Ports across the East and Gulf coasts have reopened following a brief dockworkers strike. They went on strike on Tuesday, Oct. 1, for the first time in almost 50 years over wages and work automation. But it doesn't end there. The agreement to restart work was tentative. It expires on Jan. 15, 2025, when workers return to the bargaining table to settle outstanding contract issues. On this Industry Insights, Senior Barron's Reporter Megan Leonhardt breaks down the potential walkout impact on investors, the stock market and the economy next year.
This interview has been edited for clarity and brevity.
IBD: When and why did the dockworkers strike end?
Leonhardt: This was an interesting strike. We had such dire predictions that this would be very much like the autoworkers strike we saw last year. But this was short-lived. It was a roughly three-day strike. And it feels like there were a lot of forces behind the scenes trying to make sure that this was very contained. It's good for every longshoreman. It's good for the union. It's good for everyday Americans. And of course, the collective that was bargaining with the union.
IBD: The dockworkers' biggest issues were higher wages and the use of automation — what are the major concerns?
Leonhardt: The big issues came down to a couple of key things. I think first and foremost, it was all about wages. You have to remember that the East Coast and Gulf longshoremen were not making nearly as much as folks on the West Coast doing exactly the same job. So this was crucial for the union to really up their wages. The tentative agreement does provide this. So the union has negotiated somewhere in the neighborhood of 62% rate wage increases, which brings current wages that were about $39 an hour to about $63 an hour.
This puts them a little bit over the top of West Coast longshoremen. So this is going to be an interesting issue to sort out, not only at the bargaining table in January but potentially for the West Coast longshoremen when their contract elapses.
I was interested to see automation was such a big issue the union was pushing. It was almost like they were trying to walk back a bit because there is automation at some East Coast ports already. So the cat is out of the bag with this now.
There are ports around the world where they are almost fully automated at this point, and that is a reduction in jobs. So I think that the union was attempting to talk a tough talk here in an attempt to make sure the jobs remained in the U.S. and remained fairly stable for union members. But I suspect there's going to be some give and take at the negotiation table.
IBD: If the dockworkers strike again in January how could it affect the U.S. gross domestic product?
Leonhardt: It's interesting because the macroeconomic effects of this particular strike were always thought to be potentially minimal, especially when it comes to issues like inflation and even the availability of goods that were being imported into the U.S.
So when it comes to a January potential resumption of this strike, we've actually got even more time to prepare. I think in this case, some of the more dire aspects of this particular strike, had it lasted a month, six weeks, or two months, would have been on the holiday retail industry. And a lot of the imports, especially for small businesses could have been impacted.
A strike in January alleviates a lot of those kind of concerns. So with this point, arguably, a January strike actually may be even less impactful than something that would have happened and for a long duration in the fall.
IBD: What is the likelihood of another strike increasing inflation nationally?
Leonhardt: It comes down to the duration. But because inventories are so strong. And again, we can stockpile in this case because we know this could potentially be coming. Additionally, you have to think, too, retailers' pricing power has been more restrictive over the past year. Consumers are more cost-conscious at this point. And so the idea that you're going to see retailers or even product manufacturers passing on any kind of additional shipping increases is pretty minimal at this point.
IBD: How could a future strike have a spillover effect on other industries? Could we see a ripple effect in the job market if companies feel a pinch here – could that lead to layoffs?
Leonhardt: It's going to be a really interesting job market employment situation come January. We just got the September Labor market update, and it was really good. We had a good month, a nice rebound in September. Economists are still expecting some slowing, some easing in labor conditions as we go forward. Things like government hiring, which has been particularly strong, are expected to start to slow because of headwinds to budgetary issues and things of that nature.
So we're going to start to see a little bit of a pivot happen as we get toward the beginning of the year. But I think in terms of the strike and the impact there, it should be pretty minimal. Now, it was interesting because we did see so many unions across the country join in solidarity with the longshoremen and support them in any way possible.
That always is the potential risk, if you will, when you do have these big strikes. You could have ripple effects among other unions, and other industries that also … participate in work stoppages in solidarity. But I think in this case it should be pretty minimal. So we're expecting to see folks get back to the bargaining table.
IBD: What industries and sectors would be most affected if dockworkers strike again in January?
Leonhardt: I think you're always looking at things like the shipping industry when it comes to this kind of strike. In this case, it's very industry-specific. Smaller retailers (would be affected) because they can't they don't have the warehouse space. They don't have the inventory space. They could be impacted. We heard a bit about the idea that fresh fruits and vegetables could be affected.
But arguably, a lot of our trade and imports do come from Mexico at this point. And they don't come into our ports per day in the same way that overseas shipments do. So that could be a little bit of a hit or miss. Now on the export side of things- that could be where we start to see bigger issues, particularly if we do see a strike that goes on for longer durations and that's going to hit corporate profits.
IBD: Which will have an opportunity to grow amid another walk-off?
Leonhardt: I don't know that the strike ever really allows growth per se. I feel like we always kind of focus on the downside risk when it comes to these labor work stoppages. But, arguably I think it's, an opportunity to see wages increase, which of course could be a good boon for consumer spending.
We are looking out into the future for economic projections to start seeing a decrease in GDP or a slowdown, if you will, in GDP, not an outright, constraint in GDP. So this could help really bring up overall wages and things like that, kind of help Americans purchasing power if you will. That could be beneficial.
IBD: How will the strike impact inventory? Do consumers need to start stocking up on toilet paper and other goods?
Leonhardt: I do wonder if it's a little bit of a psychological pandemic holdover for us when we were running out of toilet paper and those everyday essentials [during the pandemic]. I think a lot of us kind of have that fear response built in at this point, and we may need to just pull it back a notch at this point. But I do think have stronger inventories than we did coming into the pandemic. We had lean inventories.
And that's what led to a lot of the supply chain issues we saw in stores from our everyday consumer perspective. We also had weaker supply chains. Now, of course, we could still see a ship get stuck in the Suez Canal and have major issues. Pork strikes that were affecting so much of the country are going to have issues.
But generally speaking, I think we've come out of the last couple of years a little bit stronger, and hopefully, retailers will be able to provide things. Arguably, there may be less availability of choice if we again, have a very long duration (of another strike). A three-day strike is not an opportunity to start sitting there and running up to your local store, unless, of course, there are weather events or natural disasters in addition to this. That would compound the situation.
IBD: What are the implications for investors amid a possible future dockworkers strike?
Leonhardt: We didn't see too many fears from investors this time around. I think this was something that folks were monitoring.
But we also had huge geopolitical swings this past week. And I think that that was driving much more of the market jitters than the strike was. It certainly weighed on investors and was something to consider or something to monitor. These work stoppages have been occurring throughout the past year.
We have seen an increase in this. And I do wonder if investors are starting to normalize these kinds of big labor strikes and look past them to say, OK, what's next? What really is the impact? We're getting a little bit better about that.
IBD: How do you see this conflict ultimately playing out come January?
Leonhardt: I ultimately see this playing out where the union's going to get its wage increases. I think there's going to be some back-and-forth on issues like automation. It will be interesting to see if the union does return to the picket lines.
There has been a lot of tough talk from union leadership. They've shown that they're willing and able to go out and get the things they need for their membership. So I think that they're coming in with a pretty strong position, and hopefully, everyone will be able to negotiate something that is a six-year deal for them, and we don't have to get anyone else involved.
You have to keep in mind, though, too, that at this point we may have an administration change. We're going to sit there and start to see, that kind of play into effect. We saw that the Biden administration wasn't willing to pull the trigger, shutting this kind of work stoppage down. That could change if we see Trump take office, for example, and, go into effect in January.
