Possible economic impacts of the port strike [Podcast]

Steven Kilger - 00:00

Hello, my name is Steven Kilger, and I am the Managing Editor of Feed & Grain and the host of the Feed & Grain Podcast. Thank you so much for joining me today as we dive deep into the issues affecting feed manufacturing, grain handling, and allied industries.

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Today I'm joined by Lauren Saidel-Baker, CFA and speaker and economist at ITR Economics about the ongoing longshoreman strike affecting ports along the east and Gulf Coast. We discuss how this port strike might affect the economy, and inflation, and what the sticking points are in the negotiations.

I hope you enjoyed the interview. If you want to help the podcaster and listen to this in a podcasting app, please rate us and subscribe. If you're listening online, please sign up for the Feed & Grain newsletter, Industry Watch, to see when all the new podcasts drop and stay up to date with news from around the industry. Now, onto the show.

Hi Lauren, thank you so much for joining me today. Can you tell me and the listeners a little bit more about yourself, what you do, and your relationship with his whole strike thing?

Lauren Saidel-Baker - 01:16

The short I'm Lauren Saidel-Baker. I'm an economist here at ITR Economics. And so I look at the world through a macro view and we help advise companies on what to expect. I like to say good, bad, or ugly. If you know what's coming, you can prepare for it. So, we can't always change the winds, but we can adjust our sales.

So, as I'm looking at the port strike, a lot of implications for a lot of different businesses were just really trying to analyze. Not from a political point of view, not from a taking sides point of view, but just what does this mean for the business world, for individuals, for pricing, for supply chains, etc. How can you plan for it and get ahead?

Kilger - 01:50

Well, that's why I was so eager to talk to you and I was so excited when I first got your email. It's just you can come at this from a very political side and it's very easy for organizations and things to come at it as kind of like Oh man, Biden needs to do something about this, and we need to shut this down, or we need to like to be anti-union, and I don't really want to see it from that. I just want the facts. What's happening and what's going to happen? Kind of keep all that out of it.

Saidel-Baker - 02:19

That's what we like to do too. We're economists first and foremost and so we've run different political scenarios, you know, a million different ways and we find the economy just doesn't have a favorite political party. So, we are nonpartisan here at ITR. We're really trying to be apolitical because that's how the economy tends to be.

So again, we get these kinds of common representations, right? Someone is better for the economy. It doesn't turn out to be true. And you can make kind of erroneous judgment calls based on that. You can do the wrong thing. You're not really looking at this in a fair way.

Kilger - 02:49

Yeah, especially this year, which seems to be kind of the year of the lockout and the strike. Canada's already dealt with it. They might deal with it again in a month or so with Montreal's port. There seem to be a kind of a lot of issues. So, it's important to look at it from that perspective. Like, oh, well, why is this happening? And what is it going to do?

But to start from your perspective, what will kind of the immediate and long-term impacts of this be? I've heard a lot of different reports from different people about how urgent it is that we get this solved immediately.

Saidel-Baker - 03:22

So I don't think there will be very dire immediate impacts. Really the impact of the strike is going to differ wildly based on how long the strike goes on. So if this is resolved within the next day or two, there may be some short-term disruptions, but really not too much of an impact. However, if it drags on for days, weeks, I hate to even say months, that's when we will start to feel some of those broader impacts will be a little bit harder to pull back.

So, coming out of the post-pandemic bounce back, we had a huge supply chain disruption back in 2020 with the pandemic. We're still dealing with some of those ripple effects from that experience. One of them is that inventories are somewhat elevated right now. So, in the very immediate term, we could see some of that inventory drawdown as a way to kind of cushion the blow from any disruptions we get from the strike.

Now I do want to point out non-durable goods inventories, those are a little bit leaner right now when you compare them to sales relative to durable goods inventories.

So if we're just doing the durable, non-durable discussion, I would expect to see any impacts hit non-durables sooner and probably harder at a greater magnitude than they'll hit durables.

Beyond that though, beyond the inventory drawdown, inflation is going to be the big outcome. We will see clearly goods inflation has really been under control to a much greater degree than service-side inflation. We've seen constant wage pressure really keeping overall inflation stickier or more persistent to put it that way.

So, any of these additional shipping costs that could cause a resurgence in goods side inflation, I expect shortages will probably be limited. I really do expect to see the pricing be the biggest impact.

Kilger - 05:10

Well yeah, that makes a lot of sense, especially since even if you aren't necessarily bringing in goods you still rely on the country's shipping system, and for us which mainly deal with agricultural goods yes the United States produces tons of ag goods we can feed ourselves we don't technically need to import anything if we really don't have to but like Just getting our products to ports and out is a huge cost.

So, any increase in that is felt throughout the agriculture supply chain. What regions or sectors in the US are likely to feel the effects? Because it's just the East Coast and golf course that this is happening. Presumably, goods will still flow in from the West Coast as normal.

Saidel-Baker - 05:53

Ostensibly, yes. So, I have been speaking to some clients who are already looking for different shipping options out of either the West Coast Although technically I believe those dock workers, at least some in solidarity, are supposed to be not accepting shipments that have been rerouted from the East Coast.

I don't know how actually feasible that is, so I take that one with a grain of salt. But the other options they've been exploring are Getting goods in through Canada and Mexico.

So it's very much where you're based as to what other levers you can pull. Now that said, every business in the country is going to be looking for those alternate shipping lanes. There will certainly be a rush.

Saidel-Baker - 06:30

And again, that will tend to be inflationary overall. I'm taking a little bit of comfort in the fact that we have in very recent memory been through one major supply chain disruption. That was the pandemic. I think a lot of companies, especially the smart companies, looked at diversifying either their sourcing or their shipping, their exporting, whatever it was.

And so I think we have that flexible mindset the way that we have seen disruption. We did diversify, we looked at other options, and maybe we can pull some of those levers. Again, it's not a perfect fix, but I think this is hitting us differently than if we hadn't been through a recent disruption of the sort with the pandemic.

Kilger - 07:07

Yeah, that's a good point. I haven't heard companies really freaking out about this yet. There's a lot of news on it. There's a lot of stuff. Obviously, associations are, you know, they're upset. They're sounding the alarm. But company-wise, like I feel like most are kind of at least they have a temporary they can go a couple of weeks.

Right. That's the hope. So, we said we normally do with agriculture, and they do get a lot of their micronutrients and stuff from outside of the country. Do you see any kind of potential downstream effects, especially with food prices which are already a big cause for concern for a lot of families like because we can't move much out now basically for half the United States including the Mississippi which is that huge kind of lane for grain and feed supplies to go down.

Saidel-Baker - 07:57

Exactly that goes right through the heart of things. You know, food production in the US has been disrupted in recent quarters and years. We've had just some weird weather events that have really hit crops, and you look at avian flu, a few diseases that just really skewed the numbers recently.

We have been seeing, I want to call it normalization in general, say food production pricing and level of output. So, for this to almost add insult to injury in the sector, it's going to be hard to isolate the effect. Now, overall, I talked about the big impact being inflationary. We at ITR Economics do expect a resurgence in inflation in 2025 and beyond, really for fundamental reasons, not driven by these strikes shipping surcharges, and supply chain disruptions.

So again, it will be kind of hard to cast blame in the future if we had already been expecting this return to, again, not record high inflation that we've seen recently, but somewhat more elevated inflation going forward. There's going to be a lot of fingers pointing, I do expect.

Now, clearly again, the longer this goes on, the greater impact it will have, the greater contribution, but I do expect, even if the strike is resolved today or tomorrow, that Folks should be accounting for slightly higher pricing. They should be looking at margins and really having those tough conversations.

Kilger - 09:20

Yeah, because this is so big now, but it's such a huge story that a lot of people are immediately going to be like, oh, this is the reason inflation is happening, even if that's not the case.

Saidel-Baker - 09:30

And it's interesting when you talk about food prices to the consumer specifically, clearly, grocery price rise, that's how we all feel it. That's the example we all use, seeing the prices rise on the shelf in grocery stores. Some of the most affected categories in this case, fruits, and vegetables, have seen relatively lower cumulative inflation since 2020 than other categories have.

So we have talked about fruits and vegetables since late 2020, I believe it's between an 8 and I want to say 11%. I could look up that exact number for you. Cumulative inflation or cumulative price rise. Bread, on the other hand, has about a 30% cumulative price rise. So we're almost catching back up in some of these categories that have been relatively contained.

Kilger - 10:14

Yeah, I know with agriculture and food prices, it just seems like we can't catch a break. Like you were saying earlier, the moment H1N1 is under control, then, you know, a port shut down. It's just, it doesn't end.

Um, so I read that the last strike like this was something like 33 years ago. What was that like? And if there any lessons that were kind of learned during that, and obviously we learned from our last big supply chain disruption, we learned a lot of lessons from the pandemic. So how does that kind of factor into things?

Saidel-Baker - 10:47

Yeah, I've been looking for some historical precedent for a strike of this nature.

Unfortunately, they're just so long ago. We're really in a different, kind of labor negotiation environment. We've done some analysis on what the average length of strike is, but that's disproportionately influenced by things like auto worker strikes, not fundamental, right, kind of critical port infrastructure.

So, I just don't have a great historical case for this. I do expect that the pandemic shutdowns are probably better for planning purposes to kind of level set our expectations. We could even look at something like the pandemic. We almost called that a natural disaster-type impact.

Where you do see this kind of short-term disruption and the subsequent bounce back, how much time will it take for things to normalize once the dock workers are back to work kind of churning through this backlog? So unfortunately I just don't think there's a great historical precedent for a strike of this type that we can really lean on.

Kilger - 11:43

Fair, and even the last grain handler strike in Vancouver, I mean those and that rail strike earlier this year, those have all been handled by the government coming in and forcing them into binding arbitration, where it seems like, at least from the news I saw this morning, which the White House doesn't plan on doing anything like this, so this might be kind of an old-fashioned, let's wait it out kind of strike.

Saidel-Baker - 12:08

It seems like now consumers, American consumers are so sick and tired of inflation that I think once we see pricing impacts come through, that's really going to put pressure on the negotiation table.

So, to say there's no political impact, I know we're so close to the November elections, I don't think anyone wants to really be seen as putting a hand on that scale, but there will be some pressure. No one wants to be the bad guy who's driving inflation higher when it doesn't otherwise need to.

Kilger - 12:35

I'm sure well like I said hopefully by the end of the week this will all be solved and we don't have to worry about this but looking forward do you think this is going to have an effect on how these big contracts big labor negotiations go forward because it's kind of insane that through these two organizations the longshoremen and then I forgot their name but you know the ports association we're now having an entire segment of the country Under these labor negotiations, it's not just one group in one port that's doing Are there messages?

Is this going to happen again in the future? Like, is there something that we can do?

Because obviously, we don't want to take away people's rights to walk out and strike.

We don't want to do that.

Saidel-Baker - 13:21

It's very interesting that this strike comes in the context of such a tight labor market. As we think of other, you know, kind of comparable skill sets, a right, comparable level of work, we have a shortage of workers so even though the labor market has been cooling off it remains incredibly tight by any historic standard.

So, as I'm looking across you know construction segments and some of these individuals could very likely move from one sector to another if one Union negotiates very favorable terms, right? That's the place to be. We will absolutely see shifts amongst kind of similar skill sets. These are transferable skills to run a creation, say on a construction site or on a port, slight differences, but you can easily pick one or the other up.

So given that we still do have a dearth of workers, we don't have any kind of long-term demographic easing on the horizon. It's going to be tight competition for workers going forward. I think that's a big part of that negotiating Table. You know, we do need to do something else. Maybe it's automated.

So, where I'm really getting hung up on these negotiations, it's not the wage side. It's the fact that these stock workers, don't want automation to happen in place of their human roles. I think the long-term fix is to automate away from more human work, right? Get people in more kind of high skilled, less repetitive, less heavy lifting, less dangerous tasks. If we can use AI, automation, robotics, whatever it is to kind of Make our workforce more efficient.

That's first going to give us the productivity gains that we really need to make those higher wages possible, you know, without the margin squeeze, but overall, you just don't have enough workers. So, I think that is really a sticking point this time around that automation side of things.

Kilger - 15:06

Yeah, I was kind of shocked to see that was one of their hard stops. Well, in our industries, automation is happening. There's nothing you can do. Can't stop it. It's just, it makes us safer. It makes us more efficient and makes us more productive. So, I don't know. It seems like quite the sticking point.

Saidel-Baker - 15:22

It is very much the sticking point. Yeah.

Kilger - 15:25

Well, thank you so much for agreeing to talk with me today, Lauren. I really appreciate it.

Saidel-Baker - 15:29

Absolutely. It's been a pleasure.

Kilger - 15:30

Well, I hope to have you on again and it's just been great. Hopefully, as you said, this is all solved relatively quickly, and this is all outdated information before people even know it. But for now, it is the story. So, I really appreciate you hopping on to talk to me about it. And thank you to everyone out there listening. Until next time, stay safe.