A dockworker strike at ports on the US East and Gulf coasts is poised to create significant disruptions in the supply chain, potentially lasting for a few days to a few weeks. Import-heavy retailers are showing signs of vulnerability as analysts assess the ramifications heading into the critical holiday shopping quarter. The International Longshoremen's Association (ILA) initiated the strike early Tuesday after turning down the final proposal from the United States Maritime Alliance (USMX) regarding a new contract.
This decision has resulted in the closure of ports stretching from Maine to Texas, signaling a considerable halt in logistics operations. The USMX, which represents terminal operators and ocean carriers, put forward an offer that included a “nearly 50%” wage increase along with provisions to maintain existing automation frameworks.
However, the ILA, representing approximately 85,000 dockworkers, deemed this offer inadequate, claiming it did not meet the demands of its members. Analysts at BofA Securities forecast that the strike is unlikely to extend beyond a few weeks, anticipating that US President Joe Biden may leverage the Taft-Hartley Act to restore operations at the ports.
Although it remains uncertain when such intervention might occur, pressure for a resolution is mounting on political fronts. “While wage negotiations may eventually be swayed by political influence, the discussions surrounding automation present more complex challenges,” the brokerage noted in a communication to clients.
“Progress in negotiations had stalled in recent months, contributing to the current state of unrest.” In a separate development, President Biden emphasized the need for USMX to negotiate a “fair contract” with the strikers. In a statement from the White House, he pointed out that ocean carriers have reaped “record profits” during the pandemic and that the corresponding increase in executive compensations highlights the disparity.
“It’s only fair that workers, who risked their health during the pandemic to keep ports operational, also receive a meaningful wage increase,” Biden asserted. A prolonged strike could lead to unprecedented congestion levels in global shipping, with significant implications for freight rates. BofA analysts noted that a strike lasting several weeks could escalate spot freight rates dramatically, while demand for air cargo may surge due to potential inventory shortages in response to disrupted maritime logistics. Furthermore, analysts at Wedbush Securities highlight the risks associated with import-dependent retailers as the holiday season approaches.
While these retailers are more susceptible to the anticipated disruptions, it appears that many have proactively adjusted their inventory schedules to mitigate immediate risks. “Retailers engaged in hardlines, particularly those heavily reliant on imports, may face challenges due to projected port closures, especially firms like Best Buy (BBY), Wayfair (W), Dick's Sporting Goods (DKS), Academy Sports and Outdoors (ASO), and Williams-Sonoma (WSM),” noted Wedbush analysts Seth Basham and Matthew McCartney.
They also mentioned that RH (RH) could face repercussions due to its considerable dependence on imported goods..