Dockworkers Threaten Strike: Potential Supply Chain Chaos Ahead of Holiday Season
As Florida prepares for Hurricane Helene, another storm is forming in the economy. This financial tempest could cost the nation $5 billion each day.
According to JPMorgan, if the International Longshoremen’s Association (ILA) goes through with its planned strike on Tuesday, October 1, it could severely disrupt economic activity. Current news indicates that this strike is increasingly likely.
Let’s hear from veteran investor Louis Navellier in a recent episode of Growth Investor:
There is an economic storm cloud forming.
On Monday, the ILA threatened to have its 25,000 members walk off the job. This union oversees crucial container ports along the East Coast and Gulf Coast.
A two-week strike at these ports would disrupt supplies crucial for the holiday shopping season, bringing significant challenges to retailers and consumers alike.
More on this from The New York Times:
A strike would shut down major container ports in New Jersey, Virginia, Georgia, and Texas, including the Port of Baltimore, a key hub for vehicles and heavy machinery imports and exports.
Notably, a significant portion of food imports, like orange juice, flows through East Coast ports, which makes the potential strike particularly worrisome for supply chains.
Marine ports handle the majority of U.S. international trade, giving dockworker unions considerable leverage in negotiations. This power has helped them secure raises and comprehensive benefits over time.
“Leverage” is the right term here.
Abe Eshkenazi, CEO of the Association for Supply Chain Management, spoke to Business Insider about the economic damage if this strike continues, especially as we approach a busy shopping season:
A prolonged strike could lead to lengthy shipping delays and backlogs, aggravated by limited rerouting options and high costs.
The interconnectivity of the supply chain means that businesses and consumers will both experience the fallout from a stoppage during this critical period.
The timing of this potential strike heavily favors the ILA. President Harold Daggett was emphatic on Tuesday:
A sleeping giant is ready to roar on Tuesday, October 1, 2024, if a new Master Contract Agreement is not negotiated.
Potential Surge in Inflation Adds to the Strike’s Consequences
If a strike occurs, it could cause supply chain disruptions lasting months, leading to higher consumer prices.
From Business Insider:
A strike could delay shipments and trigger price hikes.
Grace Zwemmer, associate U.S. economist with Oxford Economics, noted that clearing the backlog from each day of the strike could take four to seven days, indicating even a two-week strike might stretch into 2025 for the supply chain to stabilize.
She referenced predictions from Sea-Intelligence estimating that the strike could prevent up to 74,000 shipping containers from being unloaded daily. Consequently, manufacturers would face delays in receiving goods, ultimately raising prices for consumers.
The timing is pivotal. On Tuesday, Fed Governor Michelle Bowman, who voted against a larger interest rate reduction, pointed to inflation risks:
The U.S. economy remains strong, but core inflation is uncomfortably above our 2% target.
She preferred a smaller initial cut due to these inflation concerns and the robust state of the economy. The upcoming personal consumption expenditures price index report will provide more insights into current price trends.
Let’s dive deeper into the implications of the strike and its intersection with technology trends in labor.
The Clash with Technology Looms Large
Last year, Daggett warned companies against trying to replace jobs with automation, stating:
If foreign-owned companies like Maersk and MSC attempt to replace our jobs, they will face significant pushback. Longshore workers have contributed greatly to these companies’ successes.
Disrupting the work of maritime unions is a high-stakes gamble for shipping companies.
Examining the economics, The New York Times reports that:
On average, West Coast longshore workers earned nearly $220,000 last year and currently make about $55 an hour.
At the Port of New York and New Jersey, around 60% of longshoremen earned between $100,000 and $200,000 in the year ending June 2020, according to oversight agency data.
The ILA is pushing for a significant pay increase with reports suggesting a 77% hike over a six-year contract, after rejecting a 40% increase. This situation shares similarities with the 2023 strikes by the Screen Actors Guild and Writers Guild of America, which aimed to protect workers from the threat of artificial intelligence.
As Daggett negotiates for his union, he seeks to secure favorable terms before technology potentially renders many of these roles obsolete.
Imagine being the CEO of the U.S. Maritime Association, contemplating the financial implications of these demands against the backdrop of rising automation. Recently, CNBC reported on Walmart’s adoption of automation to improve its profitability:
Walmart anticipates that profits will outpace sales growth as it integrates more robotic processes. Within three years, about two-thirds of its stores will use some level of automation.
Such advancements may prompt significant shifts in labor dynamics across industries.
Regardless of the strike’s outcome, the ongoing advancements in robotics and automation suggest that confrontations like this will become more common in the future.
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The rise of robotics could be a key factor in shaping the workforce of the future.
Can Robotics Overtake Labor in the Coming Years?
Robotics Investment: A Growing Trend
In 2016, former McDonald’s USA CEO Ed Rensi made a noteworthy statement that hinted at the labor challenges we are witnessing today:
It’s cheaper to buy a $35,000 robotic arm than it is to hire an employee who’s inefficient making $15 an hour bagging french fries.
A 2019 article from Visual Capitalist highlighted the looming change that robotics could bring to the work landscape, anticipating a significant transformation in various sectors.
From that article:
By 2025, for example, it’s projected that 10-15% of jobs in three sectors (manufacturing, transportation and storage, and wholesale and retail trade) will have high potential for automation…
This shift is expected to persist, with robot costs expected to drop by 65% between 2015 and 2025.
Whether labor strikes occur or not, the movement towards automation is likely to continue its upward trajectory.
According to a forecast from Research and Markets, the global robotics market is projected to grow at an impressive compound annual growth rate of 27.1% until 2032.
This indicates an increase of nearly nine times.
While additional statistics can be presented to support this trend, let’s consider how to respond strategically.
Investment Strategies for Robotics
In the following weeks, our experts will share their insights on how to invest in this evolving sector. For now, let’s consider a high-level overview with input from our CEO, Brian Hunt.
Brian recently communicated with our leadership team about the technological advancements on the horizon and the potential market fluctuations. He emphasized a remarkable opportunity for significant wealth creation in the next five to ten years.
With this perspective, here’s what Brian advises:
Go long American AI, automation, software, and robotics.
Whether selecting individual stocks or options is your preference, there are no objections from me. For a more straightforward approach, consider investing in the top five AI and robotics ETFs equally and holding them. Maybe also include some QQQ.
Disregard temporary corrections; they are often painful but short-lived.
This trend will likely gain momentum significantly.
As a personal disclosure, I share Brian’s enthusiasm and hold the ETFs BOTZ and ROBO, planning to take a long-term view throughout this decade.
Conclusion: The Future of Work and Robotics
The outcome of the ongoing labor strike will be intriguing, especially its potential effects on inflation.
While the resolution is critical and may affect your investments in the near term, it’s essential to keep the bigger picture in mind. The pushback from labor, seen with Daggett’s stance, is an uphill battle in the face of robotics’ growing economic influence.
Is your investment portfolio ready to harness this “hurricane force tailwind” shaping the market?
Wishing you a pleasant evening,
Jeff Remsburg
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