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A dockworker strike at seaports along the U.S. East and Gulf coasts is expected to cause massive problems for global supply chains and the economy. American consumers will likely pay the price.
The International Longshoremen’s Association, or ILA, went on strike early Tuesday at 14 major ports over wage increases and use of automation. In all, the ports threatened with strikes handle $3 trillion annually in U.S. annual international trade, according to an analysis by The Conference Board.
“A disruption of this scale during this pivotal moment in our nation’s economic recovery will have devastating consequences for American workers, their families and local communities,” Matthew Shay, president and CEO of the National Retail Federation, said in a statement Tuesday. As the retail industry’s largest trade association, supply chain dynamics are a key issue, especially ahead of the peak holiday season.
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“American businesses, workers and families rely on the seamless flow of goods through these ports, and this strike will result in consumers ultimately paying higher prices due to limited supplies and greater demand for imported goods,” Shay said.
“After more than two years of runaway inflationary pressures and in the midst of recovery from Hurricane Helene, this strike will result in further hardship,” he said.
U.S. port strike could cause inflation
Overall, the U.S. economy has notched steady progress in lowering inflation, but in most cases price increases are only slowing — not falling outright.
The consumer price index, a key inflation measure that tracks average prices across a broad basket of consumer goods and services, increased 2.5% in August relative to a year earlier, according to the Bureau of Labor Statistics. That’s down from a pandemic-era peak of 9.1% in June 2022.
The cost of goods has been well-controlled, with relatively stable commodity prices and — at least until recently — lower shipping costs, according to Lauren Saidel-Baker, an economist at ITR Economics.
However, “the port strike could cause renewed goods-side inflation,” she said.
The standoff between the ILA, which represents about 45,000 port workers, and the United States Maritime Alliance, or USMX, also comes almost exactly four years since the Covid pandemic snarled global supply chains.
At the time, goods weren’t hitting the shelves as quickly as consumers wanted them, which drove up prices.
The U.S. port strikes could have a similar effect, “setting up a scenario reminiscent of the pandemic-era logistics crisis,” Saidel-Baker said.
While shortages and delays are possible, the biggest economic impact will be in pricing, she said, with greater inflationary consequences more likely the longer the strike persists.
Strike’s duration will determine the impact
“The top-line takeaway here is duration amplifies impact,” Lisa DeNight, managing director of national industrial research at Newmark, a commercial real estate firm, told CNBC’s “The Exchange” on Monday.
In a short-term strike, “companies with safety stocks may buffer initial disruptions, but perishable goods will be affected almost immediately,” according to Amir Mousavian, professor of supply chain management at the University of New England’s College of Business.
In that case, some grocery prices would be first to rise, including imported coffee, bananas and frozen food.
“They don’t have a long shelf life, which means lower reserves,” Mousavian said.
If the strike takes longer to resolve, businesses will need to find alternative shipping routes, likely at a higher cost, which could translate into price increases for other goods, Mousavian said, including pharmaceuticals, apparel and automobiles.
“If it keeps dragging on, it will cascade through all sorts of sectors and would be hard for most businesses to avoid,” Mousavian said.
“And it’s the consumer who ultimately pays the price,” he added.
The timing of the strike is especially concerning, added Mousavian, ahead of the holiday shopping season and the U.S. presidential election — and on the heels of the Federal Reserve’s first rate cut in four years, which was welcome news for Americans struggling to keep up with the elevated cost of living.
“A prolonged strike could reverse these gains, forcing the Federal Reserve to reconsider its economic strategy and possibly reintroduce more restrictive measures,” Mousavian said.