMX) still unresolved. The USMX, representing maritime employers across East and Gulf Coast ports, remains committed to preventing a strike by extending offers for wage increases, improvements in retirement contributions, and maintaining healthcare plans. However, the ILA has expressed dissatisfaction with the proposals, particularly the entry-level wage offer, calling it inadequate given the uncertain nature of longshore work and the reliance on ships being docked at berth.

The ILA is demanding stricter language regarding the automation of marine terminals, seeking to ban both semi-automation and full automation. The union has voiced concerns about terminal operators automating certain functions without proper notification, thus violating existing contractual protections. Additionally, the ILA has criticized the use of surveillance equipment, arguing that it creates a hostile work environment, particularly for female longshore workers.

While negotiations continue, the prospect of a strike on October 1 remains a significant concern for the shipping industry. Employers are eager to resume talks, but the union’s firm stance on wages, automation, and workplace conditions suggests that reaching an agreement may prove challenging in the remaining time before the contract expiration.