Billions in trade are being stranded as ILA longshoremen go on strike at East and Gulf Coast ports.

• On October 1, at 12:01 a.m. ET, approximately 50,000 ILA union longshoremen went on strike at East Coast and Gulf Coast ports because they were unable to reach a new contract agreement with port ownership.
• Billions of dollars in trade and approximately 43%-49% of all U.S. imports flow through the U.S East Coast and Gulf ports monthly.
• On Monday, the International Longshoreman's Association, the largest maritime union in North America, rejected an offer from the port management group USMX that proposed a wage increase of approximately 50% over six years.

At 12:01 a.m. ET on October 1, trade worth billions of dollars came to a halt at U.S. East Coast and Gulf Coast ports after members of the International Longshoremen's Association (ILA) went on strike. The ILA, North America's largest longshoremen's union, has about 50,000 of its 85,000 members who walked off the job at 14 ports that were subject to a just-expired master contract with the United States Maritime Alliance (USMX). The union and port ownership group were unable to reach an agreement on a new contract in a prolonged dispute over wage increases and the use of automation.

On Monday, in a final attempt to prevent a strike that could cause significant economic damage to the US, the USMX proposed a nearly 50% wage increase over six years. However, this offer was rejected by the ILA.

The 14 ports are located in Boston, New York/New Jersey, Philadelphia, Wilmington, North Carolina, Baltimore, Norfolk, Charleston, Savannah, Jacksonville, Tampa, Miami, New Orleans, Mobile, and Houston.

The ILA leadership has been forceful in the run-up to the strike, with ILA president Harold Daggett, a former union member who was present during the last strike in 1977, addressing members in a recent video message and declaring, "We'll crush them."

The immediate impact will be on the supply chain and the U.S. economy.

FourKites' principal solutions architect, Shana Wray, tells CNBC that the strike occurs at the worst possible time, as it will intensify the supply chain congestion caused by Hurricane Helene's devastation.

"According to Wray, Helene caused delays in port openings at Charleston and Savannah, as well as power losses at intermodal facilities in those cities and Atlanta. This resulted in congestion for ocean, trucking, and rail carriers across Southeast and Gulf ports."

The duration of the strike will determine its impact, according to both economists and logistics executives.

According to Adam Kamins, an economist at Moody's Analytics, a disruption of a week or two will result in some backlogs, but the broader consequences will be minimal outside of a few port-reliant areas, such as Savannah. However, anything longer will lead to shortages and upward price pressures.

According to Kamins, the food and automobile industries will face the most significant challenges due to the shutdown of ports. Although a surge in inflation is unlikely, even a modest reacceleration could create uncertainty and force the Federal Reserve to be more cautious about lowering interest rates, which would negatively impact job growth and investment.

An analysis by The Conference Board suggests that a one-week strike could cost the U.S. economy $3.78 billion and cause supply chain slowdowns through mid-November. The ports threatened with strikes handle $3 trillion annually in U.S. annual international trade.

The pharmaceutical industry is bracing for significant consequences due to the strike. Noushin Shamsili, CEO and president of Nuco Logistics, which specializes in pharmaceutical imports and exports, stated that the strike occurs at a crucial moment for inventory replenishment in the pharma sector.

"The majority of this industry is operating within schedule," stated Shamsili. "The delivery of raw materials for drug production is being facilitated through these vessels. Medical supplies for clinics and hospitals are also being transported on these vessels. Initially, importers were not bringing in much cargo due to being overwhelmed with supplies post-Covid. However, they have now started reordering medical devices, gloves, syringes, and tubing."

Shamsili stated that the East Coast ports serve as a gateway for generic medicine imported from India, which accounts for approximately 48% of the active pharmaceutical ingredients used in the U.S. These APIs are crucial for producing medications and are also manufactured in Europe, with the East Coast ports acting as U.S. entry points for these imports.

The retailing industry relies heavily on the East and Gulf Coast ports, which accounted for 53% of all U.S. apparel, footwear, and accessories imports in 2023, totaling over $92 billion in value, according to Steve Lamar, CEO of the American Apparel and Footwear Association.

"Lamar stated, "The clock is ticking away, with each strike day adding five more days of disruption to our consumer-driven economy as port backlogs snarl during the heavy holiday shopping season. Both sides must return to the negotiating table, and the administration must be prepared to utilize all available tools to ensure a fair, long-term, and sustainable agreement is reached. This is the top priority for all parties.""

The No. 1 importer across the affected ports, as well as other top importers including Ikea, Home Depot, and LG Electronics, will face limited options to divert trade to Canada or the West Coast as other unions unite in support of the ILA's labor fight.

According to ImportGenius data, these companies are among the top importers at the 14 major ports that would be affected by an ILA strike.

In 1977, the ILWU union at West Coast ports supported the ILA strike by allowing ILA members to go to the Port of Los Angeles and stop the unloading of diverted vessels. ILA president Daggett, who was involved in those actions as a young union member, recently referenced this historical example in his communications with the rank-and-file.

The ILA has stated that all of its members, including those not affected by the expired contract, will stand together in solidarity.

On Monday night, Teamsters president Sean O'Brien issued a statement supporting the International Longshoremen's Association (ILA) in their fight for a new contract and reminding his members not to cross picket lines. O'Brien stated that the ocean carriers were on strike against themselves due to their failure to negotiate a contract that recognized the value of the workers. He also strongly condemned any interference from the federal government in the labor action.

The National Retail Federation stated that vessels carrying items for an October 1 arrival and beyond are also restocking holiday items and just-in-time products such as auto parts and pharmaceuticals.

The failed talks over a new union contract have resulted in 43%-49% of all U.S. imports and billions of dollars in trade being caught up monthly, as ports were accused of violating automation rules by the ILA in June.

Since late last week, the White House has involved senior officials such as Secretary of Transportation Pete Buttigieg, Acting Secretary of Labor Julie Su, and Director of the National Economic Council Lael Brainard in an attempt to prompt the ILA and USMX to return to the bargaining table and reach a deal promptly.

On Monday, USMX released a statement stating that it had made counter offers to the union within the past 24 hours, including an increase in wages by almost 50% over six years, tripling employer contributions to employee retirement plans, improving health care options, and maintaining the current contract language regarding automation and semi-automation. The port ownership group expressed hope that the offer would facilitate a resumption of collective bargaining.

The union had already stated in a 11 a.m. ET on Monday press release that "the Ocean Carriers represented by USMX are seeking to maintain their billion-dollar profits in 2024 while offering ILA Longshore Workers an unacceptable wage package, which we reject." The statement added that the union viewed USMX as "determined to initiate a strike at all ports from Maine to Texas in just over 12 hours."

The Taft-Hartley Act grants President Biden the power to force union workers back on the job, but he has vowed not to use it during the upcoming presidential election.

In 1947, the Taft-Hartley Act was enacted, amending U.S. law on labor relations and union activity, allowing the president to halt a strike for an 80-day "cooling off period" if "national health or safety" are endangered.

The White House has repeatedly stated that they have no intention of using Taft-Hartley to end a strike.

Cruise operations and military operations at ports will continue.