Just past midnight on October 1, roughly 50,000 East and Gulf Coast dock workers of the International Longshoremen’s Association (ILA) went on strike. An agreement was reached on October 3 that will send the striking workers back to the ports on Friday. Here are the details of the tentative deal and what investors can take away from the past few days.
Wages and automation at the heart of talks
A port shutdown began in the early hours Tuesday morning amid a negotiating standstill between the ILA and the United States Maritime Alliance (USMX). This was the first large-scale port strike since 1977, and it followed rail and auto worker strikes in the past couple years.
Some of the key terms of the agreement include wage increases and extending the existing deal through January 15 to finalize terms of a new contract.
What investors should know
When it comes to how the strike may have impacted markets, it came at a unique time. Not only are US elections coming up, the brief port strike followed Hurricane Helene, which caused massive damage and delays at several of the striking ports—including in the Carolinas, Georgia, and Florida.
It also came after the Fed cut rates for the first time since March 2020, with the US central bank specifically citing multiple months of improving inflation data. A worrisome potential effect of a prolonged port strike could have been higher prices for a range of goods, with experts highlighting perishables like food as well as automobiles being particularly at risk. Perhaps most importantly for investors, rising prices as a result of the strike could have shifted the Fed's previously telegraphed intentions to keep lowering rates.
In anticipation of a strike, some shipments destined for ports from Maine to Texas were proactively rerouted in the past few weeks to ground and air transport. There may still be some impact of the short-lived strike, however minor. Some estimates suggest that for every day a container sits idle, it can take as much as 5 days to clear that backlog as inventory builds up and logistics become more complicated.
Cait Dourney, research analyst in Fidelity’s Asset Allocation Research Team, stressed that the length of the strike was among the most important factors to consider when thinking about the potential investing implications.
“Near term, the strike could have impacted the price of shipping and availability of some goods,” Dourney notes. “Businesses may have passed on these higher shipping costs as higher prices charged to consumers. However, several retailers have said they anticipated the disruption, so they ordered and received inventory in advance of the strike, which may help mitigate any impact of the strike for those companies.”
If the strike had continued for a longer period of time, that could have impacted economic data, including production and employment data in particular.
The deal highlights why it may not be worth it for investors to overreact too much to periodic events, but instead should stick with their investing plan and reevaluate it as needed. Stocks had a mostly muted reaction to the strike while it lasted. Indeed, investor attention may be more focused elsewhere. For example, oil prices jumped nearly 7% following recent geopolitical events, contributing to some volatile trading over the past several days.
Of course, while the deal buys a few months to continue negotiations, several details remain to be agreed upon—including that of automation. With that said, the port strike agreement may help avert a potential headwind that could have threatened markets the longer it went on.