As members of the International Longshoremen’s Association went on strike in the US on Tuesday, the logistics industry is bracing for a potentially crippling effect. For the Middle East, its expected ripple effects may only exacerbate an already challenging situation.
At 12.01am ET on Tuesday (8.01am in the UAE) the strike of the ILA – a maritime alliance representing all major shipping lines – stopped operations in the US East Coast, halting the flow of goods across 14 port authorities. It's the first such strike at these ports since 1977.
The New Jersey-based ILA and the United States Maritime Alliance (USMX) – a coalition of container carriers, direct employers and port associations serving the East and Gulf coasts of the US – had until Monday to iron out a deal.
The six-year contract between them began on October 1, 2018; since then, they have struggled with issues including worker wages and automation in the industry, as well as criticism on what is said to be billions worth of bonuses for USMX executives.
Last-minute negotiations did not yield results. The president of the ILA, Harold Daggett, last week said "a sleeping giant is ready to roar on Tuesday ... if a new master contract agreement is not in place". ILA members had been preparing for a possible strike "for over a year".
The time leading up to the strike has already created uncertainty, with "significant disruptions" expected especially in regions heavily reliant on US ports for imports and exports, Christian Roeloffs, chief executive of Container xChange, told The National.
That includes the Middle East, where the logistics sector has already been beset by geopolitical tension. Only days ago, Israel's military attacked Houthi rebels in Yemen's Hodeidah port on the Red Sea on Sunday.
The Houthis began attacking commercial vessels to express solidarity with the Palestinians in the Israel-Gaza war, severely disrupting trade routes, resulting in longer transit times and affecting the bottom line of shipping companies, forcing them to raise their rates to cope with losses.
A stoppage in US East Coast port operations may force shipping lines to redirect their vessels to West Coast or Middle Eastern ports, causing more bottlenecks, Mr Roeloffs said.
And the more potential direct consequence, he said, would be that major carriers may impose more surcharges, from $1,000 to $3,000 per container, depending on the nature and duration of the disruptions, he said.
"This increase would be felt across the supply chain, resulting in higher prices for consumers. In regions like the Middle East, which relies heavily on imports for food and consumer goods, these price hikes could be significant, potentially impacting inflation rates in the region."
Consumer holiday blues
The ILA's strike comes during the period before Christmas the most important time of the year for retailers and, more critically, consumers, as they tend to spend on new items and gifts.
The strike, as a result of delivery delays, may cause shortages of goods and potentially leaving empty shelves at retailers if the situation is not resolved, said Joseph Dahrieh, managing principal at brokerage Tickmill.
As a result, increased prices can potentially strain consumers' holiday budgets, he told The National.
"Adding to that, the uncertainty surrounding product availability may force shoppers to change their purchasing plans, impacting overall sales during the critical holiday season."
The UAE, in particular, has been the top export market for US goods since 2009 in the Middle East and North Africa region, according to data from the UAE embassy in Washington, DC. In 2023, record figures were posted, with bilateral trade between the two nations hitting $31.4 billion, it said.
The US exported about $24.9 billion of goods and services to the UAE, a 19 per cent jump from 2022 – resulting in an $18.3 billion trade surplus for the US, which is America’s fourth largest globally, official data shows.
Analysts say the Middle East sectors that would be most vulnerable to the disruptions as a result of the ILA strike would include retail, automotive and, to a lesser extent, food products.
In any case, the biggest sticking point for consumers is that they may have to bear the brunt of price volatility in essential goods, Mr Roeloffs said.
"Industries relying on timely shipments of components, such as electronics and automotive parts, will also experience disruptions that could hinder production and lead to increased costs," he added.
Still, a silver lining is that US inventories are currently strong due to the pulling forward of orders this year, in the lead-up to the ILA strike, to avoid existing disruption.
"This stockpile will act as an essential buffer, mitigating the risk of container rates spiking dramatically due to the strikes," Mr Roeloffs said.
How long would it last?
There is no definitive answer to how long the ILA strike would last, as it would depend on the speed and scope of negotiations. However, the Arab world may not experience that much of an impact generally speaking, strikes in the US last much less than strikes in other advanced economies, said Nassib Ghobril, chief economist at Lebanon's Byblos Bank Group.
"Regardless of the reasons for the strike ... US companies usually succeed in avoiding disruptions to their operations from such stand-offs," he told The National.
In addition, trade factors play an important role: US exports are concentrated in five Arab countries, with the UAE leading the way, followed by Saudi Arabia, Qatar, Egypt and Morocco. Combined, they accounted for about 80 per cent of the US exports of goods to the Arab world in 2023. US exports to the region also made up 3.5 per cent of overall US exports in 2022, but for less than 7 per cent of the region’s aggregate imports.
"So, contrary to the prevailing perception, the region is not overly reliant on the US to source its goods and has multiple sources for its imports, particularly from the major European economies and China," Mr Ghobril said.
Also, while the war in the Gaza Strip has disrupted trade routes, impacting the flow of goods by affecting supply chains and the time of delivery, this did not amount – at least, not yet – to major interruptions or dislocation of trade flows, he added.
"Furthermore, given the geographic distance of the US from the region relative to other sources of imports like Europe and China, the disruption of shipping routes is likely to constitute a disadvantage for US products. In addition, the emerging boycott of certain US consumer goods in the wake of the war in Gaza might reduce demand for certain American products," he said.
"Overall, US trade relations with the largest Arab economies are likely to persist and increase, particularly in fields such as technology, renewable energy and cyber security, among others, where it has competitive advantages."
Political leverage?
The ILA strike also poses a significant challenge for the administration of departing President Joe Biden, occurring only weeks before the 2024 presidential election. Vice President, Kamala Harris, is running for the nation's top elected post.
Consumers and workers are also voters; the strike’s economic and political implications could significantly influence the electoral landscape, Mr Dahrieh said.
"Democrats face a dilemma: intervening to stop the strike could alienate crucial blue-collar workers, while allowing it to continue might worsen economic conditions and damage the administration’s image," he said.
"For former president [Donald] Trump, the strike presents an opportunity to strengthen his appeal among union voters by positioning himself as a champion of blue-collar interests, highlighting perceived neglect by Democrats."
For container trading and leasing companies, these disruptions could lead to significant delays and port congestion, impacting equipment turnaround times. Companies should anticipate short-term spikes in demand for leased containers as retailers rush to secure goods ahead of potential disruptions, particularly for seasonal inventory and industrial shipments.
