Supply chain problems could spike costs for Long Island consumers even more this year

Manufacturers already coping with surging shipping rates are bracing for costs to keep going up, and experts say fears are emerging about prices reaching highs from the COVID-19 pandemic that could trickle down to Long Island consumers later this year.

The supply chain problem is because of global shipping disruptions linked to factors including low water levels at the Panama Canal after a drought, and rebel attacks on ships in the Red Sea. That unrest is forcing cargo ships bound for the United States from Southeast Asia to navigate the Cape of Good Hope in South Africa, adding up to two weeks of travel time.

Transportation experts said another factor is a potential labor strike this fall by tens of thousands of dockworkers on the East and Gulf coasts of the U.S. amid union negotiations fraught with tension over concerns about automation.

It adds up to a problem that isn't expected to translate into bare store shelves, but rather emptier wallets for Long Islanders as manufacturers and retailers may recoup losses by hiking costs on imported goods, according to interviews with shipping experts, union representatives, manufacturers and consumer advocates.

“The cost of goods will continue to rise as retailers and wholesalers pass those costs off to, ultimately, the consumer,” said Thomas Cook, a global trade expert and CEO at Blue Tiger International, a consulting firm in East Moriches.

Cook said it takes at least six months for price increases to fully trickle down to buyers, and he expects the cost of imported goods to “go up pretty significantly, as much as maybe 25 to 30%.”

Kaushik Sengupta, chairman of the Department of Management & Entrepreneurship at Hofstra University, said while he doesn’t see a return to the supply chain problems of the pandemic's early days, certain products might not be available.

“We always say COVID was a ‘black swan’ event that happens once every 100 years. But now we’re getting a few of these black swan type of events,” he said.

Sengupta said major retailers such as Target and Walmart will need to make key decisions in the coming weeks: Begin frontloading shipments for the holiday season or wait to see how the international events progress through the summer and fall.

“No one really knows how this is going to shape up in the next few months,” he said. “Companies will have to figure out what is the best way to get their products here before the holiday season, without obviously paying the higher shipping rates.”

Rebel attacks slowing ships

The price to ship a 40-foot container overseas on major world routes on Thursday was $5,868, a more than 300% increase from 2019, according to the world container index from Drewry's, a maritime industry research and consulting firm. The rate was 43% below what it was during the September 2021 high of $10,377. But shipping experts expect costs to keep rising this year.

A May survey by the Federal Reserve Bank of New York found that within that month, more than 2 in 10 retailers and service-sector firms in the metropolitan area had raised the prices on goods due to difficulty obtaining products and materials.

Ships are taking longer to arrive at destinations because carriers have been avoiding the Red Sea and Gulf of Aden, which accounts for up to 15% of international trade, with Yemen's Houthi rebels attacking ships there since November.

The attacks by the Iran-backed Houthis, who claim to be acting on behalf of Palestinians in the Israel-Gaza war, are causing ships to take longer shipping routes around Africa, adding one to two weeks of travel time and about $1 million in fuel costs for each voyage, according to the U.S. Department of Defense. Experts said this has squeezed shipping container capacity while demand for goods has stayed strong.

Added to the confluence of global factors causing a disruption to shipping is congestion at Singapore's container port, the world's busiest port, because the rerouting of ships has thrown off sailing schedules.

The shipping turmoil also is squeezing the number of containers available to move goods. 

There is an “imbalance in the capacity that the steamship world has available,” according to Cook, who also is managing director of the nonprofit National Institute for World Trade. 

“So, while you have people wanting to ship, they're not able to ship,” he said.

These challenges are sounding alarm bells in the shipping industry.

Vincent Clerc, the CEO of major shipping company A.P. Moller-Maersk, recently warned in an online forum with customers that's highlighted on the company's website that the business won't be able to meet demand as issues persist.

“These disruptions, and the impact they are having on your business, is not something that I, nor any colleagues at Maersk, take lightly. We know it is hard. We know it is difficult for you. We know it puts you under a lot of pressure,” he said.

Helen Torkos, president of Regent TEK Industries, a Shirley-based road marking manufacturer, said the company usually relies on Asian and European suppliers for materials it uses to make traffic lane stripes. But she said those suppliers can't fill orders because they can’t find shipping containers and secure fixed prices.

Torkos recently paid double for a shipping container and said it’s like being thrown back into the logistics pandemonium from the height of the pandemic. She said it has forced the company to find supplies within the U.S.

“This is very, very significant, and getting material domestically is very difficult because it's not only us, it's everybody else doing the same thing,” Torkos added.

Labor strike threat looms

Companies nationwide are feeling the impact.

Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation, a Washington, D.C.-based consumer trade group, said member companies have experienced “trickle down” supply chain issues in recent months.

“To this point, the impact on consumers has been minimal,” Gold said.

But the threat of a potential labor strike at ports on the East and Gulf coasts of the U.S. in October could quickly change that. A walkout by the International Longshoremen’s Association, which represents 85,000 dockworkers at ports from Maine to Texas, including New York, would cause a major upheaval, according to Cook, the global trade expert.

So far, the union has canceled contract negotiations with the U.S. Maritime Alliance, which represents longshore industry employers, alleging their contract was breached with the use of automated technology.

The dockworkers' contract is up at the end of September.

Harold Daggett, president of the dockworkers' union, said in a June statement “the threat of a coastwide strike on October 1, 2024, is becoming more likely” as the U.S. Maritime Alliance and its member companies “continue to drag their feet.”

U.S. Maritime Alliance officials told Newsday in an email they expect to move forward and reach an agreement with the dockworkers' union before the deadline.

Some relief expected

There is some relief for shippers on the horizon. It's expected that next month shipping restrictions at the Panama Canal will be lifted and normal operations of about 35 vessels passing through a day will resume, according to the U.S. Energy Information Administration.

So far, the Port Authority of New York and New Jersey hasn't had any major impact from turmoil in the Red Sea — which about a third of ships arriving there navigate — or from Panama Canal restrictions, according to Mike Bozza, the agency's deputy port director. About a quarter of ships coming into the port travel through the Panama Canal, he said.

“We’ve continued to see robust growth so far in 2024, bringing in 12% more cargo than at the same point in 2023 and finishing May as the nation’s busiest container port,” Bozza added. “This is a testament to the well-established relationships we’ve built with partners across the supply chain, as well as to this industry’s resiliency and resourcefulness in adapting to challenges that arise.”

The Port of New York and New Jersey temporarily handled cargo diverted from the Port of Baltimore after the March 26 collapse of Francis Scott Key Bridge after a cargo ship strike, accounting for some of May’s cargo volumes. The Port of Baltimore fully reopened on June 12.

Matt Cohen, president of the Melville-based Long Island Association, the region’s largest business organization, projects the situation will not be as bleak as some anticipate.

“The sense that we get from what’s happening abroad is that while it certainly may increase costs, it's going to be nowhere near how it was during the pandemic,” Cohen said.