The fate of East and Gulf coast ports still in limbo

Once again talks between the International Longshoreman Association and the United States Maritime Alliance were extended, this time until February 6.  Although one sticky issue, that of royalty payments, appears to be resolved, the Federal Mediation and Conciliation Service Director, George H. Cohen noted the two sides still needed to come to an agreement on “outstanding Master Agreement issues including those relating to New York and New Jersey”.

The timing for this extension may be a blessing to all involved as it comes close to the beginning of the Chinese New Year – February 10 – which is when Chinese manufacturing shuts down for a few weeks. Still, it appears retailers and other businesses may have opted to restock inventory in December leading up to the December deadline and in anticipation of the Chinese New Year, much like what occurred in 2011. Intermodal rail traffic was up 8% year over year for the week ending December 15^th and up 10.2% for the week ending December 22. However, for the week ending December 29^th (deadline for the contract negotiation), intermodal traffic declined almost 14% for CSX, 4% for Norfolk Southern and 10% for Union Pacific.

In the event of a strike, Maersk announced plans to implement a port congestion surcharge. Effective January 29^th, for all East and Gulf Coast ports, a surcharge of $800 per twenty-foot container, $1,000 per forty-foot standard container, $1,125 per forty-foot high cube container, and $1,266 per forty-five-foot container will be applicable to all import and export shipments.

For all U.S. West coast imports, effective February 14, 2013 a surcharge of $320 per twenty-foot container, $400 per forty-foot standard container, $450 per forty-foot high cube container, and $506 per forty-five-foot container will apply.

For all U.S. West coast exports, effective February 21, 2013 a surcharge of $800 per twenty-foot container, $1,000 per forty-foot standard container, $1,125 per forty-foot high cube container, and $1,266 per forty-five-foot container will apply.

The surcharge will also apply to import shipments to the U.S. routed through Canada.

For shippers needing to divert cargo to other ports, it appears the Mexican ports may be the best option particularly to avoid additional surcharges. If so, expect Class I railroad Kansas City Southern to benefit. Kansas City Southern is the only US Class I railroad that operates from Mexico’s west coast port Lazaro Cardenas into the US Midwest and Gulf sections of the US. In fact, Lazaro Cardenas also profited from the recent strikes at the Ports of Los Angeles and Long Beach.

During January, shippers will revise contingency plans for not only a potential strike but also for the annual holiday shutdown of Asian manufacturing in February. If there is a strike, Mexican ports and air cargo providers will likely be the beneficiaries of cargo.