The International Longshoremen’s Association (ILR), which represents about 45,000 port workers, launched its first large-scale strike in 47 years – disrupting supply chains ahead of the holiday shopping season. The walkouts at 36 ports along the East Coast and Gulf Coast, stretching from Maine to Texas, began early Tuesday morning after negotiations failed to produce a new labor contract by a midnight deadline. The ILR is seeking a 77% pay rise over six years of a new contract and a ban on automation. The United States Maritime Alliance (USMX), which represents the port’s owners, offered 50% and promised to limit automation in line with the previous contract. USMX defended its offer in a statement Tuesday afternoon: “Our current offer of a nearly 50% wage increase exceeds any other recent union settlement, addressing inflation and recognizing the hard work of the ILA to keep the global economy in function.” Perhaps the port owners were referring to the labor agreements that forced American automakers to end last year’s strikes by their unions. Club properties Amazon, Costco, Home Depot and Best Buy have been preparing for the port strike for months — trying to mitigate any impact it might have on their ability to receive goods from overseas. For now, we are satisfied that our retailers have taken the appropriate precautions. “We’re not concerned about the impact a strike might have on our stock,” said Jeff Marks, director of portfolio analysis at CNBC Investing Club. It is reasonable to have concerns about how port issues can lead to a ripple effect throughout the supply chain from the ocean carriers that bring the goods to the retailers that sell them. More than half of US imports for discretionary categories such as clothing and household products are more exposed, Barclays analysts said. They added that 60% to 70% of these imports arrive at East Coast and Gulf Coast ports. A prolonged strike could cause real problems, but “the likelihood of that at this point is not high,” said Seth Basham, an analyst at Wedbush. To put things in perspective, for retail goods, East Coast ports are less used than West Coast ports, Basham said. Retailers that have already begun diverting to other ports or bringing in goods earlier are in a “better position to have leverage over shippers,” he added. “Most retailers, they kind of know the game already,” Lorraine Hutchinson, retail analyst at Bank of America Merrill Lynch, told CNBC. “If you look at peak import shipping times, it’s August. They’re already ready for the holidays. Most of their holiday invoices have come in between July, August and early September, and they’re going to the retailer’s distribution centers with retail and then in stores.” Costco has done just that. “Our customers are everyone. They’re watching it closely, and we’ve taken as many precautions as we can to prepare for it,” Costco CEO Ron Vachris said during the company’s most recent post-earnings call on Sept. 26. “We have contingency plans. We have cleared the ports. We’ve pre-shipped.” Amazon is also taking a proactive approach to managing its inventory. The company is likely to “increase inventory as we speak,” said Marc Wulfraat, CEO of supply chain and logistics firm MWPVL. Amazon has added 24 million square feet of storage space across the country, known as “international cross-entry centers,” which are designed to hold inventory pending supply chain disruptions such as a port strike, Wulfraat explained. Home Depot has a similar warehouse model that covers over a million square feet to store inventory ahead of time. According to Wulfraat, these spaces allow companies like Home Depot to stock up early, especially for situations like potential port attacks, so they have inventory ready before it’s needed. Best Buy has the highest exposure in terms of the percentage of merchandise they sell that is imported at about 90%, so they could definitely be under pressure if they’re not able to adapt. with these changes,” Basham said. However, because of its size, Best Buy often gets priority from its shippers, which can help secure goods faster than smaller competitors. To be sure, Wedbush’s Basham warned that even a “one-day strike could lead to a 5-day backlog,” while a week-long strike could lead to delays of over a month. A prolonged strike could “lead to inflation in certain commodity classes as supply chains try to rebalance by moving those ships to West Coast ports,” he said. While the risk of a prolonged strike appears low, no one wants a repeat of the extended shipping times that occurred during the Covid pandemic and caused so much pain to retailers. (Jim Cramer’s Charitable Trust is long COST, AMZN, HD, BBY. See here for a complete list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim make a trade Jim waits 45 minutes after sending a trade alert before buying or selling a share in his charitable trust portfolio. 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Members of the International Longshoremen’s Union, which represents approximately 45,000 workers, sit outside the Maher Terminal on strike in Elizabeth, New Jersey, US, October 1, 2024.
Shannon Stapleton | Reuters
The International Longshoremen’s Association (ILR), which represents about 45,000 port workers, launched its first large-scale strike in 47 years – disrupting supply chains ahead of the holiday shopping season.