The US port strike – and its duration – could destroy the economy

• A strike by dock workers from Maine to Texas could have a major impact on the US economy.
• The key to how much damage is done will be how long it takes, logistics experts told BI.
• A prolonged strike could lead to shortage of perishable goods and increase in prices.

A strike involving dock workers from Maine to Texas could cause major damage to the US economy.

How much of the economic wreckage piles up will depend on how long dockworkers stay on the picket lines, logistics experts told Business Insider.

A strike lasting a week or two would create delays but generate minimal economic costs outside areas that depend on port activity, according to Adam Kamins, an economist at Moody’s Analytics.

But “anything more will lead to shortages and upward price pressures,” Kamins said. He noted that the shipping of food and automobiles could be particularly hard hit, as they tend to move through the affected ports, where about 45,000 workers are striking for better wages, among other demands.

Kamins said a rise in inflation was unlikely even with a longer strike. But he added that if prices start to heat up, that could make the Federal Reserve “more cautious” about cutting interest rates. The Fed cut rates in September for the first time in four years, following its effort to curb inflation, which has spiked during the pandemic.

Kamins said the Fed’s reluctance to continue tapering would cloud the outlook for job growth and investment.

Ports are already feeling the effects

The strike is the first to affect an entire US coast since 1977 and is already disrupting trade. As of Tuesday morning, more than 38 container ships were docked near the affected port, including Savannah, Georgia, Charleston, South Carolina, Norfolk, Virginia and New York, according to Mirko Woitzik, director of intelligence solutions at Everstream Analytics. It is older than 21 months and three on Sunday.

The affected ports involve about half of the nation’s ocean shipping. Analysts at JPMorgan said the price for strike-related shutdowns could reach $5 billion a day.

Travis Tokar, professor of supply chain management at Texas Christian University’s Neeley School of Business, told BI that if a strike lasts more than a few days, there will likely be significant shortages at grocery stores.

“It all comes down to how quickly this is resolved,” Tokar said.

If the industrial action persists, he said, shoppers may soon have a more difficult time finding a variety of fruits and vegetables, including bananas and kiwis. He said meat, seafood, eggs, coffee, chocolate and alcoholic beverages could also be affected. Beyond food, there could be delays involving automobiles, auto parts, clothing and furniture, Tokar said.

Rising transportation costs could increase food prices

Tokar said that even if some food remains available, consumers may see a difference in costs as companies pass on higher shipping costs.

“Prices are going to be very high because those shippers have to find alternative routes,” he said. “That will add a lot of cost.”

One of the biggest hurdles for companies will be even finding alternative routes. He said some things could be rerouted to West Coast ports, but that was expensive and time-consuming. And alternative routes will become more congested as a result of the strike.

Sending the goods by air would likely be at least four times more expensive, Tokar said. That’s before any price increases that might occur if too many companies rush to claim limited cargo space. And flying by plane wouldn’t work for large volumes of cargo, he said.

Tokar also said that many companies and shippers may not have had the means to restore their supply lines before departure. Given that it had been decades since a major strike had taken place on the East Coast, he said, many companies were also likely caught off guard.

Beyond that, he said, even if shippers wanted to go ahead with a strike, they might not have had the funds available to buy additional inventory ahead of time or a place to put it. Additionally, shippers and companies can only store perishable goods for so long before they spoil.

“There’s only a limit to what companies can do, even if they see the garbage fire on the horizon,” Tokar said.