Important points
A potential strike could result in the closure of 14 shipping ports that handled 68% of container imports from the United States last year. This could lead to shipping delays and supply shortages, reigniting inflation and disappointing holiday shoppers. The longshoremen’s strike could have enough influence to change the Federal Reserve’s interest rate cuts.
A looming strike by longshoremen at ports from Massachusetts to Texas could disrupt supply chains and raise prices for a wide range of consumer goods. This is the time when the shipping season at the end of the year is approaching.
Members of the International Longshoremen’s Association, which represents 85,000 longshoremen, plan to go on strike on Tuesday unless they reach an agreement on a new contract with the American Maritime Alliance, which represents major shipping companies. If the strike goes ahead, it would be the first dockside strike on the U.S. East Coast since 1977.
A strike would result in the closure of container facilities at 14 ports from Boston to Houston. These ports handled more than 68% of all containerized U.S. imports last year.
Here’s a look at some of the ways the strike could affect the U.S. economy.
delivery delay
The most immediate impact is the suspension of unloading of goods at the affected ports. Even if the strike lasts only a few days, the ripple effects will last for weeks or more.
Transportation analysts at JPMorgan said Thursday that in addition to costing the U.S. economy as much as $5 billion a day (equivalent to 6% of the country’s annual gross domestic product), major It is estimated that it takes shipper and logistics company Maersk four to six weeks to clear the backlog for each week the port is not operational.
This could have a significant impact on retailers and consumers waiting on goods for the holiday season, which accounts for one-fifth of annual U.S. retail sales.
“For retailers, that means holiday packages may not arrive on time,” the National Retail Federation warned earlier this month.
Some retailers are trying to protect themselves from possible closures. Costco CEO Roland Vacris said Thursday in a post-earnings conference call that Costco is pre-shipping in anticipation of the strike.
“The port strike is something we’ve been monitoring very closely for some time. … We’re doing some things that we can do to get holiday goods ahead of this deadline, and that we can implement along with the move. We have considered alternative plans.”The goods will be sent to various ports and come across the country as needed,” Vacris said in a phone call, the transcript of which was made available via AlphaSense.
soaring prices
Tuesday’s strike comes just two weeks after the Federal Reserve cut interest rates for the first time since the pandemic. The Fed’s decision coincided with easing inflation. The consumer inflation measure it tracks fell 2.2% in August, its lowest level in three and a half years.
But if the strike is extended, prices could rise again, potentially crippling the Fed’s path to lower interest rates.
The port, which could be closed on Tuesday, has not been closed for a strike since October 1977. The strike lasted 44 days. Similar to this year, monthly inflation rates then declined during the summer and early fall. However, due to the strike, the inflation rate rose 0.5% in November from the previous month, marking the first increase in six months compared to the same month last year.
A port strike is also likely to increase freight rates around the world, which have been in a long-term slump. At least in the short term, this will benefit shippers, but it will increase costs for customers and consumers.
“The recent freight downturn ended abruptly as turmoil shocked the market,” JPMorgan said in a recent research report on labor negotiations for longshoremen. “A possible ILA strike could be the trigger to end the current recession.”
shortage of supply
The volume of goods passing through ports along the East Coast and Gulf Coast means consumers and businesses could face shortages of products ranging from electronics to footwear.
Automobiles and auto parts are near the top of the list. European-made cars are traditionally shipped via East Coast ports. No U.S. port handles more passenger vehicle imports than the Port of Baltimore.
At the other end of the price spectrum, people buying cheap produce should be careful. Approximately 75% of bananas imported into the United States come through eastern or Gulf ports. In the event of a strike, consumers may have to act without them.
Jason Miller, a supply chain professor at Michigan State University, said in a recent social media post that it is not economically viable to move banana imports to West Coast ports or ship them by air. “We cannot bring in fresh food ahead of schedule,” he added. . ”
