Category: Financial Markets Commentary

A large labor strike which has received little attention started today.  45,000 members of the International Longshoremen’s Association (ILA) went on strike, affecting 36 ports on the East and Gulf Coast.   It is estimated that the strike will affect close to 50% of US imports and exports.  For the month of July 2024, US imports and exports were $345.4 billion and $266.6 billion, respectively.

The US Maritime Alliance (USMA) represents major shipping lines as well as terminal operators and port authorities on the East and Gulf Coasts.  While the strike could be the most disruptive work stoppage in decades, the two parties that are negotiating do not appear to be close to any agreement.  ILA President Harold Daggett said, “We are prepared to fight as long as necessary, to stay out on strike for whatever period of time it takes, to get the wages and protections against automation our ILA members deserve.”

US exports represent about 10% of US GDP.  Some retailers expect the cessation of imports to cause inventory shortages within a week if the strike is not settled.  In support of the ILA, the Teamsters Union released a strongly worded statement and told the US Government to stay out of the fight and that any workers “should be able to fight for a better life free of government interference.”  The ILA is demanding a total ban on the automation of cranes, gates, and moving containers in the loading and unloading of freight, along with significantly higher wages.  While the USMA offered 50% wage increases over six years, the ILA is sticking to its initial demand of 77% over six years.

What is the impact of the ILA strike?  I posed the question to Microsoft Copilot (their artificial intelligence application) and received the following response:

The International Longshoremen’s Association (ILA) strike, which began on October 1, 2024, is having significant impacts on various sectors:

1. Supply Chain Disruptions: The strike has halted operations at 36 ports along the East and Gulf Coasts, affecting a substantial portion of U.S. imports. This disruption could lead to shortages and higher prices for goods, especially as the holiday shopping season approaches.

2. Consumer Goods: Items like electronics, pharmaceuticals, and imported foods (e.g., seafood, fruits, and vegetables) are likely to see price increases and potential shortages.

3. Automotive Industry: Ports like Wilmington and Baltimore, which handle a significant portion of automobile imports, are affected.  This could lead to delays and increased costs for vehicles.

4. Agriculture: The strike impacts agricultural exports, including poultry, soybeans, and other produce, potentially leading to lower prices for farmers and higher prices for consumers.

5. Retail and Small Businesses: Retailers may face challenges in replenishing stock, leading to higher prices and potential shortages.  Small businesses, in particular, could struggle with the supply chain disruptions.

West coast dockworkers belong to a different union, the International Longshore and Warehouse Union (ILWU), which reached an agreement for six years with the Pacific Maritime Association in June 2023.

Some of the cargo shipments intended for the East and Gulf Coasts can be redirected to the West Coast or ports in Canada, but clearly this is not optimal.  If the strike is not settled soon, the relatively high valuations of many US stocks will be hard to justify.  Further complicating the economic outlook, Iran and Hezbollah are firing hypersonic missiles at Israel today, escalating the war in the Middle East further.

If you have any questions or comments, please contact me.

Sincerely,
Robert G. Kahl
CFA, CPA, MBA