Why ports strike could be no-win situation for Biden administration

President Joe Biden and his administration are sticking to their position not to invoke the Taft-Hartley Act to force International Longshoremen's Association longshoremen to return to work at Eastern and Gulf Coast ports where strikes will Wednesday entered its second day in a political decision that reflects the strength of unions with an election a month away but risks losing some progress on the top issue for many voters: the economy.

Cabinet secretaries including Transportation Secretary Pete Buttigieg and Acting Labor Secretary Julie Sue have become more pointed in their rhetoric in recent days, taking aim at port ownership and ocean carriers. But according to CNBC sources, there is currently no sign that the International Labor Association and port owners have returned to the negotiating table for a new round of negotiations. There remains a huge risk on the other side of political decisions: Wage increases are a win for workers, but they will eventually ripple through the domestic and global economies in the form of higher prices.

Much of the focus so far on the economic impact of port strikes has focused on the direct hit to the economy from massive trade shutdowns, and the way supply chain congestion and delays could lead to higher prices being passed on to consumers. The longer it lasts, the bigger factor this will become. But maritime and business experts have also warned that continued wage increases could affect supply chain prices, which the Federal Reserve has recently succeeded in reining in.

Lars Jensen, chief executive of shipping consultancy Vespucci Maritime, said: “Wage increases will indeed be passed on to the importer and ultimately paid by the importer.” He said: “The impact of inflation will be based on the content of the container. “The impact will be greater for agricultural exporters,” he added.

ILA President Harold Daggett is seeking a new contract for union longshoremen with annual pay increases of up to $100 per year over a six-year period amid a labor battle with the United States Maritime Alliance. $5 per hour. USMX, which represents the port's ownership, made its last-ditch proposal on Monday for a nearly 50% wage increase over six years, but the union rejected it. USMX reiterated the proposal on Tuesday, saying in a statement that “the nearly 50% wage increase currently proposed exceeds all other recent union settlements, while addressing inflation concerns and recognizing the ILA's contribution to maintaining global The hard work that goes into making the economy work.

But Daggett disputed any suggestion of “substantial growth,” saying in the ILA's statement Tuesday that the USMX “conveniently ignores that many of our members are operating millions of dollars' worth of container handling equipment at $20 an hour.” The ILA president added, “USMX also ignores the fact that two-thirds of our members are on call at all times and there is no employment security if no ships are working. Our members only receive benefits based on hours worked in the previous year.” qualifications, leaving them vulnerable if jobs take a downturn.

Daggett told CNBC on Tuesday morning that the ILA is seeking a 61.5% salary increase.

The sources, who spoke on condition of anonymity due to the sensitivity of labor discussions, said USMX has not made any new counteroffers to ILA and the two sides are not currently at the negotiating table.

While a significant wage increase is undoubtedly a huge victory for workers and the resurgence of the labor movement – ​​it has Use extreme terms Tell Biden what to think about decision to intervene in strike – Amid a deadlock between unions and port ownership groups, ocean carriers have begun taking steps to protect their finances in the short term as long as the strike continues. CMA CGM, one of the world's largest ocean carriers, declared force majeure on Tuesday, a legal maneuver aimed at getting rid of contractual requirements with shipping customers due to factors beyond its control, and said it “may charge any damages related to force majeure.” Additional Operating Expenses” Effective October 1, 2024, vessels at U.S. Eastern or Gulf Coast unloading ports are delayed due to marine cargo strikes.

Biden said on Tuesday that his administration would “monitor for any price gouging activity that benefits foreign ocean carriers, including USMX board members.” He also said that “foreign ocean carriers have made record profits since the outbreak began while longshoremen took risks to keep ports open.”

Based on previous port strikes, ocean carriers typically profit from higher freight rates due to higher demand at other ports, as well as detention and demurrage charges for containers held up during port closures. Analysts have been warning that ocean freight spot prices could rise by 20%-50%. UBS forecasts that 20% of Maersk's total throughput will arrive at U.S. ports affected by the strike. Maersk is a board member of USMX. UBS estimates that if freight rates rise 30% over two quarters, it will generate more than $1 billion in revenue growth.

Buttigieg said Tuesday that the Transportation Department was monitoring “any attempts by companies, including ocean carriers or others, to opportunistically raise prices,” and called on ocean carriers to eliminate the surcharges. “No one should take advantage of disruptions to make profits,” he said in a DOT statement, adding that the Federal Maritime Commission would use the expanded powers of the law signed by Biden to “ensure that any charges assessed are legal and Legal”.

But according to some economists, there will be bigger price increases after the ILA succeeds in reaching a deal, although the total number of workers involved in the strike is about 50,000, which is only a blip in the U.S. labor market. The U.S. labor market employs more than 100 million people. At the same time, union struggles were taking place in the U.S. economy against aerospace and automakers. “The scale of the wage demands from port, Boeing and auto workers makes a mockery of claims that the labor market is weak and wage inflation is dead,” said Larry Lindsey, CEO of The Lindsey Group.

Acting Labor Secretary Sue blasted the idea that higher labor wages would be passed on to U.S. exporters and importers.

“While we are urging them to make a fair offer to avoid all disruptions, they are also calculating how much they can charge for shipping surcharges in the event of a strike,” Su said in an interview. “I mean, it's really an outrageous position to take.”

For months, logistics and business trade groups representing major industries such as retail, manufacturing and agriculture have sent a flurry of letters to Biden and his administration urging intervention. Now, with the president insisting that collective bargaining is the ILA's only means of achieving a “fair deal,” top brass across the economy are weighing the potential pricing implications of their business models.

Peter Friedmann, executive director of the Agricultural Transportation Alliance, said of his industry's rising logistics rates: “This will quickly make our U.S. agricultural exports much less competitive in global markets. “As the cost of shipping containers through U.S. ports continues to increase, our foreign customers can get their food, produce and fiber needs from other countries, and that's where they will go.”

Su said she was very sympathetic to the needs of the business community but stuck to the government's position. “I’ve had a lot of conversations with them as well,” she said. “I understand how important the impact of a good resolution is. I know they understand that, as consumers and American workers understand, foreign countries that profit from our economy, employ American workers and have an impact on American consumers The company should do the right thing, and we will always stand with American workers, American businesses, and American consumers in this fight.

The Fed has recently become more concerned about the labor market than inflation, and has begun cutting interest rates to “recalibrate” its monetary policy to prevent an increase in layoffs and betting that inflation will rise back to 2%. In the latest non-agricultural employment report for August, average hourly earnings increased by 0.4% from the previous quarter and by 3.8% annually, both higher than expected. The September non-farm payrolls report will be released on Friday, and in the short term, union disputes may affect wage and layoff data.

The ADP Private Employment Report, the big jobs report ahead of Wednesday's government data, showed that wage growth continued to trend downward even as hiring increased. The annual growth rate for those staying in the job fell to 4.7%, while the drop for job-changers was even steeper, at 6.6%, down 0.7 percentage points from August. The upcoming nonfarm payrolls report, the last one the Fed receives before its next interest rate policy decision in November, is also likely to include downward pressure on the labor market, which has been hurt by strikes and Hurricane Helene-related layoffs. Influence.

“It just completely complicates everything the Fed is trying to do because they don't understand how the economy is actually performing,” Jim Bianco, head of Bianco Research, told CNBC's “Fast Money” on Tuesday.

Peter Boockvar, chief investment officer of Bleakley Financial Group, said that from a long-term analysis, the wage growth sought by the union will confirm that wage growth will not return to the pre-COVID-19 trend of about 2.5%. Instead, he estimated that inflation would stabilize around 4%, which would lay the groundwork for inflation.

“I still believe that when deflation ends, which is mostly happening in commodities, normalized inflation will be 3-4%,” Boockvar said. “And this wage deal, once it happens, will lead to higher commodity prices.”

At the most recent September Federal Open Market Committee meeting, Fed officials lowered their inflation forecast to 2.3% from the previous forecast of 2.6%. The central bank’s own supply chain indicators It has stabilized after the impact of the epidemic. But as the Fed continues to pursue its stated 2% inflation target, its forecast for a long-term neutral rate close to 2.9% has been raised.

“For those who rely on normal ports to make ends meet, those who are watching from a distance tend to underestimate the collateral damage,” said Alan Baer, ​​CEO of logistics company OL USA.

On Wednesday, the National Retail Federation coordinated a coalition of 272 industry associations including manufacturers, farmers, wholesalers, retailers, restaurants, importers and exporters, and issued a report to the National Retail Federation. letter Pleading with Biden to end the strike.

Steve Lamar, CEO of the American Apparel & Footwear Association, one of the groups that signed the letter, said the Biden administration must use all the tools at its disposal, including powers under Taft-Hartley, to keep all parties in tip-top shape. “If the status quo is allowed to persist, this port crisis will harm our industry and the overall U.S. economy through job losses, higher prices and cargo shortages,” Lamar said.

—CNBC’s Jeff Cox contributed reporting.

Correction: Lars Jensen is CEO of Vespucci Maritime. An earlier version misspelled his name.