Global News Shifting geopolitics, climate and labor ratchet up risk for container shipping

The scale of the challenges and risks facing the container shipping industry in the aftermath of the pandemic is the greatest it’s been in decades, thanks to dramatic changes in geopolitics, climate and labor dynamics.

Container shipping is hardly the only industry to experience the resurgence of organized labor’s bargaining power amid building pressures from employers to automate. Nor is the industry unique in feeling regulatory pressures tied to decarbonization or increased geopolitical flashpoints amid a shrinking US hegemony. The automotive and semiconductor industries, for example, are also feeling the metaphorical ground shift below them.

But at its core, container shipping is international and industrial in nature, and powered by unionized labor at some of the largest ports in the Western world. That inflates the challenge and risk and goes beyond the traditional challenges of oversupply and downcycles.

Unpredictability marks the most geopolitically volatile time in decades, according to JP Morgan’s Jamie Dimon and Baker Hughes’s Lorenzo Simonelli, titans of banking and energy, respectively. The meeting of US President Joe Biden and China President Xi Jingping in November may have eased worries of a clash over Taiwan, jeopardizing Pacific trade, but it took just four weeks before another arose. Fire on the water A OOCL vessel was one of three ships attacked by the Houthi militia on Dec. 3 in the Red Sea, further inflaming a region already reeling from the Israel-Hamas war. Armed with long-range ballistic missiles and backed by Iran, the Houthi’s reach and power exceeds that of the Somali pirates, who authorities also fear are becoming more active in the Gulf of Aden. Container lines are levying war risk surcharges for cargoes moving in and out of Israel, just like many did following Russia’s invasion of Ukraine in February 2022.

The impact of climate change, less flashy than direct strikes against the arteries of trade but also world-changing, will be hard to underestimate. Those who do -- such as the successive Panamanian governments that held up costly, yet critical, water-saving projects -- end of racking up a far higher cost in the end. The failure to complete those projects, which come with a $2 billion price tag, now will mean fewer transits and lower drafts along the Panama Canal, actions that are likely to hobble the waterway to varying degrees for years. Container lines are rerouting services through the Suez Canal in response.

There is no escaping the costs that the shipping industry will take on. One study, completed for the Environmental Defense Fund, estimates that container ports will have to invest up to $10 billion annually by 2050. It will cost at least $1 trillion for the entire shipping industry, including tankers and bulkers, to meet the International Maritime Organization’s (IMO) goal to cut carbon dioxide emissions (COs) by at least 40% by 2030 against a 2008 baseline.

That massive investment hinges on the market having confidence in the timetable for decarbonization. The revised strategy agreed upon by IMO members last summer helps, but there is still the matter of doing and regulating, warns analyst Lars Jensen. History’s track record for executing mandates without postponements due to wavering IMO members and then enforcing the rules has been mixed at best, noted Jensen, also a Journal of Commerce contributor. More than just a labor flex The changes rippling through organized labor are more subtle than those coming from a jittery geopolitical landscape and warmer temperatures. But the ingredients for disruption are there, with longshore labor more emboldened to shut down the gateway of trade but also beginning to exercise its full power by working in concert with other unions.

New marine terminals and expansion upgrades at existing facilities open the possibility of more automation, thus injecting more tension into contact discussions. After two years of record profits, labor views employers having far more to give in compensation, even as employers see volume growth slow and costs increase.

No wonder, then, that this year has been marked by longshore labor disruption. The International Longshore and Warehouse Union (ILWU) flexed its power on the West Coast of both the US and Canada. Montreal port workers and employers have hit an impasse in contract negotiations, bringing back memories of a five-day strike in 2021 and a 19-day strike in 2020 at Canada’s second-largest port. And the International Longshoremen’s Association (ILA) has already raised the prospect of a strike at US East and Gulf coast ports after its contract expires at the end of September, the first time that would happen since 1977.

It’s not just that longshore labor feels more emboldened; it’s that it’s starting to exercise a new degree of sophistication to disrupt supply chains. In defense of the labor model, Swedish port workers are refusing to handle Tesla vehicles in solidarity with unionized automotive and postal workers. Last week, Norway’s largest private union expanded the attack beyond Sweden, saying it would block Tesla shipments from reaching its neighbor, according to Reuters.

The pandemic reinforced the fragility of supply chains and exposed the leverage of unions, particularly for industries with complicated supply chains. US auto unions surgically disrupted plants critical to production that had lower workforces, allowing them to keep their strike going and get a favorable tentative agreement.

Pointing to the United Auto Workers (UAW) reaching a tentative deal with Ford Motors to more than double the lowest hourly straight-time wage to up to $40 per over four years, ILA President Harold Daggett told the rank-and-file in early November they deserved a pay increase, while ILA union officials also said they would not let up in the fight to prevent more advanced automation at ports and terminals.

Labor disruption worked its way further downstream in supply chains in 2023 as well. UPS avoided a potentially crippling strike last summer, signing a five-year agreement with the International Brotherhood of Teamsters. But labor unrest touched Amazon, DHL and other major companies, contributing to the shutdown of one of the largest US trucking providers, Yellow, in July.

The stage appears set for more confrontations in 2024.