The government ignores striking dockers at its peril

Strikes at container ports such as Felixstowe have a unique effect on inflation in the UK.

Almost 1,900 workers have voted to strike for a second time at Felixstowe, the UK’s largest container port, from 27 September, while workers at the Port of Liverpool, the country’s fourth-largest port and a major terminal for commodities including oil and grain, are to strike from 19 September. In both cases workers are represented by Unite, which is negotiating for pay increases to shield workers from the UK’s high inflation.

In contrast to recent strikes on railways and in the law courts, the dock strikes have so far been met with silence from the government; there have been no official statements on the strike from the Department for Business, Energy and Industrial Strategy, the new Business Secretary, Jacob Rees’Mogg, or his predecessor (and now Chancellor) Kwasi Kwarteng. But these are arguably the most problematic of the strikes currently affecting Britain, because the country’s docks – more than its railways, hospitals or courts – have a unique effect on inflation.

The current period of high inflation is largely to do with a huge rise in energy prices caused, mostly, by Russia’s invasion of Ukraine, and Vladimir Putin’s restriction of energy supplies to the West. But the conditions for inflation were set two years earlier, when locked-down populations who were denied concerts, museums, hotels and restaurants (services) tried to cheer themselves up by buying things (goods) on Amazon. While consumers bought more things, the factories and shipping lines that bring those things to our shores were disrupted. Demand had risen, costs had risen, and it was inevitable that prices would follow.

Shipping lines responded not only by increasing their prices but by rerouting their vessels, often at short notice, and skipping some ports altogether. This is known as “blank sailing”, and is particularly a problem for British imports because Felixstowe is often the last European port a big container ship visits before turning back for China. If it’s congested, the company may decide to drop the cargo off in Hamburg or Rotterdam. “We’re at the end of the line,” explained Simon Heaney of Drewry, a shipping consultant. “We’re more vulnerable to the vagaries of shipping lines’ network planning. For them, the incentive is to get back to China… you don’t make money on the backhaul leg. And you certainly don’t make money hanging around outside of the UK, waiting for a berth.”

The supply chain expert, Jon Bumstead, agreed. “The UK is becoming a second-tier group of ports that are being fed by the major European ports like Rotterdam,” he said, and added that for some lines, as little as 20 per cent of cargo turns up on its scheduled arrival date.

On top of shipping costs that were already high, then, logistics companies and cargo owners have to pay yet more money to get their goods brought to another port in another country – adding to what Bumstead called “customs complexity”, something the post-Brexit UK has quite enough of already.

In doing so, they also put pressure on other British ports: consumer durables (such as washing machines, TVs and trainers) that were supposed to arrive directly from China at the massive container port in Felixstowe have to make their way instead through the roll-on, roll-off ports of Dover and Southampton. Congestion at these ports is more serious still because we rely on them for the EU imports that supply around a third of the country’s food.

One way companies have sought to manage this problem is by buying more warehouse space and more inventory to prevent supplies being interrupted, but this has again placed pressure on costs: “You can’t get hold of a warehouse for love nor money in this country at the moment,” said Bumstead.

Britain is not just geographically vulnerable to trade disruption; its economy is also particularly dependent on smooth-running ports. The UK runs a very large trade deficit in goods (we imported £62.6bn more in goods than we exported from April to June this year), but a big trade surplus (£34.7bn over the same period) in services. This means a cost such as shipping, which only applies to goods, is disproportionately inflationary for the UK because it pushes up the prices of the things we buy without having an equal effect of the things we sell.

None of which is to say that dockers in the UK shouldn’t strike. They have as much right to organised labour as anyone else in the UK, and the idea that pay rises (especially those that only match inflation) can create a “wage-price spiral” is contested.

But the government’s response to a strike that could have severe long-term effects on the economy appears to be missing. The one policy intervention on strikes more broadly was the decision, taken by Kwarteng in June, to repeal the laws that since 1973 have protected striking workers from being replaced by agency staff. This is a performative and toothless gesture, however. Dockers – like nurses, teachers, train drivers and barristers – do a technical job that requires specialist knowledge and cannot simply be handed over to untrained temporary workers.

The government could start talking about whether the inflation that is causing dockers to ask for a pay rise might be linked to the fact that shipping lines’ profits tripled to $190bn in 2021, while the adjusted earnings (Ebitda) related to ports at CK Hutchison Holdings (the owner of Felixstowe port, among many others) grew by 39 per cent last year. This has happened in the US, where a bipartisan bill signed into law in June recognises the effect of high shipping costs on inflation and gives the American shipping regulator new powers to investigate ocean carriers. But for the Conservative Party – wedded as it is to ideas such as freeports, which would only make Britain’s businesses still more vulnerable to shipping costs – this seems unlikely.