With the current port strike pausing the flow of ocean freight into the East and Gulf Coasts, the air freight alternative could be a short-term benefit for UPS and FedEx.
Investment banking firm Stifel said both logistics giants were the most “obvious beneficiaries” of the port disruptions, given their international air freight capacity. These companies stand to benefit from shippers that are converting shipments from sea to air in the near term.
“Air cargo is essentially the clear beneficiary we can see in this situation,” Bruce Chan, transportation and logistics analyst at Stifel, told Yahoo Finance Tuesday, noting the concerns of West Coast backlogs and the current port strike in Montreal inhibiting ocean shipments into North America. “There really are not a whole lot of options in terms of a Plan B here other than air cargo.”
Shelby McFaddin, an investment analyst at Motley Fool Asset Management, told Quartz that both FedEx and UPS would potentially be able to pick up some short-term contracts in early October.
“We saw something similar when UPS was going through its own issues with Teamsters back in the spring where they lost a good amount of volume because some of their customers said, ‘You know what, this is a sure thing, we have a lot of faith in you, but we’ve seen what strikes can do,’” McFaddin said.
Air freight has already seen significant demand growth in 2024, particularly as e-commerce companies like Temu and Shein flood the U.S. market with products.
“A surge in demand, potentially for air freight space due to these disruptions would, of course, lead to rate spikes, especially for last-minute shipments,” Thomas Kempf, senior director of global air freight at Flexport, told Sourcing Journal in September. “Therefore, now we can expect to see an increase in the use of express air solutions.
On Tuesday, Freightos Air Index data indicated that weekly prices from China to North America increased 9 percent to $5.91/kg, while rates from China to Northern Europe increased 8 percent to $3.97/kg. Weekly prices from Northern Europe to North America increased 1 percent to $1.73/kg, and have jumped 4 percent since early September.
“Let’s be real, a complete supply chain mode shift from ocean to air isn’t always a practical solution. Apart from the associated costs, there are various other factors to take into consideration that differ from shipping via ocean,” said Angel Rodriguez, president of ASF Air. “However, a portion of your production can, and should be, considered as ‘shiftable’ in mode to create the necessary safety stock. In many instances, there’s still time to reroute or change the mode of transportation to still meet the need date.”
The Stifel research note indicated that freight forwarding companies like C.H. Robinson and Expeditors are likely to see an increase in volumes as the strike continues, but will experience offsetting impact from higher purchased capacity and a resulting gross margin squeeze.
The U.S. Maritime Alliance (USMX) has not reached back out to the International Longshoremen’s Association (ILA) with any new counteroffer since the strike began after midnight Tuesday, and the sides are not currently at the negotiating table, according to a Tuesday morning update from CNBC. President Harold Daggett told the network the union is seeking a 61.5 percent pay bump.
West Coast ports say they can handle extra capacity as ships pile up on East Coast
As the strike continues, West Coast ports have insinuated that they will be able to take on the added capacity that is likely to come as shippers book more cargo.
According to Port of Long Beach CEO Mario Cordero, terminal capacity was running at 70 percent capacity of Tuesday morning.
“Given the historical number of containers that we have moved, particularly through the month of August, I think we’re in a very good position to handle any continued surge that comes to the Port of Long Beach,” Cordero told Bloomberg TV.
Cordero previously said in a statement Friday that the port has handled as much cargo as it did in 2021 and 2022 “without any of the pandemic-era backlogs” that arose at the time.
Cordero’s commentary comes after Port of Los Angeles executive director Gene Seroka said the sister San Pedro Bay port could handle excess cargo in the event of a strike. According to Seroka, the L.A. port ran at about 80 percent capacity in late September.
Meanwhile, vessels off the eastern seaboard continues to stack up on the strike’s second day.
The queue of waiting container ships off the U.S. East and Gulf Coast ports has further increased by roughly 20 percent to 45 ships as of Wednesday morning, according to data from Everstream Analytics.
For comparison, there were three vessels waiting on Sunday, 31 on Monday and 38 on Tuesday, the first day of the strike.
According to Mirko Woitzik, global director of intelligence for Everstream Analytics, the queue could easily grow to 100 by the end of this week as more container ships are on the way.
The TEUs on these ships have surpassed 300,000 on Wednesday, roughly 14 percent more than yesterday, and double the size compared to two days ago.
Many of these vessels are staying put outside the Ports of Savannah (13), New York (eight) and Norfolk (eight).
“So far, we have not seen major diversions to other ports in the Bahamas, Mexico or the West Coast,” said Woitzik. “This is likely due to carriers hoping for a quick resolution to the strike and the financial and logistical implications of diversions that would certainly cause even longer delays. However, if the strike lasted more than one week with no resolution in sight, this might change.”
In an interview with Yahoo Finance Tuesday, Seroka said there have been no East or Gulf Coast-destined ships that have diverted to the West Coast in the days leading into and during the strike.
“That is sacrosanct between these unions,” Seroka said. “What we have seen, is cargo being booked in Asia a little bit earlier and coming our way as a hedge. No ships are making that left-hand turn away from their normal routes to come here to Los Angeles.”
