Dockworkers are poised to strike … holiday shopping could get snarled … the threat of resurgence inflation … will this accelerate a robotic workforce?
While all eyes are on Florida as it braces for Hurricane Helene, there’s a financial hurricane brewing in the economy. One that could cost $5 billion per day.
That’s what JPMorgan estimates would be the damage to the economy if the International Longshoremen’s Association (ILA) follows through on its threat to strike beginning next Tuesday, October 1. And as I write Thursday, the latest headlines suggest the strike is likely to happen.
For more, let’s go to legendary investor Louis Navellier. From his Flash Alert podcast in Growth Investor:
There is an economic storm cloud forming.
On Monday, the International Longshoremen threatened to have their 25,000 members walk off the job. The International Longshoremen control the ports, especially the container ports.
Just a two-week strike at the container ports is going to screw up all the holiday supplies. It’s going to ruin the holiday shopping season…
Filling in a few details, let’s jump to The New York Times:
A strike would close huge container ports in New Jersey, Virginia, Georgia and Texas. It would include the Port of Baltimore, a big hub for the import and export of vehicles and heavy machinery…
Significant food trade goes through the East and Gulf Coast ports, including a major share of orange juice imports through a facility in Newark…
A vast majority of goods going in and out of the United States pass through marine ports, giving the two main dockworkers’ unions significant leverage, which they have used over the years to secure raises and, at some ports, lucrative pensions and other benefits.
“Leverage” is the appropriate word to use.
Here’s Abe Eshkenazi, CEO of the Association for Supply Chain Management, speaking to Business Insider about the economic damage if the strike drags on, especially at this time of year:
A prolonged strike could lead to weeks, or possibly months, of shipping delays and backlogs, worsened by limited rerouting options, high costs and time constraint.
The supply chain is inextricably linked, and as we enter the busiest shopping season of the year, businesses, retailers, and consumers alike will feel the impact of a stoppage.
The timing of this prospective strike gives the ILA a great deal of power. ILA President Harold Daggett was more colorful in how he described the situation on Tuesday:
A sleeping giant is ready to roar on Tuesday, October 1, 2024, if a new Master Contract Agreement is not in place.
The greater threat beyond the inconveniences with holiday shopping is a strike’s likely impact on inflation
As noted a moment ago, an ILA strike threatens a supply chain disruption that could take months to untangle, resulting in higher prices in the meantime.
Here’s Business Insider:
A strike could delay shipments and trigger price hikes.
Grace Zwemmer, associate US economist with Oxford Economics, wrote in an early September note that it would likely take four to seven days to clear up the backlog from each day the strike continues, “meaning even a two-week strike could disrupt supply chains until 2025.”
She referred to estimates from Sea-Intelligence, which predicted that a strike would prevent 74,000 shipping containers from being unloaded each day.
Additionally, she wrote that the strike would mean it would take longer for manufacturers to receive goods, which would, in turn, jack up prices for consumers.
The timing of this is interesting. On Tuesday, Fed Governor Michelle Bowman – who was the lone dissenter on the size of the Fed’s 50-basis-point rate cut – explained why she preferred only a single quarter-point cut…
Inflation risk.
From Bowman:
The U.S. economy remains strong and core inflation remains uncomfortably above our 2% target.
I preferred a smaller initial cut in the policy rate while the U.S. economy remains strong and inflation remains a concern. I cannot rule out the risk that progress on inflation could continue to stall.
Now, while we could jump down the “is inflation about to spike?” rabbit hole, let’s push that to another Digest. After all, tomorrow brings the latest personal consumption expenditures price index report (the Fed’s preferred inflation gauge) which will provide us more insight into price increases.
Instead, let’s continue with the details of this strike, what it represents in terms of a clash with technology, and how we might use it to our investment advantage.
“Don’t f— with the maritime unions”
That was the threat from Daggett last year.
Here’s his full quote:
If foreign-owned companies like Maersk and MSC try to replace our jobs with automation, they are going to get a painful reminder that longshore workers brought these companies to where they are today…
Don’t f— with the maritime unions around the world, we will shut you down.
While being “shut down” certainly isn’t what the shipping companies want, the economics at work here suggest perhaps Daggett might get a fight after all.
To unpack this, here’s The New York Times with details on some of the related salary expense of some longshoremen:
West Coast longshore workers on average earned nearly $220,000 last year, according to management, and currently make nearly $55 an hour.
At the Port of New York and New Jersey, nearly 60 percent of the longshoremen made $100,000 to $200,000 in the 12 months through June 2020, the latest figures available, according to data from an agency that helped oversee the port.
And here’s Freight Waves with what the ILA want in this negotiation:
Other reports said the ILA is also looking for a 77% pay hike [over a six-year contract], and union President Harold Daggett was reported to have rejected a 40% increase.
Our fellow Digest-cowriter and Editor-in-Chief Luis Hernandez drew the parallel between this strike and the Screen Actors Guild/Writers Guild of America strike in 2023 in response to threats from artificial intelligence.
You’ll recall that those strikes were largely preemptive, intended to protect actors and writers from being replaced by technology.
The same dynamic could be playing out today, as Daggett looks to negotiate all he can for his union before technology renders them obsolete.
On that note, imagine you’re the CEO of the U.S. Maritime Association (who’s on the other side of the negotiating table from Daggett) looking at your current salary expense for longshoremen, coupled with these latest demands…
Then imagine your CFO sends you the following story from CNBC in July, referencing Walmart’s cost-savings by turning to robots in its warehouses:
[Walmart CEO] McMillon added that he expects profits to grow at a quicker pace than sales over the next five years as Walmart adds automation…
In three years, Walmart anticipates that about two-thirds of its stores will be serviced by some kind of automation, about 55% of fulfillment center volume will move through automated facilities and that unit cost averages could improve by about 20%.
As CEO, what are you going to do?
Regardless of how this strike plays out, the economics of technological advancements – in this case, robotics – are going to force all sorts of similar showdowns in the coming quarters and years.
And while labor and technology could find an agreeable compromise, and it’s important that they do, might it be wise to place a few chips on robotics gaining some market share?
The economics of robotics are impossible to ignore
Back in 2016, former McDonald’s USA CEO Ed Rensi said something that foreshadows the fight on the docks we’re seeing today:
It’s cheaper to buy a $35,000 robotic arm than it is to hire an employee who’s inefficient making $15 an hour bagging french fries.
In 2019, Visual Capitalist ran an article on the coming disruption from robots in the workforce. Here again, the details foreshadowed what’s happening today with this strike.
From that article:
By 2025, for example, it’s projected that 10-15% of jobs in three sectors (manufacturing, transportation and storage, and wholesale and retail trade) will have high potential for automation…
This trend is expected to continue, with the cost of robots falling by 65% between 2015 and 2025.
Strike or no strike, the trend toward robotics isn’t going to slow down.
Below you can see the forecast from Research and Markets suggesting the global robotics market will see an eyewatering compound annual growth rate of 27.1% until 2032.
This represents growth of nearly 9X.
While I could show you all sorts of additional statistics and financial projections along these same lines, let’s jump straight to our action step…
How do we invest?
We’re going to bring you our experts’ top answers to that question in the coming weeks, quarters, and years. But today, let’s address it from a 30,000-foot level with the help of our CEO Brian Hunt.
I want to share with you part of an internal email sent from Brian to a few members of our leadership team not long ago. I should point out that beyond helming InvestorPlace, Brian is an incredibly accomplished trader and investor who keeps his finger on the pulse of market/economic trends.
In his email, Brian started by describing the technological advancements coming, the potential for market volatility, but the even greater potential to make – literally – life-changing wealth over the next five to 10 years.
With that as our context, here’s Brian:
Go long American AI, automation, software, and robotics.
If you want to pick individual stocks or play it with options, you’ll get no objections from me.
If you want to make it simple, easy, and powerful, just look up the five largest AI/robotics ETFs and buy them in equal parts and go to sleep for a while. Maybe throw in some QQQ.
Ignore the corrections. They will be painful but temporary.
This tailwind will blow with hurricane force.
Full disclosure: I’m on board with Brian, owning the robotics ETFs BOTZ and ROBO. I plan on ignoring them for most of this decade.
Wrapping up, it’ll be fascinating to see how this strike plays out
Not to mention its potential impact on inflation.
But while the outcome is important and has the potential to impact your portfolio in the shorter-term, maintain a longer-term perspective on the larger issue…
Like it or not, Daggett is picking a fight that he’s going to have a hard time winning over the long haul. The economics and productivity of robotics are impossible to ignore…which is why CEOs aren’t ignoring them.
Is your portfolio positioned to ride a “hurricane force tailwind” blowing through the market?
Have a good evening,
Jeff Remsburg
