As it has many times before, the International Longshore Association (ILA) is once again threatening a strike, beginning October 1, that could shut down major ports along the Atlantic and Gulf coasts of the United States, with significant repercussions for global trade. Organizations that ship goods into and out of the U.S. should consider how marine cargo insurance may respond and understand how they can take action to mitigate potential risks.
The parties at the table
The ILA’s current contract, covering 45,000 dockworkers, is set to expire on September 30, 2024. If no agreement is reached, the ILA has firmly stated its intention to strike. Founded in 1892, the ILA’s longtime purpose has been to unify longshore workers to improve working conditions and wages. The ILA’s members work at some of the United States’ busiest ports, including:
New York and New Jersey, one of the largest port complexes in the U.S.
Baltimore, a key hub for cargo and shipping.
Norfolk, Virginia, a vital port for military and commercial shipping.
Charleston, South Carolina, an important container port.
Savannah, Georgia, which is known for its significant container traffic.
Miami, a major gateway for trade with Latin America.
New Orleans, an essential port for cargo and bulk shipping.
Houston, a critical port for oil and other commodities.
On the other side of the bargaining table is the United States Maritime Alliance (USMX), whose members are responsible for the transportation and handling of cargo shipped to and from the United States. The USMX consists of the largest container carriers and carrier alliances worldwide, all major marine terminal operators, and associations representing the East Coast and Gulf Coast ports, and is the designated representative of its members in ILA contract bargaining.
What a strike would mean
The threatened strike would effectively bring more than half of the United States’ container operations to a complete halt (opens a new window). Importers, exporters, shippers, carriers, and others will be affected just as the fourth quarter begins and port volumes typically surge.
East Coast and Gulf Coast entry points would experience significant delays, and cargo already on the water and inbound to affected ports would be disrupted. Carriers would likely be forced to reroute vessels to avoid potential delays or disruptions at affected ports, leading to longer cargo transit times and additional costs. Ocean carriers could also place an embargo on cargo coming from the East Coast.
If operations are halted due to a strike, cargo could become stranded at ports, leading to higher costs. Increased freight and container fees — including storage, per diem, demurrage, detention, chassis, storage, and pre-pull charges — are also likely.
A strike would have downstream impacts on importers, retailers, and others in the run-up to peak season. Capacity costs and congestion for international freight would increase, and international supply chains would suffer from global disruptions and economic damage.
Although ILA strikes have typically been relatively short, that has not always been the case. A 1977 strike lasted for approximately 11 weeks, from September to December, as the parties fought about ages and working conditions. The strike significantly affected cargo operations at ports along the East Coast and demonstrated the union's determination to secure better contracts for its members.
Risk & insurance responses
A typical cargo insurance policy covers physical loss or damage due to strikes, riots, and civil commotions. However, some paramount exclusions are a cause of concern:
Increased delays and damages: Strikes often cause delays in loading, unloading, and transporting cargo, increasing the risk of perishable goods deteriorating. Delay is a paramount exclusion on most policies, and unless deterioration/spoilage of perishable goods due to delay is specifically endorsed onto the policy, cargo owners could be left without coverage.
Loss of market due to delays: This is a major concern for cargo owners, especially for seasonal goods that are intended to hit the market at specific, time-sensitive periods, like the holiday season. Cargo insurance policies will cover the physical loss or damage to goods, but typically exclude financial losses due to delays in transit, including loss of market opportunities.
Increased demurrage and detention fees: Delays due to port strikes might also lead to increased demurrage and detention fees incurred by the cargo owner. A cargo policy will typically only provide coverage for demurrage upon an insurer’s request to detain a container at a port for inspection. Demurrage charges and detention fees outside of an insurer inspection are typically not covered in cargo policies.
Marine cargo insured should also be mindful that goods held up at congested ports may be more likely to be stolen. Insurers may see an uptick of theft-related claims resulting from the strike and port congestion.
Logistics service providers have provided shippers with guidance and recommendations to reduce their risks ahead of a potential strike. Organizations must recognize that freight in transit to East and Gulf Coast ports will be drastically delayed, expect that options to redirect freight via Canada and Mexico may be limited, and prepare for higher capacity pricing and freight and container fees — the financial responsibility for which could be significant.
Organizations should consider:
Delaying freight shipments from ports of origin until after the strike.
Preparing for significant increased demand and congestion at U.S. West Coast ports and in domestic U.S. rail and truck freight lanes, as shippers reroute to avoid disruption.
Using air freight for the most urgent shipments.
Transferring landed cargo via intermodal and ground freight.
Finally, organizations should consider exploring the following additional insurance tools (albeit prospectively and not necessarily available for the current situation):
Third-party strike risks insurance: There is limited market capacity available to cover the economic consequences of third-party strikes. The capacity is limited, and the coverage is tailored to particular insureds.
Trade disruption insurance: Broader coverage is available to address port and navigation disruption, but again the capacity is limited, and the underwriting process is very detailed.
Contractual delay damages insurance: For specific contractual risks that trigger delay damages, capacity is available to cover specific damages that would arise.
Deterioration arising from delay: There is limited capacity in the cargo market to cover deterioration, decay, or spoilage caused by delays beyond an insured’s control. Most markets that provide this cover will apply a sublimit and an annual aggregate. Typically, this would be an expansion of an enterprise cargo insurance program.
Voyage frustration and extra expense: The cargo market offers coverage that responds to frustration, interruption, and termination of voyages resulting from specific covered perils, including fortuitous port blockages. Insurers will pay all reasonable extra expenses incurred by a cargo insured for forwarding goods to the original or substitute destination. Notably, this coverage extension only applies to voyages dispatched prior to a voyage frustration, interruption, termination, or port blockage event. There is usually a time element waiting period prior to commencement of coverage.
For more information and assistance, contact Lockton’s Global Marine team (opens a new window).