SHIPPING: ILA ports strike to weigh on US PE, PVC exports; carriers set congestion surcharges

HOUSTON (ICIS)–Participants in the US chemical industry worry that a prolonged strike by US Gulf and East Coast dock workers will hurt exporters and lead to supply surpluses, and some carriers are already initiating port congestion surcharges that will add increased costs on top of delays to both imports and exports.

As expected, dockworkers on the US East and Gulf Coasts went on strike early on Tuesday after labor union International Longshoremen’s Association (ILA) rejected the latest wage offer by employers’ group United States Maritime Alliance (USMX).

While the US government has said it will not intervene, some analysts, including Peter Sand, chief analyst at ocean and freight rate analytics firm Xeneta, think government intervention will be required to bring the dispute to an end.

“The latest statement by the ILA suggests there is very little prospect of the two sides reaching a mutually agreeable resolution,” Sand said. “To stop trade from entering the US on such a scale for a prolonged period of time is unthinkable so the Government will need to step in for the good of its people and economy.”

Kevin Swift, ICIS Senior Economist for Global Chemicals, said the strike could cost the US economy up to $5 billion/day.

“This will affect imports from Germany, the Netherlands and other European nations,” Swift said. “I think the effect is more on specialty chemicals than resins.

Swift said the ultimate disruption and cost to the economy depends on how long the strike lasts.

IMPACT TO CHEM MARKETS
The strike is already impacting US polyethylene (PE) exports.

Container ships also transport polymers, such as PE and polypropylene (PP), which are shipped in pellets.

A PE trader in South America told ICIS that they are halting sales of US material destined for Brazil until additional information is available since they are unable to inform clients of the estimated departure date.

According to the trader, some cargoes could be delayed by 30 days.

The US is the main origin of PE imports into Brazil.

The polyvinyl chloride (PVC) Industry is concerned as all US Gulf PVC exports move out of one of the impacted East Coast ports.

This could result in a long inventory situation and an increase in days of supply if producers and traders are unable to execute on export transactions due to the port strike.

In the polyethylene terephthalate (PET) market, imports of PET resins have already been diverted to the US West Coast in anticipation of the work stoppage.

But this places extra pressure on the rail and trucking industries which will need to move that material to destinations that were previously reached from the US Gulf or the East Coast.

Imports of purified terephthalic acid (PTA), used to make PET, that typically come from South Korea and Mexico, could be affected by the strike.

Even if some PTA gets delivered on the West Coast, it will still need to be transported to the East Coast where most PET plants are located.

CARRIER SURCHARGES
Market sources are telling ICIS they are seeing congestion surcharges between $1,000-3,000/FEU (40-foot equivalent unit), with some citing even higher surcharges.

Sand said that extreme increases in container costs cited by ILA president Harold Daggett have not been seen yet.

In a statement on 30 September, Daggett said carriers are charging $30,000/container.

Sand cited Xeneta data, which is based on more than 450 million crowdsourced datapoints, showing average spot rates on the major fronthaul from Asia to US East Coast were at around $7,000/FEU on 1 October.

“While average spot rates from north Europe to the US East Coast have increased 50% since the end of August, they are still only $2,800/FEU,” Sand said.

Supply chain advisors Drewry also show rates from Asia to the USEC at $6,000/FEU, and rates from Asia to the USWC are at $5,500, although the rate of decline has slowed with more traffic heading that way because of the strike.

Liquid chemicals that are largely transported by tankers are unlikely to be affected.

But more liquid chemicals are being moved on container ships in isotanks.

Focus story by Adam Yanelli

Additional reporting by Stefan Baumgarten, Emily Friedman, Bruno Menini, Antulio Borneo and Kelly Coutu

Visit the ICIS Logistics – impact on chemicals and energy topic page