Update 815 — Lock around the Dock:
Implications of Longshoremen Strike
The strike that began yesterday by 47,000 longshoremen at dozens of ports along the East Coast and Gulf of Mexico followed months of contract negotiations between the International Longshoremen’s Association (ILA) and the US Maritime Alliance (USMX). The sides may be inching closer to an agreement — the ILA seeks a 61.5 percent pay hike over six years, and USMX has offered 50 percent —but the longer the impasse, the greater the likelihood of an economic October surprise the closer we get to the November election.
In the short run, we can expect the price of perishable food to increase, with other goods such as vehicles, heavy machinery, construction materials, chemicals, furniture, clothes, and toys to follow. In the longer term, the future of workers in an increasingly automated industry is at stake. What are the likely outcomes and implications? Will President Biden use his legal authority to end the strike in the face of rising costs? See below.
Best,
Dana
For the first time since 1977, the International Longshoremen’s Association (ILA) is on strike. Roughly 47,000 dockworkers at 14 major ports along the East and Gulf Coasts are refusing to handle cargo both entering and leaving these ports until the strike ends. Even when compared to other major strikes of the past couple of years – such as the railroad strike in 2022 and the UAW strike in 2023 – the ILA strike will likely have an outsized effect beyond the port industry and its workers. The strike closes down a crucial component of America’s maritime trade — over 60 percent of the total volume by monetary value — and thus will have significant ramifications for the economy, including supply chains and the prices of consumer goods, especially if the strike is prolonged. Coming just a handful of weeks before the 2024 general election, the strike may also have political consequences. Below, we explore both the economic and political ramifications.
Background
America’s ports play a critical role in the nation’s economy. Over 95 percent of the cargo entering the US arrives by ship. As of 2023, over $4.6 trillion in total trade through America arrived through overseas cargo. There are fourteen major ports on the east and Gulf coasts, all of which are worked by longshoremen members of ILA. Combined, the ports in question handle more than 68 percent of all containerized exports and 56 percent of all containerized imports in the US. Ports were especially important during the pandemic when they were kept open to prevent further disruption of crucial supply chains.
Source: Axios
The strike by the ILA has been months in the making. Harold Daggett, the ILA President since 2011, has been playing hardball in negotiations over the renewal of the ILA’s six-year master contract for months in talks with the United States Maritime Alliance (USMX), which negotiates on behalf of the port industry. Daggett has focused on two main demands during negotiations.
- Pay: While not confirmed, many newspapers have reported that the ILA originally demanded a pay raise of $5 per hour each year over the six-year term of the contract. As the current top pay is $39 an hour, this demand would result in raises totaling 77 percent. The ILA itself has not commented on the $5 an hour demand. Dock workers are already some of the highest-paid blue-collar workers in the country, but Daggett has justified his demands by pointing to the fact that industry profits surged during and in the years following COVID thanks in large part to the disruption of supply chains, a pandemic that dock workers had to work through. In a last-ditch effort to head off the strike, USMX offered a package that included wage increases of nearly 50 percent over six years on Monday night — up from the previous offer of nearly 40 percent — but the ILA rejected the offer. In a sign of progress, Daggett said on Tuesday morning that the ILA had reduced its demand to 61.5 percent over six years.
- Automation: The ILA has a long history of using its collective bargaining powers to control the use of technology in ports, dating back to the 1960s. The international shipping industry is undergoing a great deal of automation, to the point that it is now possible to run a dockyard with very few employees. The ILA has been highly resistant to further automation in the port industry, which it says puts jobs at risk. The port industry, on the other hand, sees automation as a way to increase efficiency and keep the industry competitive. This issue came to a head in June, when the ILA canceled talks with USMX over the discovery that automated technology was being used by Maersk, the world’s second-largest shipping company, to process trucks at port terminals without union labor at the Port of Mobile, Alabama. The ILA accused Maersk of circumventing their master contract, though Maersk denied any wrongdoing. USMX’s final offer before the strike began offered to “retain the current language around automation and semi-automation” from the previous contract.
Since talks broke down between the ILA and USMX in June, little progress has been made. Despite urging from both business groups and the Biden Administration to resume negotiations, the parties did not get back to the table in the final days leading up to the strike that began Tuesday. USMX filed a complaint with the National Labor Relations Board last Thursday accusing the ILA of “unfair labor practices,” claiming that the union repeatedly refused to return to the bargaining table.
The ILA strike invites comparisons to the UAW strike at the Big Three auto companies in 2023. In addition to the usual demands for increased wages and improved benefits, the issue of job security in the wake of automation and the shift to electric vehicle production was front and center in the minds of the striking auto workers. While automation was not explicitly mentioned in the final agreements ending last year’s strike, this question of job security in the face of changing technology is one that unions have faced time and again. Unlike the UAW strike, however, the impact that a lengthy strike would have on both the port operators and the longshoremen and a broader range of sectors and products would be dire enough that a strike lasting for months is not in the nation’s best interest.
Possible Economic Impact
Thanks to the central role that America’s maritime ports play, the strike would take an increasing toll on the economy the longer it lasts. Estimates point to a daily impact of as much as $4.5 billion on the US economy, some of which would be recovered once normal operations resumed.
Considering the sheer breadth of goods that go through America’s ports, it would be easier to list what will not be affected by the strike. The ILA has stated that the strike will not affect military cargo or cruise ship services. Since oil and liquefied natural gas at Gulf Coast ports involve limited ILA involvement, those shipments will not be affected. Additionally, the ILA’s bulk-ship operations, which handle industrial commodities, are under a separate contract. The shipment of everything else, from produce to heavy machinery, will grind to a halt during the strike. What remains of shipping will see skyrocketing expenses, as container rates could rise by several thousand dollars a box for even a short strike, and alternatives such as air transportation are far more expensive.
Naturally, even a brief strike will result in supply chain congestion, both domestically and globally. Ocean supply chains have already experienced a rough year, between attacks on shipping in the Red Sea, a drought hindering access to the Panama Canal, and the Baltimore bridge collapse back in March. Considering the high volume of cargo shipping that goes through the ports on the East and Gulf Coasts, the strike could have a much more severe impact if it drags out. The strike will further compound the congestion created by Hurricane Helene, which closed down the ports of Charleston and Savannah. The strike will cause delays in vessels currently queuing outside of American ports, and if the strike persists, it will cause ships from abroad to delay their journeys to the US in the coming months, creating a domino effect that disrupts global supply chains.
If there is any good news, the immediate economic impact of the strike will likely be limited as companies have had months to prepare. Many companies have stockpiled goods in anticipation of a strike; many have shifted more of their shipments to West Coast ports, including major retailers such as Walmart and Costco, who have promised that they are doing everything they can to mitigate the potential economic impact. That said, small- to medium-sized businesses as well as those that do most of their business on the East and Gulf Coasts will likely have less flexibility to deal with the supply chain shock. It should also be noted that the transportation and warehouse sectors, specifically those tied to port commerce, will be hit particularly hard from the get-go, as tens of thousands of jobs that relied on business with the ports in their local areas will be furloughed.
One category of goods that will see the most immediate impact from the strike is those that cannot benefit from stocking up, specifically perishable goods such as fresh fruit imported from abroad. About 25 percent of bananas and 90 percent of cherries move through the ports affected by the strike along with a large number of other berries and fruits. Such items will see shortages fairly quickly, driving up prices at the grocery store.
The strike comes at an inopportune moment for retailers, as holiday shopping begins in October. Even if the strike ends and shipping resumes, ports will have to deal with the massive backlog of shipments that will continue to hinder the supply chain: analysts say that each day the strike lasts will translate to five days of disruptions.
Manufacturers are also likely to feel a pinch, as large amounts of raw materials move through the affected ports. A large percentage of pharmaceutical imports move through the affected ports at a time when clinics and hospitals are beginning to replenish after stocking up on supplies post-Covid. Other affected industries include auto part suppliers, footwear and apparel companies, and many more. This will also lead to increased prices for consumers, though we are not yet certain of the extent.
If the strike persists, shortages will increase, driving up prices on countless goods and bringing with it renewed fears of rising inflation just as it has been approaching the Fed’s two percent target rate. It would not likely mean skyrocketing inflation as seen after the pandemic, but even a slight uptick could scare the Fed off of its current plans for further rate cuts at a time when it looked like the Fed’s fight against inflation was nearing its end.
Political Options and Ramifications
The strike puts the Biden Administration in a bind, especially as the 2024 election is only weeks away. The decidedly pro-union president also does not want to anger the important union voting block, which polls show is narrowly divided between candidates Trump and Harris. The Biden Administration sent Secretary of Transportation Pete Buttigieg and Secretary of Labor Julie Su to speak with USMX last Friday, and White House officials stated that the Administration had been in contact with the ILA in the week prior to the strike urging the parties to come together to make an agreement.
President Biden could feasibly invoke his powers outlined in the Taft-Hartley Act of 1947 to end the strike by enforcing an 80-day “cooling off” period where workers are forced back on the job while negotiations continue. As recently as 2002, President George W. Bush invoked Taft-Hartley to end a longshoremen strike on the West Coast. President Biden previously used his powers under the Railway Labor Act combined with Congressional intervention to end the 2022 railroad strike, though this move proved unpopular with organized labor and in any event is not available outside the rail sector.
President Biden has stated as recently as Sunday that he has no intention of invoking Taft-Hartley, stating that “there’s collective bargaining, and I don’t believe in Taft-Hartley.” If he did invoke Taft-Hartley, it would likely result in backlash not just from the ILA but from other major unions such as the AFL-CIO and the Teamsters, even if the ILA is no longer a member of the AFL-CIO and is somewhat isolated from the larger labor movement. But many believe that if the strike drags on long enough to run more serious economic risks and the resulting political fallout, President Biden will use his powers to force the strike to end and bring the ILA back to the negotiating table. To that end, the Wall Street Journal reported, the White House believes that the country’s supply chains are resilient and that the economy could weather a short strike of up to about a week, implying that any intervention earlier than that is unlikely.
In an election where the economy and inflation are cited by voters as top issues, a strike will likely evoke a more pointed response from the Harris and Trump campaigns, especially if it lasts more than a week. Kamala Harris is stuck in the same conundrum as President Biden, as she will have to balance her economic messaging surrounding the success of the post-pandemic recovery with her desire to appeal to union voters. On Wednesday, Harris voiced her support for the ILA, stating “This strike is about fairness. Foreign-owned shipping companies have made record profits and executive compensation has grown. The longshoremen, who play a vital role transporting essential goods across America, deserve a share of these profits.”
The longer the strike lasts and the greater the economic impact, the greater the opportunity is for Trump to attack Biden and Harris on their economic track record. Indeed, on Tuesday after the strike started, Trump called the strike a result of the inflation seen on Biden’s and Harris’ watch.
In short, a prolonged ILA strike could carry economic and political consequences which would become increasingly severe should it drag on into the winter months. While this is not expected, the White House has been trying to encourage the ILA and USMX to come to an agreement that works for both parties. Pressure may soon face Biden to step up efforts or even exercise executive authority if it is to head off more severe harm, with early voting already begun. If there were ever a moment for President Biden to prove his ability to make deals and resolve conflicts, this is it.