Around 45,000 dockworkers at ports on the East and Gulf Coasts have gone on strike after the negotiations between the International Longshoremen’s Association (ILA), and the organization of international shipping companies that employ them broke down. Here’s why dockworkers had to call the strike and what implications it could have on the US supply chain and inflation.

Why Have Dockworkers Gone on a Strike?

The dockworkers have gone on strike for two main reasons. Firstly, they are seeking better pay than what the shipping companies represented by the United States Maritime Alliance (USMX) are offering. Secondly, they have been demanding an end to port automation which they say is threatening their jobs.

It’s no wonder that dockworkers on the East coast are striking given that their annual wages have actually fallen by almost 12% since 2000, when adjusted for inflation.

This is the biggest strike by the ILA in nearly five decades and the union has indicated that it is willing to dig in hard. The USMX is offering a 50% wage hike over the term of the contract but the ILA is reportedly seeking a 77% raise over the course of the six-year contract.

Dockworker Strike Has Raised Fears of Supply Chain Issues

Meanwhile, the strike has raised fears of a supply chain crisis. Notably, during the COVID-19 pandemic, a flurry of factors like shortage of containers, shortage of truck drivers, and disruption in global trade due to lockdowns in various regions led to a severe supply chain crisis in the US.

From toilet paper to food products, countless important products were in short supply. The crisis exposed the vulnerability of the US supply chain. This time around, there is disruption at ports which could negatively impact the supply chain of several products.

As Art Wheaton, director of labor studies at the Cornell University School of Industrial and Labor Relations, aptly said, “As anyone who tried to buy toilet paper during the pandemic can tell you, we have a delicate supply chain, and when you start messing with the cargo ships, the rail, and the semi trucks, you’re toast.”

Inflation Worries Rise After Dockworker Strike

Notably, the supply chain crisis was among the key factors that drove US inflation with annualized CPI peaking at 9.1% in June 2022. The Fed initially thought (or at least claimed) that the rise was “transitory”, a position that would go down in history as one of the worst calls by the organization. US inflation has since moderated but the dockworker strike could complicate the picture. However, while there are bound to be worries over the dockworker strike leading to higher inflation, so far, the fears look unfounded.

The Department of Agriculture said in its statement, “Our analysis shows we should not expect significant changes to food prices or availability in the near term.” It added, “Thanks to the typically smooth movement through the ports of goods, and our strong domestic agricultural production, we do not expect shortages anytime in the near future for most items.”

Also, since the West Coast is functioning normally, some of the traffic can be diverted there to meet demand for goods that are in short supply. That said, if the strike extends beyond a few days, most observers agree it could lead to supply chain issues and possibly higher prices for consumers. Also, the supply chain is already strained due to Hurricane Helene and the dockworker strike could only compound the troubles.

Notably, as was the case during the COVID-19 pandemic, the hoarding behavior among consumers could aggravate the supply chain crisis and there are already reports of consumers stocking up fearing a shortage in the near future.

Pharmaceutical Imports Could be Hit

There are also fears that imports of pharmaceutical goods could be impacted due to the dockworker strike. Noushin Shamsili, CEO and president of Nuco Logistics, which specializes in export and imports of pharma goods said that the strike comes at a time when the industry typically replenishes its inventory, including raw materials.

The US imports half of its API (Active Pharmaceutical Ingredient) from India which is then used to manufacture medicines.

Shamsili is worried that the dockworker strike could impact supplies of some drugs and said, “The strike by ILA at East and Gulf coast ports could impact the importation and distribution of medications like Ozempic.”

He added, “The potential effects of the strike include supply chain disruptions, increased shipping costs, inventory shortages of APIs, and production delays.”

Notably, Novo Nordisk imports most of its Wegovy and Ozempic at the coasts that are impacted by the strike.” The company however has mitigation plans in place and told CNBC, “We plan to ship our products to and from the U.S. via airfreight.”

The strike is nonetheless expected to take a toll on the US economy and JPMorgan estimates that the dockworker strike could cost the world’s biggest economy $5 billion every day.

Trump Blames Biden’s Policies for the Strike

Theoretically, President Biden has the powers under the Taft-Hartley Act to order an 80-day cooling-off period that would at least resolve the issue temporarily. However, it’s unlikely that he uses those powers, given that he recently remarked that he “doesn’t believe in Taft-Hartley.” The administration is stuck between a rock and a hard place. Siding with the companies (and against the striking dockworkers) would cause outrage in pro-worker households across the nation just a few weeks before the 2024 election.

On the other hand, if the strike extends for long and starts to hurt supplies and stoke inflation, it could also hurt Democrats in the upcoming presidential elections where Vice President Kamala Harris is up against former President Donald Trump.

Trump has blamed the dockworker strike on the Biden administration’s policies and supported their demands. “Everybody understands the dockworkers because they were decimated by this inflation, just like everybody else in our country and beyond,” said the former president. While dockworkers are certainly struggling from inflation, the problem is exacerbated by their stagnating wages.

Trump said that Biden could use his powers to help the two sides reach an agreement, stressing that a lot of shipping companies are foreign companies.

The same sentiment was incidentally echoed by ILA’s leader, Harold Daggett who told reporters, “Everything that comes in this country comes from the containers off these ships that my men work. And I want the world to know it. Don’t come after us saying we’re greedy. Go after those greedy ba****ds that own these companies in Europe.”

Biden Administration Backs Dockworkers

Unsurprisingly, the Biden administration, which has been one of the most pro-union administrations in decades, is siding with the dockworkers. Pointing to the massive increase in profits that shipping companies have witnessed since the COVID-19 pandemic, White House press secretary Karine Jean-Pierre said, “It’s only fair that workers who put themselves at risk during the pandemic to keep ports open see a meaningful increase in their wages, as well.”

Acting Secretary of Labor Julie Su said that shipping companies have “refused to put an offer on the table that reflects workers’ sacrifice and contributions to their employers’ profits.”

She added, “The parties need to get back to the negotiating table, and that must begin with these giant shipping magnates acknowledging that if they can make record profits, their workers should share in that economic success.”

The dockworker strike comes at a time when Boeing employees are also striking to negotiate a better contract with the aircraft maker. Two big strikes before the crucial presidential elections would perhaps be the last thing that Democrats would have wanted at this juncture.

Similarly, a significant uptick in inflation due to an extended strike could derail the Fed’s rate cut cycle that began with a 50-basis point rate cut last month.