The historic dockworker strike that began this week risks reigniting inflation — with the situation becoming worse the longer the work stoppage lasts.
On Tuesday, tens of thousands of members of the International Longshoremen’s Association at ports from Maine to Texas began striking after their six-year contract with the U.S. Maritime Alliance lapsed. Workers at three dozen East Coast and Gulf Coast ports are now on strike, stopping ships from unloading goods and putting pressure on the country’s supply chains.
The work stoppage comes at a precarious time for the economy. The Federal Reserve has worked desperately to tamp down the worst wave of inflation the U.S. has experienced since the late 1970s. In recent months, it has succeeded in bringing inflation back down toward its 2% target.
But that progress could be undone if supply is significantly constrained by a long strike.
“Well, there’s no doubt that it risks causing inflation much the same as the supply chain disruptions during the COVID pandemic,” Mark Hamrick, senior economic analyst at Bankrate, told the Washington Examiner. He noted that those supply chain disruptions were one of the major drivers of the post-pandemic inflation scourge.
It is unclear how long the strike will last. If it lasts just a week or so, the impact on inflation will be minimal, experts say. But that equation changes if the work stoppage is dragged out for weeks or even months, clogging ports all along the East Coast.
“Admittedly, the East and Gulf Coast dockworkers strike presents a near-term challenge to furthering goods deflation,” economists with Wells Fargo said in a Wednesday report. “For now, we expect minimal effects on consumer goods prices due to the better inventory picture and softer demand environment compared to a few years ago, although a prolonged dispute would change our view.”
And the ports are clogging quickly.
Less than 48 hours since the strike, ships carrying a wide array of cargo have started piling up outside ports on the East Coast and the Gulf Coast.
The queue of waiting container ships waiting outside the ports in question has increased to 45 ships. By comparison, there were only three ships waiting on Sunday, 31 on Monday, and 38 on Tuesday, which was the first day of the strike, according to Everstream Analytics, which is a supply chain risk management software company.
Everstream estimates that the queue could “easily grow” to 100 by the end of this week because more vessels are en route for ports on the East and Gulf Coasts.
Jena Santoro, senior manager of global risk intelligence at Everstream Analytics, told the Washington Examiner that the degree inflation will be affected by the strike comes down to how long the workers stay off the docks and in the picket lines.
“I mean, that’s pretty much the gist of it, is that everything is dependent on the strike’s duration, which, of course, we can’t predict,” she said. “We can speculate, but we can’t predict how long it’s going to last.”
Santoro said that there are also other factors at play — for instance, whether through the course of the work stoppage it remains a “full-scale strike.” If some terminals are opened up as negotiations continue, it would lessen the inflationary effects.
“So that’s sort of what we’re looking to see now is, really is this going to stay as a full-scale strike until the until the negotiations sort of go in the union’s favor … or are they going to start to sort of come around to the idea that, OK, we might be able to get closer to what we want without causing so much economic damage and disruption,” she said.
The extent of price pressures will also depend on the industry and products in question. For time-sensitive and high-value goods like pharmaceuticals and perishable foods, Santoro said, the strike might have an effect in just weeks.
“Because what’s going to happen is that those industries are going to have to probably switch to air freight,” she explained.
Air freight is more expensive than shipping on container vessels, so those costs would eventually trickle down to households in the form of price increases after a couple of weeks, according to Santoro. But for consumer and general retail goods, it might take over a month for there to be any inflationary effects, because retailers have enough existing inventory to weather the stoppage.
Still, at least for the time being, many analysts aren’t expecting the strike to drag on too long.
PNC senior economist Jay Hawkins said that shortages from the port strike could temporarily push prices higher, but the economic footprint will be limited if it resolves in the next week or so. He said PNC’s working assumption is that the strike will only last a week or two.
“We haven’t done really any analysis beyond that, but certainly if it drags on, then it is our intention to extend that analysis further,” he told the Washington Examiner.
Hawkins noted that one positive going into this strike is that many businesses planned and built up inventory knowing a work stoppage could happen.
“In terms of the lost output, we estimate that it’s going to be about $5 billion per week of lost output, GDP, in other words,” he said. “So a two-week strike, which is $10 billion that means a loss in GDP of around 0.04%, which is basically a rounding error.”
But New York City billionaire John Catsimatidis, who is the CEO of Red Apple Group, said that he worries about how the ongoing strike might affect prices.
“Food prices are going to go up all over again, so it’s going to cause another inflationary spiral,” Catsimatidis said in a phone call with the Washington Examiner.
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Catsimatidis — who also owns Gristedes, a chain of New York grocery stores — expressed concerns that the strike could cause the prices of food and produce, which have a set shelf life, to increase. He also noted that his real estate department told him that the windows for a building that is under construction are on a cargo ship that is waiting to get in.
As for the Fed, which has been working to control inflation through its interest rate target, Hawkins said he doesn’t think that the current strike will change the central bank’s monetary policy actions and what Fed officials intend to do at their next meetings.