There is chaos in the ports and costs are starting to rise

As the strike at East and Gulf Coast ports enters its third day Thursday, the nation's logistics system is showing early signs of stress, with thousands of containers being dumped at the wrong ports and billions of dollars' worth of trade stranded on ships. Ocean carrier surcharges for shipping customers are beginning to rise, and the need to move rerouted cargo by truck and rail to the final destination increases costs in the supply chain.

The construction chaos continues, and there is no sign that the International Longshoremen's Association and the United States Maritime Alliance are back at the negotiating table trying to reconcile significant differences in wage increases and the use of port automation, despite consistent efforts by the Biden administration to bring them together the parties are back in collective bargaining.

In a frenzied attempt to unload as many containers as possible for their customers, shipping companies have been dropping off containers at alternative ports, but according to Vizion, which tracks container movements, about 2,000 shipments may have been dropped off at a port that was not their intended destination.

Exclusive data from Vizion and Everstream Analytics shows that five ships shifted their destinations from U.S. East Coast ports to alternative destinations on October 1 to meet schedule and move containers from their ships.

Mirko Woitzik, director of intelligence solutions at Everstream Analytics, told CNBC that Hapag-Lloyd was the first airline to reroute ships from the East Coast and deviate from planned U.S. port destinations to keep ships on schedule.

The container ship Stadt Dresden, operated by Hapag-Lloyd, left the port of Norfolk, Virginia, on September 30 and was scheduled to call at the port of Savannah, Georgia, on October 1, but instead returned to the Mediterranean, Woitzik says. The ship, which operates on the Turkish East Coast Express service, is on its way to its next port of call in Egypt.

Vizion data shows a number of ships heading to alternative ports outside the continental US. Two ships, the America and Hermann Schulte, both had the port of Charleston listed as their destination, but both were transferred to the port of Freeport in the Bahamas. Kpler data shows that Danos is the owner of America and Schulte Group is the owner of Hermann Schulte.

More than a dozen container ships are currently waiting in the Freeport port anchorage area, data from Everstream Analytics shows.

Vizion said MSC, the world's largest container ship company, diverted two ships. The MSC NOA, listed for an Oct. 1 arrival in Savannah, is in the port of Cristobal, Bahamas, and the MSC Antonia, listed for an Oct. 1 arrival in the Port of New York/New Jersey, moved into the Port of Halifax in Canada.

Some of the cargo brought to Halifax is expected to be shipped by rail to the New York area, with other containers waiting to be loaded onto ships and delivered back to the U.S. after the strike ends.

Diversions are a central issue for the ILA. Union President Harold Daggett threatened that longshoremen would travel to ports where diverted ships were trying to unload their cargo. Daggett mentioned that the ILWU allowed ILA members to go to the port during the 1977 strike to prevent the unloading of a diverted ship. Daggett was one of the longshoremen traveling to the West Coast at the time.

The ILA did not respond to CNBC's request for comment.

Paul Brashier, vice president of global logistics at ITS Logistics, told CNBC he has customers who have been told their containers are in alternative ports.

“These diversion stops increase the cost of domestic transportation,” Brashier said. “It costs $300 to transport a local Savannah or Charleston container from the port to DC. The cost of domestic shipping from Norfolk is now $2,000. So that’s a significant increase.”

“The rerouting of containers outside the network before and after the strike is already driving up shipping costs,” Brashier said. “In most cases, shipping lines gave little advance warning, leading many shippers to seek last-minute transportation capacity at short notice in congested ports with which they were unfamiliar.”

Due to the distance of the alternative ports from the original destination port, the inland transportation costs incurred by shippers are 10 times the expected collection and fuel costs.

“When you add additional chassis, storage, and detention and demurrage fees, this amount becomes even higher,” Brashier added. “But if a shipper has containers subject to demurrage while trying to arrange new transportation providers in new markets, that costs thousands of dollars in late fees every day.”

Food supply will decrease and food costs will increase

Stew Leonard, Jr., CEO of grocer Stew Leonard's, told CNBC that his grocery stores anticipated the strike and brought forward what they could and what was good leading up to Thanksgiving. But customers looking for fresh produce and fish may need to change their purchasing decisions.

“Customers who might like the sweet Brazilian shrimp may need to purchase Gulf shrimp,” Leonard said. “Pineapples, bananas and mangoes are exported to the East Coast, as are other vegetables such as asparagus. Bananas are the No. 1 fruit export in our fruit and vegetable department. We will get them, but it may be a longer transit from China, or.” Fly and transport them. This will drive up prices due to logistics costs. Then you see parents choosing to put an apple in the lunch box instead of bananas.

Leonard said the cost of bananas could double in the short term.

Perishable food is a major concern for shippers. Medical care is also a major concern.

Brandon Daniels, CEO of supply chain risk management firm Exiger, said the healthcare industry has been affected by both Israel's strike and war. “Many important medicines are manufactured in Israel and production is slowed by the war,” Daniels said. “In addition, medical supplies, from latex gloves needed in surgeries to lidocaine, an anesthetic used in hospitals, are stuck in ships waiting to be unloaded by striking dock workers.”

Walmart and Amazon shipments stuck in floating warehouse

In addition to the land transportation challenges faced by shippers, much of the cargo is essentially stuck in floating warehouses. Companies such as Walmart — the number 1 importer in the affected ports — Amazon.com, Home DepotThe Folgers Company and Nike are just a few of the companies whose containers get stuck on the water.

The main product categories on these ships include iron, steel, furniture, bedding, fresh fruit, toys, clothing and electronics.

Amazon products on the water include toys, furniture bedding, travel items and electrical machinery.

Christian Roeloffs, co-founder and CEO of Container xChange, said the timing of this strike is particularly challenging for shippers.

“This could lead to skyrocketing logistics costs and delays, making it difficult to secure containers,” Roeloffs said. “The longer the disruption continues, the harder it will be for these companies to keep up with market demands.”

According to Moody's Analytics, if the strike continues for several weeks, the daily damage to the US economy will rise from at least $500 million to $2 billion a day.

Container xChange customers have told Roeloffs that companies are already struggling to absorb these new costs as carriers impose surcharges and adjust their services to bypass affected ports. The outlook remains uncertain, with many expecting further delays and price increases.

Surcharges shipping companies impose on containers could reach millions of dollars in penalties, according to a CNBC review of notices sent to customers.

Among other things, CMA CGM charges shippers for the daily electricity consumption to operate their refrigerated containers, so-called “reefers”.

“Importers and exporters who use refrigerated containers are in a very difficult position,” Brashier said. “Since the end of last month, exports have been tied up at our shipyards and awaiting the gate. In many cases, containers in the port that are plugged in will incur additional fees, but the biggest challenge is time. If the strike drags on, will the goods in these containers also no longer be fit for consumption when they are pulled out of the port?”

Once ports open, problems for shippers will not end as increasing congestion causes massive delays in unloading ships and moving containers.

Vizion CEO Kyle Henderson said although ports are closed, shipping continues in the rest of the world and ships heading to the East and Gulf Coasts show no signs of slowing.

“The number of vessels arriving continues to increase, with 368 vessels arriving on October 1st, up from 348 on September 30th,” Henderson said. “New shipments booked by shippers and confirmed by carriers (2,909 export shipments and 8,760 import shipments) will add to the backlog of containers once they arrive in 45 to 50 days.”

Typically, each day a port is closed takes a week to clear congestion. Currently, it will take three weeks to clear the backlog of trade waiting off the coast to clear and clear through the ports.