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Damaging Port Strike May Aid Some Transportation Stocks: Here's How
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On Oct. 1, 2024, dockworkers at ports on the U.S. East Coast and Gulf Coast commenced their first large-scale strike in nearly five decades after contract renewal negotiations broke down. Nearly 50,000 U.S. port workers, represented by the International Longshoremen's Association or ILA across the East and Gulf Coast, started their work stoppage after their current six-year contract expired on Sept. 30.
The labor action by the dockworkers will not only disrupt activities at some of the United States’ largest ports, but the impact of the same is likely to ripple down throughout the economy. In this write-up, we throw light on the potential impact of the port strike on transportation stocks like FedEx Corporation (FDX - Free Report) , United Parcel Service (UPS - Free Report) , Expeditors International (EXPD - Free Report) , NorfolkSouthern (NSC - Free Report) and C.H. Robinson Worldwide (CHRW - Free Report) . Let's delve deeper.
Why Did the Port Strike Materialize?
On Tuesday, ILA members commenced their strike on East and Gulf Coast ports following the breakdown of contract renewal talks with the employer group, the United States Maritime Alliance or USMX, on pay-related issues. Negotiations had been going on since February 2023.
The ILA has stated that the talks broke down as the wage increase package offered by USMX was unacceptable. It is the first such strike since 1977. Per ILA’s president Harold Daggett, salaries of dock workers have not kept up with the high inflation. Daggett was quoted as saying, “Even a $5 an hour increase in wages for each year of a six-year agreement only amounts to an average annual increase of approximately 9.98 percent.”
The ILA has refuted claims by USMX that the former has demanded an increase in excess of 75% over the tenure of the six-year agreement. Port workers are reportedly demanding a 61.5% increase over six years. They strongly oppose the adoption of automation. As a result of this disagreement, the first such shutdown since 1977 materialized.
Economic Impact of the Port Strike
The strike has a huge damaging impact on the economy as it blocks shipments of everything including food, autos and other consumer goods across multiple ports from the state of Maine to Texas. The strike will reportedly cost the economy $5 billion a day. The strike has the potential to dry up jobs and reignite inflation. If it continues for long, the strike may result in consumer and industrial goods shortage, in turn leading to price hikes.
The closed ports handle nearly 60% of the container shipments to the United States. Most imported apparel, footwear and accessories come through East Coast ports. The longer the strike persists, the more time it takes to clear the backlog. Each day of the port shutdown is likely to involve roughly six days for backlog clearance.
Ports on the West Coast are likely to handle some of the freight business that would go to the eastern ports in normal circumstances. In fact, many shipments have already been diverted to West Coast ports. As a saving grace, some companies had stockpiled ahead of time, anticipating such a disruption. The U.S. President is currently not in favor of intervening and using his powers via the Taft-Hartley Act to end the strike. The President instead favors the disputing parties to arrive at a deal.
Impact of the Strike on Transportation Stocks
The port strike is likely to benefit international airfreight providers UPS and FDX. The labor action by dockworkers is likely to increase demand for air freight. High-value goods are anticipated to be shifted to airfreight to avoid the affected ports. This is likely to provide relief, particularly to FDX stock, which has been struggling of late, following dismal first-quarter fiscal 2025 results, released on Sept. 19. FDX shares have declined 10.2% since the earnings release compared to its industry’s 3.5% reduction.
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Similarly, freight forwarders like Expeditors and C.H. Robinson are likely to benefit from the strike-induced uptick in demand for air freight. They are likely to see an increase in volumes with shippers turning to third-party logistics providers amid this disruption. The impact of the port strike is likely to be adverse for East Coast railroads like NSC as volumes are anticipated to decrease as goods stop moving into the port. Similarly, trucking companies with significant exposure to the East Coast may be hit adversely.
Wrapping Up
With the strike likely to cause severe disruptions and choke the flow of most of the United States’ imports and exports, an early resolution to the problem is desired as its continuation may prove to be a setback to the economy, which is recovering from pandemic-induced supply chain disruptions that resulted in a spike in inflation. Investors should keep an eye on updates pertaining to this burning issue and the resultant impact on stocks.
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Damaging Port Strike May Aid Some Transportation Stocks: Here's How
On Oct. 1, 2024, dockworkers at ports on the U.S. East Coast and Gulf Coast commenced their first large-scale strike in nearly five decades after contract renewal negotiations broke down. Nearly 50,000 U.S. port workers, represented by the International Longshoremen's Association or ILA across the East and Gulf Coast, started their work stoppage after their current six-year contract expired on Sept. 30.
The labor action by the dockworkers will not only disrupt activities at some of the United States’ largest ports, but the impact of the same is likely to ripple down throughout the economy. In this write-up, we throw light on the potential impact of the port strike on transportation stocks like FedEx Corporation (FDX - Free Report) , United Parcel Service (UPS - Free Report) , Expeditors International (EXPD - Free Report) , Norfolk Southern (NSC - Free Report) and C.H. Robinson Worldwide (CHRW - Free Report) . Let's delve deeper.
Why Did the Port Strike Materialize?
On Tuesday, ILA members commenced their strike on East and Gulf Coast ports following the breakdown of contract renewal talks with the employer group, the United States Maritime Alliance or USMX, on pay-related issues. Negotiations had been going on since February 2023.
The ILA has stated that the talks broke down as the wage increase package offered by USMX was unacceptable. It is the first such strike since 1977. Per ILA’s president Harold Daggett, salaries of dock workers have not kept up with the high inflation. Daggett was quoted as saying, “Even a $5 an hour increase in wages for each year of a six-year agreement only amounts to an average annual increase of approximately 9.98 percent.”
The ILA has refuted claims by USMX that the former has demanded an increase in excess of 75% over the tenure of the six-year agreement. Port workers are reportedly demanding a 61.5% increase over six years. They strongly oppose the adoption of automation. As a result of this disagreement, the first such shutdown since 1977 materialized.
Economic Impact of the Port Strike
The strike has a huge damaging impact on the economy as it blocks shipments of everything including food, autos and other consumer goods across multiple ports from the state of Maine to Texas. The strike will reportedly cost the economy $5 billion a day. The strike has the potential to dry up jobs and reignite inflation. If it continues for long, the strike may result in consumer and industrial goods shortage, in turn leading to price hikes.
The closed ports handle nearly 60% of the container shipments to the United States. Most imported apparel, footwear and accessories come through East Coast ports. The longer the strike persists, the more time it takes to clear the backlog. Each day of the port shutdown is likely to involve roughly six days for backlog clearance.
Ports on the West Coast are likely to handle some of the freight business that would go to the eastern ports in normal circumstances. In fact, many shipments have already been diverted to West Coast ports. As a saving grace, some companies had stockpiled ahead of time, anticipating such a disruption. The U.S. President is currently not in favor of intervening and using his powers via the Taft-Hartley Act to end the strike. The President instead favors the disputing parties to arrive at a deal.
Impact of the Strike on Transportation Stocks
The port strike is likely to benefit international airfreight providers UPS and FDX. The labor action by dockworkers is likely to increase demand for air freight. High-value goods are anticipated to be shifted to airfreight to avoid the affected ports. This is likely to provide relief, particularly to FDX stock, which has been struggling of late, following dismal first-quarter fiscal 2025 results, released on Sept. 19. FDX shares have declined 10.2% since the earnings release compared to its industry’s 3.5% reduction.
Similarly, freight forwarders like Expeditors and C.H. Robinson are likely to benefit from the strike-induced uptick in demand for air freight. They are likely to see an increase in volumes with shippers turning to third-party logistics providers amid this disruption. The impact of the port strike is likely to be adverse for East Coast railroads like NSC as volumes are anticipated to decrease as goods stop moving into the port. Similarly, trucking companies with significant exposure to the East Coast may be hit adversely.
Wrapping Up
With the strike likely to cause severe disruptions and choke the flow of most of the United States’ imports and exports, an early resolution to the problem is desired as its continuation may prove to be a setback to the economy, which is recovering from pandemic-induced supply chain disruptions that resulted in a spike in inflation. Investors should keep an eye on updates pertaining to this burning issue and the resultant impact on stocks.