The US ports strike impacts international shipments and may have significant effects on the US economy. Prolonged disruptions risk causing significant shipment and supply delays for US manufacturers and increase logistics costs. Retailers and consumers, meanwhile, face potential supply disruptions during the busy shopping season, which could cause higher inflationary effects in Q4 2024.
US ports strike largely impacts container shipments, threatening the supply of manufactured goods
The US dockworkers walked off their jobs on 1 October, launching a strike in around 15 US sea ports, ranging from Maine to Texas. The International Longshoremen’s Association (ILA), which represents around 45,000 dockworkers, is seeking a 77% wage increase over the next six years as the existing contract with port employers expired.
The strike impacts the trade on the entire east coast of the US and could cause significant disruptions to the US economy.
The affected ports carry around 40% of the total US ports cargo volume, and thus extended strikes would impact US trade, supply chains and consumer markets
Source: Euromonitor International
The strike would also mainly impact shipments of manufactured goods carried through container cargo trade. Shipments of other goods are expected to face less disruption as bulk ship operations, which handle commodities such as wheat or coal, are covered under the separate employment contract. US exports of oil and LNG gas are also expected to remain unaffected as ILA has little involvement in these operations.
The full effects of the strike on the US economy are, so far, difficult to measure and will depend on how long the gridlock will last. The largest US retailers and manufacturers have anticipated the disruptions and have stocked their warehouses before the busy shopping season in Q4. However, executives from companies such as Walmart, Target and General Motors warn that if the strike lasts for a week or longer, the inventories would be depleted and shortages of products across the supply chains and consumer markets could occur.
Prolonged strike risks causing significant supply chain disruptions for US manufacturers
The biggest impact for companies coming from the strike is even higher logistics costs. For example, shipping companies are asking for USD1,500-3,000 surcharges on a container as a result of increased demand before the strike began. The extra costs could be even higher if the strike lasts for longer, and companies would start to face shortages of critical goods.
Disruptions to sea shipments will also have an impact on trade routes and modes and increase prices of road, rail or air transport services. Lastly, temporary transportation price hikes are also possible after the ports strike ends, similar to what was witnessed after the COVID-19 pandemic lockdowns. After the reopening of ports activities, influx of goods is likely, causing bottlenecks in ports facilities as they have limited capacity to handle the cargo. To cope with these bottlenecks, companies will need to pay more for logistics services or face delayed deliveries.
The increase in transportation costs would largely impact the cement, construction and retailing industries
Source: Euromonitor International
They rely heavily on an efficient transportation network and spend 2-8% of total costs on transportation. The extra costs would largely impact US companies; however, spillovers to other regions are also possible as delays in the US would tie up containers needed in Asia, Europe and other export markets.
Besides the direct impact of higher transportation costs, US manufacturing companies are facing potential supply disruptions of input materials and components. The ILA strike shuts down one of the main gateways of US imports of machinery, vehicles, chemicals, construction materials and textiles. Prolonged shipping delays risk causing significant supply chain disruptions in critical B2B sectors, such as chemicals, machinery or hi-tech goods. For example, the impacted ports handled around 90% of imports of salt used in chemicals manufacturing in the first half of 2024. The US agriculture industry also warned that the strike could hurt imports of fertilisers and impact harvests next year, in turn causing supply problems for the food industry.
Consumer markets will be impacted, but companies are likely to absorb most of the cost increases
The port strike will impact US consumer markets and also cause more uncertainty on inflation in Q4 2024
Source: Euromonitor International
Even though the largest retailers have stocked their warehouses, the port strike coincides with the start of the busy shopping season in the US market. Any shortages of consumer goods would be amplified by the stronger consumer demand in Q4, in turn leading to higher inflationary pressures towards the end of the year.
Supply of durable consumer goods, such as cars, may also be impacted by the port strikes. For example, Baltimore is one of the key ports for US vehicle imports, handling 34,000 vehicles in July 2024. Inventories of new vehicles in the US have returned to near pre-pandemic levels already and restricted supply of imported cars would further add to lower supply. This could also lead to slightly higher inflationary pressures in the US in Q4 as prices of durable goods would increase.
However, it is likely that the negative effects on consumers would be at least partly absorbed by US companies. The data from S&P 500 companies shows that revenue growth of companies slowed down in Q3 2024, indicating weaker consumer demand. Facing weaker consumer willingness to spend and the temporary nature of the shipping disruptions, companies are likely to look for ways to absorb cost increases by themselves and avoid passing on higher cost to the end consumers.
Read our article, US 2024 Election: Implications for the Global Economy, for more analysis on the US and global economy.