Longshoremen at the Port of Miami strike near the port entrance demanding a new labor contract on October 1, 2024 in Miami, Florida.
Giorgio Viera | Afp | Getty Images
A longshoremen's strike at seaports along the US 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 (ILA) went on strike at 14 major ports early Tuesday over wage increases and the use of automation. According to an analysis by the Conference Board, the ports threatened by strikes handle a total of $3 trillion in U.S. international trade annually.
“A disruption of this magnitude at this crucial 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 largest trade association in the retail industry, 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 smooth flow of goods through these ports, and this strike will result in consumers ultimately paying higher prices due to limited supply and greater demand for imported goods,” Shay said.
“After more than two years of rapid inflationary pressures and in the midst of the recovery from Hurricane Helene, this strike will result in further hardship,” he said.
The US port strike could lead to inflation
Overall, the U.S. economy has made steady progress in reducing inflation, but in most cases price increases are only slowing rather than declining completely.
The consumer price index, a key measure of inflation that measures average prices for a broad basket of consumer goods and services, rose 2.5% in August from a year earlier, according to the Bureau of Labor Statistics. That's down from the pandemic-era peak of 9.1% in June 2022.
Lauren Saidel-Baker, an economist at ITR Economics, said commodity costs have been well controlled, with relatively stable raw material prices and – at least until recently – lower shipping costs.
However, “the port strike could lead to renewed inflation on the goods side,” she said.
The standoff between the ILA, which represents about 45,000 longshoremen, and the United States Maritime Alliance (USMX) also marks almost exactly four years since the Covid pandemic roiled global supply chains.
Back then, goods weren't hitting shelves as quickly as consumers wanted them, driving up prices.
The U.S. port strikes could have a similar effect, creating “a scenario reminiscent of the pandemic-era logistics crisis,” Saidel-Baker said.
While shortages and delays are possible, the biggest economic impact will be on pricing, she said. The longer the strike lasts, the more likely the consequences for inflation are.
The duration of the blow determines the effect
“The key takeaway here is that duration magnifies impact,” Lisa DeNight, managing director of national industry research at Newmark, a commercial real estate firm, told CNBC's “The Exchange” on Monday.
In a short-term strike, “companies with safety stock can mitigate initial disruptions, but perishable goods are affected almost immediately,” said Amir Mousavian, a professor of supply chain management at the University of New England College of Business.
In this case, some food prices would initially rise, including imported coffee, bananas and frozen foods.
“They don’t have a long shelf life, which means lower reserves,” Mousavian said.
If the strike takes longer to resolve, companies will have to find alternative shipping routes, likely at higher costs, which could be reflected in price increases for other goods, Mousavian said, including medicines, clothing and cars.
“If it drags on, it will spread to all sorts of sectors and would be difficult for most companies to avoid,” Mousavian said.
“And it is ultimately the consumer who pays the price,” he added.
The timing of the strike is particularly worrisome, Mousavian added, ahead of the holiday shopping season and the U.S. presidential election – and on the heels of the Federal Reserve's first interest rate cut in four years, a welcome one for Americans who have been struggling to keep up The news was the increased cost of living.
“A prolonged strike could erase these gains and force the Federal Reserve to rethink its economic strategy and potentially reimpose more restrictive measures,” Mousavian said.
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