The strike at East and Gulf Coast ports is causing chaos and rising costs.

The strike at East and Gulf Coast ports is causing chaos and rising costs.
The strike at East and Gulf Coast ports is causing chaos and rising costs.
  • On the third day of the East and Gulf Coast ports strike, there are indications of mounting pressure on the supply chain.
  • As ocean carriers searched for alternate options for cargo, thousands of shipping containers may have been mistakenly delivered to the wrong ports. This presents a direct challenge to the ILA union's threat to halt unloading at other ports.
  • The cost of shipping is increasing, and the use of inland transportation options like trucking and rail for diverted cargo is adding to expenses.
  • The CEO of a major grocery chain reveals to CNBC that although the store is well-stocked for the upcoming weeks, certain popular items may not be readily available, and the cost of bananas is expected to increase significantly.

On the third day of the East and Gulf Coast ports strike, the nationwide logistics system is showing signs of stress, with thousands of containers misplaced at the wrong ports and billions of dollars in trade at anchor on ships. As a result, ocean carrier surcharges for shipping clients are increasing, and the need to use trucking and rail to move diverted cargo to final destinations is adding to supply chain costs.

Despite the Biden administration's efforts to get the International Longshoremen's Association and United States Maritime Alliance back to the negotiating table, significant differences on wage increase levels and use of port automation remain, resulting in building chaos with no signs of a resolution.

According to Vizion, approximately 2,000 shipments may have been mistakenly delivered to a port that was not their intended destination during the rush to unload containers for clients.

According to exclusive data from Vizion and Everstream Analytics, five vessels changed their destinations on October 1 from U.S. East Coast ports to alternative destinations in an effort to maintain their schedules and remove containers from their vessels.

Hapag- Lloyd was the first carrier to deviate from its planned U.S. port destinations and redirect vessels from the East Coast to maintain schedules, according to Mirko Woitzik, director of intelligence solutions at Everstream Analytics.

The container ship Stadt Dresden, operated by Hapag-Lloyd, left the Port of Norfolk on September 30 and was supposed to call at the Port of Savannah on October 1. However, it has departed back to the Mediterranean Sea and is now heading to its next port of call in Egypt, according to Woitzik.

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According to Vizion data, two vessels, the America and Hermann Schulte, were originally heading to the Port of Charleston but were later shifted to the Port of Freeport in the Bahamas. Kpler data reveals that Danos is the owner of the America, while Schulte Group is the owner of the Hermann Schulte.

Over a dozen container vessels are currently waiting in the port anchorage area of Freeport, according to Everstream Analytics data.

According to Vizion, MSC, the world's largest containership company, has diverted two vessels. The MSC NOA, scheduled to arrive in Savannah on October 1, is currently at the port of Cristobal, Bahamas, while the MSC Antonia, set for the Port of New York/New Jersey on October 1, has been redirected to the Port of Halifax in Canada.

Containers brought into Halifax will be shipped by rail to the New York area or wait for vessels to deliver them back to the U.S. once the strike is over.

The ILA is facing a major issue with diversions, and union president Harold Daggett has threatened to have longshoremen travel to ports where diverted vessels attempt to unload their freight. Daggett has previously mentioned the ILWU's decision to allow ILA members to go to the port during the 1977 strike to stop the unloading of a diverted vessel. Daggett was one of the longshoremen who traveled to the West Coast at that time.

The ILA did not respond to CNBC's request for comment.

ITS Logistics' vice president of global logistics, Paul Brashier, informed CNBC that some of his clients received notifications about their containers being at different ports.

"According to Brashier, diverting drop-offs inflates the cost of inland transportation, causing the price of trucking a local Savannah or Charleston container from port to D.C. to increase from $300 to $2,000 when going from Norfolk. This represents a significant increase."

"Ocean carriers' sudden diversions of pre-strike and post-strike out of network containers are causing shipping costs to rise," Brashier stated. "Many shippers were caught off guard and had to quickly secure last-minute trucking capacity in unfamiliar congested ports."

The high inland transportation costs incurred by shippers due to the distance between the alternative ports and the original port destination are as much as 10 times the expected cost for the pickup and fuel.

"If a shipper has containers that go into demurrage while trying to arrange new transportation providers in new markets, it will cost thousands of dollars a day in late fees."

Food supply will go down and grocery costs higher

Stew Leonard, Jr., CEO of Stew Leonard's grocery stores, informed CNBC that they anticipated the strike and stocked up on what they could, ensuring they will be sufficient through Thanksgiving. However, customers seeking fresh produce and fish may need to adjust their shopping habits.

"Leonard stated that customers who might enjoy sweet Brazilian shrimp may need to purchase Gulf shrimp. Additionally, pineapples, bananas, and mangos are exported to the East Coast, along with other vegetables such as asparagus. Bananas are the top fruit export in our produce department. We will obtain them, but it may take a longer transit from China, or we can fly and truck them in. This will increase prices due to the cost of logistics. As a result, parents may choose to put an apple in their child's lunch box instead of bananas."

Leonard said the cost of bananas could double over the short term.

Both perishable foods and medical supplies are major concerns for shippers.

According to Brandon Daniels, CEO of supply chain risk management company Exiger, the health-care industry is facing challenges due to both the strike and war fought by Israel. Daniels stated that many key medicines are manufactured in Israel and production is slowed by the war. Additionally, medical supplies such as latex gloves needed in surgery and lidocaine, an anesthetic used in hospitals, are stuck in ships waiting to be unloaded by striking dockworkers.

Walmart, Amazon shipments stuck in floating storage

The No. 1 importer at the affected ports, as well as companies such as , The Folgers Company, and , are among those with containers stuck on the water due to land transport challenges.

The most popular product categories on these vessels include iron, steel, furniture, bedding, fresh fruit, toys, apparel, and electronics.

Water-based Amazon products encompass various items such as toys, furniture, bedding, travel goods, and electric machinery.

The timing of this strike is particularly difficult for shippers, according to Christian Roeloffs, cofounder and CEO of Container xChange.

"Roeloffs stated that the logistics costs and delays could increase due to the disruption, making it harder to secure containers. The longer the disruption persists, the more challenging it will be for businesses to meet market demands."

If the strike continues for several weeks, the daily hit to the U.S. economy will increase from $500 million to $2 billion, with the most significant inflationary effect and consumer impact taking time to manifest.

Roeloffs has been informed by Container xChange clients that companies are already struggling to absorb new costs as carriers impose surcharges and adjust services to bypass affected ports. The outlook remains uncertain, with many bracing for further delays and price increases.

According to a CNBC review of notices sent to clients, surcharges ocean carriers are placing on containers could result in millions of dollars in penalties.

CMA CGM is charging shippers for the daily use of electricity to power their refrigerated containers, known as "reefers."

"Brashier stated that importers and exporters using refrigerated containers are facing a difficult situation. Exports have been waiting at their yards since late last month, and the containers in port are being plugged in, which incurs additional charges. However, the biggest challenge is time. If the strike continues, will the commodities in those containers be suitable for consumption when they are removed from the port?"

When the ports open, the problems for shippers won't stop, as congestion will cause delays in vessels unloading and containers being transported.

Despite the ports being shut down, global shipping remains uninterrupted, and ships bound for the East Coast and Gulf Coast are showing no signs of slowing down, according to Kyle Henderson, CEO of Vizion.

"The number of inbound vessels has increased, with 368 vessels on October 1 compared to 348 on September 30, according to Henderson. The backlog of containers will be further increased by the 2,909 export shipments and 8,760 import shipments that have been booked and confirmed by carriers, which will take 45-50 days to arrive."

Currently, it will take three weeks to clear the backlog of trade waiting offshore to be processed and cleared through the ports.

by Lori Ann LaRocco

Business News