Insurance and risk management implications

As it has done many times before, the International Longshore Association (ILA) has threatened a strike starting October 1 that will shut down major ports along the Atlantic and Gulf coasts of the United States, with significant repercussions for global trade. That strike is now on.

Organizations shipping goods to and from the US should consider how marine cargo insurance may respond and understand how they can take steps to mitigate potential risks.

The parties at the table

The ILA’s current contract, which covers 45,000 dockers, expired on September 30, 2024. If an agreement is not reached, the ILA has strongly stated its intention to strike. Founded in 1892, the ILA’s longtime goal was to unify longshoremen to improve working conditions and wages. ILA members work in some of the busiest ports in the United States, including:

• New York and New Jersey, one of the largest port complexes in the US
• Baltimore, a key hub for cargo and shipping.
• Norfolk, Virginia, a vital port for military and commercial shipping.
• Charleston, South Carolina, a major 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 negotiating table is the United States Maritime Alliance (USMX), whose members are responsible for the transportation and handling of goods shipped to and from the United States. USMX is comprised of the largest container carriers and carrier alliances worldwide, all major marine terminal operators and associations representing East Coast and Gulf Coast ports, and is the designated representative of its members in ILA contract negotiations.

What a strike could mean

The strike could effectively bring more than half of the United States’ container operations to a complete halt. Importers, exporters, shippers, carriers and others will be affected as the fourth quarter begins and port volumes typically increase.

East Coast and Gulf Coast ports of entry could experience significant delays, and cargo already on the water entering the affected ports could be disrupted. Carriers will likely be forced to reroute ships to avoid potential delays or disruptions at affected ports, leading to longer cargo transit times and additional costs. Shipping carriers could also embargo goods coming from the East Coast.

When operations are halted due to a strike, goods can get stuck at ports, leading to higher costs. Increased freight and container charges – including storage, per diem, station, detention, chassis, storage and pre-pull charges – are also likely.

A strike could have downstream impacts on importers, retailers and others in the run-up to the peak season. Capacity costs and congestion in international freight could increase, and international supply chains could suffer from global disruption and economic damage.

Although ILA strikes were usually relatively short, this was not always the case. A strike in 1977 lasted about 11 weeks, from September to December, as the parties fought over ages and working conditions. The strike significantly affected cargo operations at East Coast ports and demonstrated the union’s determination to secure better contracts for its members.

Risk Responses and Insurance

A typical cargo insurance policy covers physical loss or damage caused by strikes, riots, and civil disturbances. However, some key exclusions are cause for concern:

1. Delays and increased damages: Strikes often cause delays in the loading, unloading and transportation of goods, increasing the risk of damage to perishable goods. Delay is a primary exclusion for most policies and unless damage/alteration of perishable goods due to delay is specifically endorsed in the policy, the owners of the goods may be left without cover.
2. Loss of market due to delays: This is a major concern for commodity owners, especially for seasonal commodities that are meant to hit the market at specific, time-sensitive times, such as the holiday season. Cargo insurance policies will cover physical loss or damage to goods, but usually exclude financial loss due to delays in transit, including loss of market opportunities.
3. Increase in station and detention fees: Delays due to port strikes could also lead to increased berthing and detention charges borne by the cargo owner. A cargo policy will usually provide station cover only at the request of an insurer to detain a container at a port for inspection. Unemployment charges and detention charges outside an insurer’s inspection are usually not covered by cargo policies.

Marine cargo policyholders should also bear in mind that goods detained in busy ports may be more susceptible to theft. Insurers may see an increase in theft claims as a result of 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 need to recognize that cargo in transit to East and Gulf Coast ports will be severely delayed, expect options to reroute cargo through Canada and Mexico and prepare for higher capacity prices and freight and container charges – the financial liability of which could be significant.

Organizations should consider:

• Delay of cargo shipments from home ports until after the strike.
• Preparing for significantly increased demand and congestion at US West Coast ports and US domestic rail and truck routes as shippers reroute to avoid disruptions.
• Using air transport for the most urgent shipments.
• Transfer of unloaded goods by intermodal and land transport.

Finally, organizations should consider exploring the following additional assurance tools (although prospective and not necessarily available for the current situation):

• Third party strike risk insurance: There is limited market capacity available to cover the economic consequences of third-party strikes. Capacity is limited and coverage is tailored to certain policyholders.
• Business interruption insurance: Wider coverage is available to address port and navigation disruption, but again capacity is limited and the underwriting process is very detailed.
• Contractual insurance for damages for delay: For specific contractual risks that trigger delay damages, capacity is available to cover the specific damages that would occur.
• Damage resulting from delay: There is limited capacity in the commodity market to cover damage, deterioration or deterioration caused by delays beyond an insured’s control. Most marketplaces that offer this coverage will apply an annual sublimit and aggregate. Typically, this would be an extension of a business cargo insurance program.
• Travel frustration and additional expenses: The cargo market provides coverage that addresses frustrations, interruptions, and terminations of voyages resulting from certain covered perils, including accidental port blockages. The insurers will pay all reasonable additional expenses incurred by an insured cargo in shipping the goods to the original or alternate destination. In particular, this extension of coverage applies only to voyages dispatched prior to a frustration, interruption, termination or port blockage event. There is usually a waiting period for the time element before coverage begins.

For more information and assistance, contact Lockton’s Global Marine team.

This article originally appeared on the Lockton website and is republished here with minor changes, with permission.

Photo: Containers are moved into the Port of New York and New Jersey in Elizabeth, NJ, on June 30, 2021. (AP Photo/Seth Wenig, File)

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Risk management