Worker shortages caused by the omicron coronavirus variant and haggling over a new dockworkers contract are likely to aggravate costly supply chain jams over the next several months, clouding prospects for quick relief from the highest inflation in four decades.

The White House says the worst supply snarls may be in the past, noting that key Southern California ports are shrinking their cargo backlogs and trans-Pacific shipping costs have plunged by more than one-third from their mid-September peak.

But the cost of sending a standard metal container from China to the U.S. West Coast remains more than three times what it was one year ago and is expected to remain elevated through the first half of the year, fueling painful annual inflation readings, according to the Freightos index and industry executives.

Freight is taking longer than ever to cross the Pacific, with goods requiring an average of 113 days to travel from Chinese factory gates to American hands, according to data from Flexport, a freight forwarder. On Friday, the floating traffic jam of container ships waiting to enter the Ports of Los Angeles and Long Beach numbered a near-record 106 vessels, according to the Marine Exchange of Southern California, a nonprofit maritime group.

“If anything, it’s getting worse,” said Phil Levy, Flexport’s chief economist. “I don’t think there’s any reason to be sounding the all-clear at this stage.”

The prospect that the omicron variant could interrupt normal cargo-handling operations in China represents the immediate risk, even as that country prepares for the annual Lunar New Year shutdown around Feb. 1. But within weeks, shippers’ attention will turn to negotiations for a new contract with the longshore workers union on the U.S. West Coast. Bargaining over their last deal in 2014 became so acrimonious that several key ports were brought to a near-standstill, drawing intervention from President Barack Obama.

Today, supply issues pose a stiff challenge to the Federal Reserve’s hopes of cooling inflation, according to Fed Chairman Jerome Powell. The Fed’s principal inflation-fighting tool – higher interest rates – can’t cure the shortage of semiconductors that afflicts manufacturers or ensure labor peace on the docks.

White House and Fed economists expect the current 7 percent inflation rate to decline sharply later this year as supply pressures ease.

But they also expected inflation to be a passing concern last year. Lingering supply bottlenecks are a big reason they were wrong – and the key to making sure that Americans’ expectations of rising prices now don’t become a self-fulfilling prophecy.

“We’re not seeing, really, a lot of progress. If you look across, you know, the global supply chains and what’s happening domestically, look at our ports, look at Long Beach and L.A., the two big ports on the West Coast for Asia, the number of ships at anchor is still at a record level,” Powell told the Senate Banking Committee on Tuesday. “So, we’re not really seeing yet the kind of progress we, essentially, all forecasters, really thought we’d be seeing by now, and that’s really what’s driving it.”

In a statement Thursday, Cecilia Rouse, head of the president’s Council of Economic Advisers, cited “potential improvement in prices for supply-chain related goods and services” in December as contributing to the smallest increase in wholesale prices in more than a year.

Likewise, the administration claims “very significant progress” on getting goods to move faster through major ports, National Economic Council Director Brian Deese told reporters this past week, citing a 40 percent decline in the amount of time that containers are sitting on docks in places such as Los Angeles and Savannah, Ga.

Despite these improvements, companies on recent earnings calls complained of continuing supply constraints.

Garth Hankinson, chief financial officer of Constellation Brands, which makes Corona beer, said he expects “significant cost increases for the business, including supply chain disruption and inflationary cost pressures on product, freight and warehousing costs.”

Bed Bath & Beyond CEO Mark Tritton said he did not expect any early improvement in “inventory disruptions (that) impacted our ability to meet demand during the holiday season.” And General Mills CEO Jeffrey Harmening projected that supply chain disruptions would last at least through May.

The Fed’s “beige book” report on economic conditions identified similar headaches. A cardboard-box maker near Boston, a construction company in New York and Richmond, Va.-area manufacturers all complained of trouble getting what they needed when they needed it.

“Supply challenges were expected to persist in coming months, keeping upward pressure on costs and prices,” the Federal Reserve Bank of Cleveland reported. “However, most contacts expected meaningful relief from disruptions in 2022, especially in the second half of the year.”

Anticipation of a more fluid supply chain must wait for omicron to run its course.

The fast-spreading variant already is hollowing out staffs at U.S. factories and warehouses. When a package shipped to his office via overnight delivery showed up two days late, economist Carl Weinberg of High Frequency Economics was told that “one-third of the drivers and other workers at the Newburgh, New York, FedEx hub were out with COVID,” he said in a note to clients.

Logistics experts worry that the omicron variant could hit every link in the global supply chain. Bank of America estimates that about 4.2 million U.S. workers with jobs that cannot be done from home – everyone from waiters to forklift drivers – will need to quarantine as omicron peaks.

The big worry is that the virus could thin port crews in China as authorities try to maintain their hard zero-COVID line in the face of the fiercely infectious variant. JPMorgan Chase economists warned that new lockdowns could mean Asian manufacturing bottlenecks.

After an outbreak of the omicron variant was recently detected near the port of Ningbo, trucking services to some terminals were temporarily interrupted. Maersk, one of the biggest global shipping companies, this past week issued a customer advisory saying if the situation deteriorated it would consider sailing more slowly to avoid creating a seaborne traffic jam, opening alternative container storage sites or “moving more cargo via alternative modes.”

A handful of coronavirus cases has also been detected in Shenzhen’s Yantian district, home to one of the world’s largest container ports. The port closed for more than a month in May amid an earlier outbreak.

“Omicron can be potentially a major disruption to the overall supply chain,” said Spencer Shute, a Boston-based supply chain consultant for Proxima. “China’s got a zero-COVID approach, so there are pretty strict lockdowns.”

“We’re already starting to see slower production and slower shipping,” Shute said.

Amid signs that omicron may be peaking in New York and D.C., shippers anticipate that any disruption from the variant will prove short-lived. But another threat looms in the spring.

In about two months, negotiators for the cargo carriers and the International Longshore and Warehouse Union are expected to begin talks aimed at a new contract. Shippers fear a repeat of the work slowdowns and employer retaliation that snarled West Coast ports for several months during the 2014-15 round of talks and ultimately required federal mediation.

Some shippers already are diverting cargoes to Gulf of Mexico or East Coast ports, as there is “little hope that a suitable contract will be struck in time to avoid renewed slowdown,” analysts at S&P Global wrote last month. Others are ordering extra now to avoid being caught short if the talks flag, adding to strain on the system.

ILWU President Willie Adams in November rejected a one-year contract extension proposed by the Pacific Maritime Association, which represents cargo carriers and terminal operators.

The upcoming negotiations are expected to turn on employer demands for further port automation to keep pace with the most efficient European and Asian facilities – demands the union is likely to resist, for fear of losing jobs.

“What we want for starters relative to automation is for the employers to keep their side of the bargain, which to this day has not happened,” Adams said in response to emailed questions. “They know it, we know it, and you can print that we will be addressing it in upcoming bargaining.”

PMA President Jim McKenna said he is optimistic that a deal can be struck without work stoppages. With orders surging, carriers have every incentive to keep freight moving. Six of the largest publicly traded shipping lines made more than $20.1 billion in profits during the quarter that ended Sept. 30.

“Any disruption to the supply chain by anyone will be looked at very negatively,” he said.

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