Striking on the dock of the bay Striking on the dock of the bay http://www.federatedhermes.com/us/static/images/fhi/fed-hermes-logo-amp.png http://www.federatedhermes.com/us/daf\images\insights\article\cargo-ship-bulk-small.jpg October 1 2024 October 1 2024

Striking on the dock of the bay

The longshoremen strike could have far-reaching consequences for the economy and markets.

Published October 1 2024
My Content

Early this morning, approximately 45,000 dockworkers who load and unload cargo ships at all 36 ports from Maine to Texas walked off the job. Almost 30% of all U.S. trading volume is impacted, with container cargo and auto shipments halted at the ports. Energy supplies and bulk cargo won’t be affected. The dockworkers are employed by private companies under a master contract. Negotiations between the International Longshoremen's Association (ILA) and the United States Maritime Alliance (USMX), which represents the major shipping lines, terminal operators and port authorities, stalled in June. Both sides remain far apart in terms of both salary and automation concerns. The impact of the strike on the financial markets and the economy will depend on how long it lasts and the political consequences.

The ILA's initial demands include a 77% wage hike over a six-year contract, with the labor group arguing that the increased pay would make up for the surge in U.S. inflation in recent years and would put them on par with the West Coast dock workers, who belong to the International Longshore and Warehouse union and are paid more. They completed their own contract negotiations last year with a 32% wage hike over six years. It’s worth noting that the ILA proposal boils down to only a $5-an-hour raise each year. Additionally, the union wants a total ban on automation of cranes, gates and container-moving trucks used in the loading or unloading of freight.

While encouraging a compromise, the Biden administration is reluctant to intervene. A provision of the Taft-Hartley Act allows a president to intervene on labor disputes that could be a danger to US economic health. While it does not allow the president to impose a contract, he could send longshoremen back to work for 80 days as negotiations continue. Unsurprisingly, labor loathes the Act. If Biden were to invoke it, he would face the ire of unions everywhere only a few weeks before his party’s tight presidential election. The ILA endorsed Biden in 2020 but hasn’t yet backed either Kamala Harris or Donald Trump. During an exchange with reporters on Sunday, Biden said “no” when asked if he planned to intervene in the potential work stoppage. “I don’t believe in Taft-Hartley,” he added.

But the strike—the union’s first since 1977—could have profound implications for retailers and consumers ahead of the holiday shopping season. Analysts say the work stoppage could cost the U.S. economy $5 billion per day or be a 0.1% hit to annualized gross domestic product for every week the strike continues. Analysts also say that it could take around five days to clear the inventory from a one-day strike. Some large retailers had rerouted shipments and increased the amount of inventory to compensate. This heightened inventory to sales could blunt the impact if the strike is short. But supplies of perishable imports will be impacted almost immediately. There is no getting around it, a strike lasting more than a few weeks could devastate the nation’s supply chain, potentially leading to higher prices and delays in goods reaching households and businesses.

Potential impact on monetary policy and investors 

We enter the final quarter of the year on the heels of record highs in stocks and positive returns in bonds. But with a data-dependent Fed and the election looming large over markets, the strike is perilous and bears potential consequences to both. The economic impact and market volatility will be magnified the longer it lasts, and ultimately that could determine how investor portfolios finish the year.

The port strike could influence the Federal Reserve’s rate-cutting path. Depending on its duration, the shortage of consumer and industrial goods would likely drive-up prices. While inflation isn’t expected to skyrocket as it did due to the supply-chain disruptions of the pandemic, we expect it would tick up. Even a small increase could influence the Fed and perhaps cause it to pause the rate-cutting cycle it just began. Wage increases can also be inflationary, another factor for its policy decisions. 

A prolonged work stoppage could also impact the job market, leading to layoffs in manufacturing as companies struggle with a lack of raw materials. The knock-on effects for other workers who support the port could also be impacted as demand is limited for truck drivers, rail operators and other parties related to port operations. The strike won’t impact the September jobs report but could have a huge impact on October’s if the strike continues. The data from the survey week ending October 11 will be central to the jobs report to be released on Nov. 1, five days before the election and seven days before the next Fed meeting. Weakness there could impact decisions by the Fed and voters.

Tags Markets/Economy . Politics . Monetary Policy .
DISCLOSURES

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future results. 

This is a marketing communication. The views and opinions contained herein are as of the date indicated above, are those of author(s) noted above, and may not necessarily represent views expressed or reflected in other communications, strategies or products. These views are as of the date indicated above and are subject to change based on market conditions and other factors. The information herein is believed to be reliable, but Federated Hermes and its subsidiaries do not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This material is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. This document has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. 

This document is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities, related financial instruments or advisory services. Figures, unless otherwise indicated, are sourced from Federated Hermes. Federated Hermes has attempted to ensure the accuracy of the data it is reporting, however, it makes no representations or warranties, expressed or implied, as to the accuracy or completeness of the information reported. The data contained in this document is for informational purposes only, and should not be relied upon to make investment decisions. 

Federated Hermes shall not be liable for any loss or damage resulting from the use of any information contained on this document. This document is not investment research and is available to any investment firm wishing to receive it. The distribution of the information contained in this document in certain jurisdictions may be restricted and, accordingly, persons into whose possession this document comes are required to make themselves aware of and to observe such restrictions. 

United Kingdom: For Professional investors only. Distributed in the UK by Hermes Investment Management Limited (“HIML”) which is authorised and regulated by the Financial Conduct Authority. Registered address: Sixth Floor, 150 Cheapside, London EC2V 6ET. HIML is also a registered investment adviser with the United States Securities and Exchange Commission (“SEC”).

European Union: For Professional investors only. Distributed in the EU by Hermes Fund Managers Ireland Limited which is authorised and regulated by the Central Bank of Ireland. Registered address: 7/8 Upper Mount Street, Dublin 2, Ireland, DO2 FT59. 

Australia: This document is for Wholesale Investors only. Distributed by Federated Investors Australia Services Ltd. ACN 161 230 637 (FIAS). HIML does not hold an Australian financial services licence (AFS licence) under the Corporations Act 2001 (Cth) ("Corporations Act"). HIML operates under the relevant class order relief from the Australian Securities and Investments Commission (ASIC) while FIAS holds an AFS licence (Licence Number - 433831).

Japan: This document is for Professional Investors only. Distributed in Japan by Federated Hermes Japan Ltd which is registered as a Financial Instruments Business Operator in Japan (Registration Number: Director General of the Kanto Local Finance Bureau (Kinsho) No. 3327), and conducting the Investment Advisory and Agency Business as defined in Article 28 (3) of the Financial Instruments and Exchange Act (“FIEA”). 

Singapore: This document is for Accredited and Institutional Investors only. Distributed in Singapore by Hermes GPE (Singapore) Pte. Ltd (“HGPE Singapore”). HGPE Singapore is regulated by the Monetary Authority of Singapore. 

United States: This information is being provided by Federated Hermes, Inc., Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, and Federated Investment Management Company, at address 1001 Liberty Avenue, Pittsburgh, PA 15222-3779, Federated Global Investment Management Corp. at address 101 Park Avenue, Suite 4100, New York, New York 10178-0002, and MDT Advisers at address 125 High Street Oliver Street Tower, 21st Floor Boston, Massachusetts 02110.

Issued and approved by Federated Investment Management Company