Quantfury Gazette

US ports avoid crisis as dockworkers end strike for now, but a new deadline looms even larger

by
Nathan Crooks
Quantfury Team
strike

Dockworkers at US ports from Maine to Texas have stepped back from the brink, suspending a strike last week that threatened to plunge the country’s supply chain into crisis ahead of the busy holiday shopping season and cost the economy as much as $4.5 billion a day. The reprieve may be short-lived, however, with a new deadline looming that could have far-reaching consequences for retail giants like Walmart (NYSE: WMT) and shipping companies including ZIM Integrated Shipping Services (NYSE: ZIM) and Hapag-Lloyd (CBOE: HLAG).

The International Longshoremen’s Association—a labor union that represents around 85,000 US maritime workers on the Atlantic and Gulf coasts—agreed to call off the three-day strike after extending a current contract and securing a tentative agreement that will raise wages 62% over the next six years, but it now wants to negotiate a much thornier issue ahead of a new deadline. In a letter to members last week, the union suggested that it will be playing hardball.

“By extending the contract until January 15th, we keep our ability to negotiate and fight for the other important matters that go beyond economics,” wrote union president Harold Daggett, who’s known for his brash style and profanity-laced speeches. “While securing a substantial wage increase is an important part of the contract, we must also protect our historical work jurisdiction and prevent automation from replacing jobs.” The next round of talks, in other words, will be about much more than salaries, and probably be harder to iron out.

While the initial work stoppage was brief, the ordeal provided important lessons about how a longer conflict might play out next year. In essence, the work stoppage was bad for importers of consumer goods like The Home Depot (NYSE: HD) and exporters of agricultural products like soybeans (CME: ZSX4), but it was seen to have potential upside for shipping companies that would presumably be able to charge higher rates for the limited space available to ports on the other side of the country. ZIM shares, for example, rose as much as 57% in the month leading up to the strike as talks unraveled, while Hapag-Lloyd surged 24%. They gave up most of those gains when the temporary deal with the union was reached. 

Retailers like Walmart, Home Depot, Dollar General (NYSE: DG), Amazon (NASDAQ: AMZN)—and manufacturers including General Motors (NYSE: GM) and Goodyear Tire & Rubber (NASDAQ: GT)—meanwhile, were identified by Arbor Data Science as among the most exposed companies to the labor dispute. Many of them had seen shares decline ahead of the labor action and then rebound modestly when it ended. On the first day of the strike, 147 vessels with goods worth $34.3 billion arrived at 14 idled ports. Some analysts worried that a longer stoppage could lead to shortages of goods and possibly risk re-igniting inflationary pressure, although J.P. Morgan told clients any impact would be “modest and short-lived” as many companies took preventive action to reroute and stockpile products. 

“Global shipping networks have proven to be resilient recently against weather disruptions and geopolitical conflicts,” the investment bank wrote in a report. “Ultimately, the strike is unlikely to negatively impact the U.S. economy unless it continues for a very extended period without intervention.” According to Arbor, the product categories most affected by the dispute this month included furniture, nuclear reactors, steel, toys and rubber.

In a bit of good news for the shipping companies, logistics firm Logicall said that it expects carrier surcharges to remain in place on all cargo to and from the US amid the ongoing uncertainty. However, ZIM CEO Eli Glickman said in the company’s latest earnings report that longer-term market dynamics point to supply growth significantly outpacing demand and putting downward pressure on recent peak rates. The salary increases the dockworkers are now due will also raise costs.

Despite the temporary move to get goods flowing again, the issue is far from resolved with the new January deadline fast approaching. By threatening massive disruption a month ahead of a contentious presidential election in the US, the dockworkers’ union has shown itself to be a skillful and shrewd negotiator. It’s likely to continue with the tough tactics—regardless of who wins—and the next US president may see their new administration tested with a much longer strike on their hands. Companies that saw shares move amid all the news, meanwhile, may be in for a repeat of all the volatility. 

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