The longshore workers’ strike along the entire East Coast of the United States and in the Gulf of Mexico will begin at midnight in the United States. After months of conflict in the negotiations over the new contract (the current one will cease to be in force tonight), the two parties have not reached an agreement: on the one hand, the International Longshore Association (ILA ) demands that they raise wages by 77% over the next six years, among other measures, and on the other hand, the United States Maritime Alliance, which represents port managers and shipping companies in this conflict , which proposes a much lower increase. The strike could again generate inflationary pressures This will already create bottlenecks in global supply chains, especially if it continues for an extended period of time, and will test the lessons that the US commercial industry learned from the post- pandemic.
The dockers have said “enough” and will go on strike this evening. Workers who unload ships arriving at U.S. ports are demanding a new contract for the coming years that includes 77% pay increases, and shipping and port management companies are offering them much less: 40%. . Additionally, the longshoremen’s union is also demanding a halt to projects that will automate work in the coming years, a trend that threatens thousands of its members’ jobs. The conflict is not new: it has been going on for years, as illustrated in the famous television series The threaddockworkers are fighting against a world in which they are increasingly unusable.
The shutdown they agreed to implement now could have significant consequences, both in the United States and around the world. Starting tonight, ports from New England to Houston, Texas, will cease operating with exceptions such as unloading military equipment or tourist cruises. The globalization of global supply chains means that the blockade of ports in the world’s largest economy affects the entire length and breadth of the planet, which was evident with the inflationary crisis that occurred in 2021, a consequence of the economic reopening that occurred at the end of the pandemic. Furthermore, the shutdown adds to the problems the sector was already suffering due to the Red Sea crisis, which forced trade routes to be diverted from the region.
Recent years have, however, been exceptionally good for shipping companies, with companies like Maersk and Hapag-Lloyd achieving their best-ever results during the pandemic. Union leader Harold Daggett says longshore workers stand to benefit from income increases that have occurred in recent months, as well as during the pandemic. Stéphane Kovatchev, analyst within the credit team of Bloomberg Intelligencerecognizes how “an increase in shipping rates can support the profitability of the maritime sector”, but also highlights one of the economic problems that the conflict can generate: “This can cause a rebound in inflation for consumers finals,” says Kovatchev.
Six days to decongest for each day of strike
The risk that the dockworkers’ strike will lead to a new rise in inflation which would put the American Federal Reserve in difficulty, just after having started a new cycle of rate cuts, increases as the strike that the dockworkers accepted lasts.
Shipping company Maersk has long tried to guard against a possible strike and estimates that a week’s strike would cause shipment delays of four to six weeks, a figure similar to the estimate backed by UBS, which points out that for every day of strike, it will take six more to relieve traffic jams. For its part, JP Morgan emphasizes, based on data from Linerlytica, that, For each week of strike, the availability of the global shipping fleet will decrease by 1.7%, up to a maximum of 15% of total shipping capacity, if the strike becomes indefinite..
The hope of preventing a prolonged dock workers’ strike from ultimately putting upward pressure on inflation lies in the ability of the consumer retail sector to absorb the increased costs that the shutdown will generate. Many companies have also been preparing for the strike in recent months, securing supplies throughout the U.S. West Coast, or filling their inventories to the brim in case the dockworkers’ strike drags on.
However, Hapag-Lloyd sources point out that if shipments were to be redirected to West Coast ports, congestion similar to that experienced during the pandemic could occur there, with the inflationary risk that this generates.
A problem for the Biden administration
The Biden administration, and the Democratic Party as a whole, were faced with the problem of the strike two months before the elections in the United States. For the government, neither of the two options presented to it is positive. On the one hand, one can choose to support the dockworkers, but this increases the risk of increased inflation and supply problems in the United States in the two months before the election. On the other hand, the government can side with shipping companies, which have reaped historic profits in recent years and are typically non-U.S. companies.
So far, the government has chosen to sit on the sidelines and try to buy time. That same Sunday, Joe Biden said he would avoid taking a position in the conflict, and that it is a dispute that both sides must resolve. The government’s alternative is to intervene and force dockworkers to work for an additional 80 days, thereby widening the room for negotiation during this period. However, several experts point out how this route could prove ineffective, as it is highly likely that longshoremen will not work efficiently if they are forced to work.
