Saturday, October 12, 2024

Port Strike Threatens Economy. But These Stocks Are Winners.

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Thousands of dockworkers are set to begin striking on Tuesday, which will shut down ports across the East Coast and deal a massive blow to the economy. Companies have imported goods early in anticipation of the port halt. Meanwhile, logistics firms are redirecting goods to the West Coast.

ZIM Integrated Shipping (ZIM) and FedEx (FDX) are among the potential winners.





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Longshoremen Demand Pay Hikes

Members of the International Longshoremen’s Association (ILA) will start striking on East and Gulf Coasts ports Tuesday as contract renewal negotiations with employer group the United States Maritime Alliance (USMX) broke down over an impasse on pay. It will mark the first strike on the East and Gulf Coast ports since 1977. The two groups began negotiating in February 2023.

The ILA, which claims to represent more than 85,000 union workers, on Sept. 23, said multiple negotiation attempts over recent weeks stalled because the USMX offered an “unacceptable wage increase package.”

While official salary demands haven’t been made by the ILA, union President Harold Daggett has repeatedly said that dock worker salary has not kept up with inflation.

“For over three decades, the annual increase in wages for ILA workers rose only a meager 2.02% per year, on average,” the ILA said in a Sept. 17 statement. The USMX has claimed that the union demanded a 75% pay increase over the lifetime of a six-year contract, but the ILA has refuted that statement.

“Even a $5.00 an hour increase in wages for each year of a six-year agreement, only amounts to an average annual increase of approximately 9.98%,” Daggett said in a Sept. 23 statement.

East and Gulf Coast longshoremen with six or more years of experience earn $39 per hour, up 11% since the start of the expiring six-year contract, the New York Times reported. Inflation is at 24% over that period. Meanwhile, West Coast longshore workers make nearly $55 an hour.

The USMX last week said it received outreach from the Department of Labor and Federal Mediation & Conciliation Service, but claimed there was “no indication” that the ILA was interested in negotiations.

The employer group on Sept. 26 filed an unfair labor practice charge with the National Labor Relations Board to request immediate injunctive relief and force negotiations with the ILA.

In response, the ILA said the suit was a “publicity stunt” and illustrates “what poor negotiating partners they have been.”

Economic Effects Of A Port Strike

JPMorgan analysts estimate that a strike could cost the economy $5 billion per day, or about 6% of the daily expressed gross domestic product, the NYT reported. The East and Gulf Coast ports handle about three-fifths container shipments to the U.S. And over half of imported apparel, footwear and accessories come through East Coast ports.

Some companies have imported holiday-season inventory early, according to reports, while shipping firms are diverting traffic to the West Coast. However, logistics experts say West Coast ports would be unable to absorb most of the diverted cargo.

Even in that scenario, there is a risk West Coast ports become clogged. That would lead to delays and spikes in freight prices.

Elsewhere, various labor and trade groups sent a letter to the Biden administration on Sept. 17 urging the President to help reach a resolution.

Stifel added that a few days of an East Coast port strike would be relatively digestible for the industry, Stifel said. But the impact scales exponentially over time and a longer strike is more likely.

Stock Impacts

Stifel on Monday said that international airfreight providers, like FedEx and UPS (UPS) are the most obvious beneficiaries of the strike disruption. Meanwhile, freight-forwarding intermediaries including Expeditors International Of Washington (EXPD) and C.H. Robinson Worldwide (CHRW) are likely to see an increase in volumes.

FDX stock rose 2% Monday, bouncing off the 200-day line and continuing to recover from an earnings gap down on Sept. 20. UPS shares gained 1.2%, but still in a downtrend. EXPD stock and CHRW shares both climbed more than Monday and are trading in buy zones from flat bases.

The outlook for railroads is a little murkier because they handle much of the cargo once it’s unloaded at the ports. Stifel noted there are near-term headwinds for East Coast rails and named CSX (CSX) and Norfolk Southern (NSC). Parts of the South East are also dealing with the fallout of Hurricane Helene, which may cause additional delays.

CSX stock ticked down Monday while Norfolk Southern rose slightly.

Jefferies on Sept. 25 said it remains favorable on container companies ZIM Integrated Shipping, Moller-Maersk and Hapag-Lloyd due to the “tighter market balance brought on by the Red Sea diversions and the increasing likelihood that this will continue well beyond 2024,” MarketWatch reported.

ZIM stock spiked 6% Monday to extend out of a buy zone. Shares cleared a 23.82 buy point on Sept. 24. ZIM is up more than 40% so far in September.

You can follow Harrison Miller for more stock news and updates on X/Twitter @IBD_Harrison

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