Resin exports, shipping, production at risk in port strike

Editors' note: This story was written and published prior to an agreement being reached by the International Longshoremen's Association and U.S. Maritime Alliance on Oct. 3. Watch Plastics News for updates on this story.

The ongoing dock strike by the International Longshoremen's Association could have a major impact on resin markets.

The ILA went on strike at midnight Oct. 1 after being unable to agree on a new contract with the U.S. Maritime Alliance.

Polyethylene resin in particular could be affected by the strike, according to Esteban Sagel, principal with Chemical & Polymer Market Consultants in Houston. Sagel said that in the first seven months of 2024, the U.S. and Canada had exported 61 percent of all linear low density PE production, 50 percent of low density PE production and 44 percent of high density PE production in the region. He added that 93 percent of those exports used ports in the Eastern Seaboard and U.S. Gulf Coast.

"On average, every month [1.9 billion pounds] of polyethylene is exported through ports affected by the strike," Sagel said. "There is no way domestic markets can absorb that amount of product.

"If the strike persists for a significant period, producers will be forced to reduce operating rates, which will in turn cause cascading effects upstream," he added. "The net results would be decreases in polyethylene and ethane prices, as well as potential increases in polyethylene prices around the world."

The timing of a potential strike "couldn't be worse," according to Sagel, since global logistics are already under strain from the ongoing conflict in the Middle East impacting traffic through the Suez Canal and the recent drought in Panama, which temporarily reduced traffic through the canal.

Sagel pointed out that PE isn't the only polymer at risk. In 2023, the U.S. exported 5.2 billion pounds of PVC, 1.8 billion pounds of polypropylene and 2 billion pounds of PET via sea.

"The outcome of this potential strike has the power to reshape trade flows, impact energy markets and create a ripple effect across the global economy," he said. "The industry should brace for significant turbulence if the strike isn't averted or if it drags on for an extended period."

Phil Karig, principal of the Mathelin Bay Associates consulting firm in St. Louis, agreed that the potential impacts of the strike on the plastics industry will be concentrated in export infrastructure.

"One possible worry is having a mismatch between container supply locations and container demand locations," Karig said. "There was a severe mismatch when the world economy rebounded much quicker than anticipated following an initial COVID-related slowdown, and a smaller scale version of this could occur after an extended strike."

He added that another mismatch to watch out for is the durability of supply chain links between Houston area warehouses packaging resin for export and intermodal rail service to ports not experiencing a strike, such as Los Angeles/Long Beach and Seattle.

"Even if the flow of export resin can successfully be rerouted from the Gulf Coast to the West Coast, there are likely to be shipping cost increases, extended shipping times and potential bottlenecks at West Coast ports, all of which could impact resin prices and inventories," Karig said.

If the work stoppage persists long enough, resin producers would have to consider cutting back production rates to avoid a significant inventory build, according to Howard Rappaport, a market analyst with StoneX in New York.

"Initially it would seem that the potential for additional inventory would lend itself to lower market prices in the short term," he said. "However, if operating rates fall significantly enough the opposite [higher prices] could also be true.

"So much depends upon the length of time that the port of Houston is shut down and the severity of measures taken by resin producers to avoid a significant inventory build," Rappaport added.

The strike will affect shipments of chemicals, according to Chris Jahn, president and CEO of the American Chemistry Council in Washington. In a statement, Jahn said the U.S. chemical industry "is one of the country's largest shippers across all modes of transportation, including marine shipments through our nation's ports."

"The port strike is of particular concern to our industry, since about 90 percent of the waterborne chemical shipments that move in and out of the U.S. flow through the East Coast and Gulf Coast ports," he added. "Shutting down the ports along the East and Gulf Coasts will result in a major disruption of chemical imports and exports, which in turn will hurt the broader economy both here and abroad.

"We urge the White House to do everything possible to prevent this major shockwave from rippling through the American supply chain and hurting U.S. trade by working with both parties to resume contract negations," Jahn said.

According to ACC, U.S. chemical exports have grown by 29 percent in the past decade, and 28 percent of U.S. chemical shipments are exported globally. The largest U.S. ports for chemicals exports are Houston; Baton Rouge, La.; New Orleans; Freeport, Texas; and Corpus Christi, Texas.

The ILA, which represents almost 50,000 dockworkers at 36 U.S. ports ranging from the East Coast all the way to Texas, is seeking higher wages and some guarantees that jobs won't be lost to automation. The Maritime Alliance, known as USMX, represents shipping firms and other employers.

"We are now demanding $5 an hour increase in wages for each of the six years of a new ILA-USMX Master Contract," ILA President Harold Daggett said in an Oct. 1 news release from the North Bergen, N.J.-based union. "Plus, we want absolute airtight language that there will be no automation or semi-automation and we are demanding all container royalty monies go to the ILA."

According to the ILA, shippers "are gouging their customers, [resulting] in increased costs to American consumers." The union said USMX has increased its full container charges from $6,000 to $30,000 in recent weeks. "It's unheard of, and [USMX] is doubling their $30,000 fee stuffing the same container from multiple shippers," ILA officials said. "They are killing the customers."

In their own Oct. 1 news release, officials with Lyndhurst, N.J.-based USMX countered that they "have demonstrated a commitment to doing our part to end the completely avoidable ILA strike."

"Our current offer of a nearly 50 percent wage increase exceeds every other recent union settlement, while addressing inflation and recognizing the ILA's hard work to keep the global economy running," USMX officials added. "We look forward to hearing from the union about how we can return to the table and actually bargain, which is the only way to reach a resolution."