MACRO ANALYSIS
There are multiple potential inflation implications.
- The short-term impacts are twofold. First, shipping rates could rise as demand increases for routes to the US West Coast. Rates are above 2023 lows but about half the level seen at the mid-2024 highs. If the strike is sustained, this would very likely get passed along to consumers.
- Additionally, reduced goods supply could increase prices via scarcity.
- Comparing to recent historical episodes throws up more contrasts than similarities. In 2014-15, whatever inflationary impact that the outage created was blunted by commodity prices falling, core goods prices in secular decline without interruption, and the dollar soaring (see chart of the DXY and import prices % Y/Y, and PCE goods ex-energy price levels). Those were both exogenous factors that are very different to today's set-up with the dollar coming off its peak and global trade patterns more inflationary than before.
- The longer-term inflationary impact could be palpable too. The ILA originally sought a $5/hr hourly pay increase over a 6 year contract, from $39/hr to $69/hr in the high pay bracket - a 77% increase. On Tuesday they said they "considered" a $4/hr deal, with USMX offering $3. The eventual settlement, too, is likely to be passed through to supply chain costs and in turn, to consumers.
- Additionally, one of the major points of negotiation is over automation - the ILA opposes its implementation at ports - and the lack of productivity gains in such a key sector implies higher long-term inflation.
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