Ray Perryman, an economist and CEO of The Perryman Group, reported that on October 1st, around 51,000 members of the International Longshoremen’s Association went on strike at East Coast and Gulf Coast ports due to disagreements with the United States Maritime Alliance (USMX) over salaries and other issues. This is the first time port workers have gone on strike since 1977.
As of now, both sides have not reached an agreement and there are no scheduled negotiations. Container ships are waiting outside major ports in hopes for a quick resolution but it is uncertain when one will be reached.
This comes at a critical time as the U.S. is just a few years away from recovering from global supply chain disruptions caused by the pandemic which resulted in a significant inflation spike in mid-2022. The Federal Reserve responded by increasing interest rates by 500 basis points.
Jason Price reports that while inflation has decreased since then and there has been cautious rate cuts made by Fed after two years; however if this port strike continues it could potentially cause negative effects.
Experts say that short-term strikes may not have much impact as shippers rushed to get their goods into U.S before September deadline; also dockworkers continue handling cruise ships & military cargo while another union serves gas & oil terminals so “the effects would be minimal” according to Ray Perryman .
But if this halt continues for longer period then problems can arise says Anthony Bergeman , Executive Vice President DAUM . As per Jason Price Cushman & Wakefield’s Senior Director Americas Head Logistics Industrial Research , “Approximately forty-three percent (43%) imports come through these ports” he adds quoting Sea-Intelligence saying even one-week stoppage will slow down things till November end!
Anthony Bergeman further explains how each day equals week backlog hence back in ’77 ILA held out for fifty-five days thus current situation lasting same long means severe congestion in East Coast & Gulf Port terminals once strike ends.
The Logistical Effect
Pandemic exposed how vulnerable global supply chains were leading logistics companies to introduce fail-safes and redundancies for smooth movement of goods from origin to destination. But this strike could bring it all down!
Barry LePatner , an attorney and global supply chain expert says “dockworker strike of any duration would impact flow of wide variety products” ranging from fruits, wine, furniture, automobiles etc.
Jason Price adds that imports from Latin America will be affected too as much is shipped through East & Gulf ports with short shelf life. Hence logistical headaches can cause following:
• Higher prices: Shipping companies may seek other methods but additional surcharges imposed by carriers to cover costs rerouting cargo through less-congested or alternative ports could lead consumers paying more according Tracey Ortiz Director Product Management SPS Commerce . Jose R Cot member McGlinchey Stafford adds these charges won’t be written off but passed on thus higher prices!
• Increase West Coast port activity : Shippers unable deliver at East/Gulf coast may have better luck here; however HSBC reports capacity handle only eighteen percent (18%) diverted cargo leaving considerable gap when it comes port services Jason Price .
Indirect impacts : Barry LePatner notes supplies delayed coming into U.S manufacturing plants which eventually mean factory job layoffs! Re-opening container terminals after end lengthy process not happening at once hence Ray Perryman expects losses $3-5 billion day economy if situation continues like ’77.
Home for holidays ? Strike occurs right before holiday shopping season so long-term means retailers losing sales due inventory shortages delayed product arrivals affecting overall revenue during crucial time says Tracey Ortiz .
Inflation Fears
Shortage goods means higher prices depending demand them causing inflation fears again! Federal Reserve spent two years using monetary policy tame recent rise many cheered Effective Federal Funds Rate cut September 2022; longer halt potential shortage goods leading price increases says Barry LePatner .
Federal Reserve hasn’t commented on strike or potential higher prices but upcoming jobs report could be complicated by strike-impacted layoffs & job issues resulting from Hurricane Helene . However Ray Perryman believes Fed’s focus remains growth with temporary price hikes not changing direction; “expect response minimal at most slight extension timing future rate increases” he adds.
Real Estate Impact
Experts say short-term stoppage won’t affect port-proximate real estate much. But long-term like several months can raise some issues according Jose R Cot as central issue scarcity construction materials slowing development/renovations meaning higher prices for developers, investors, tenants etc.
On the other hand Barry LePatner thinks long-term halt may encourage companies build new factories establish new supply chains in North America freeing them from overseas sourcing critical products American economy!
