Watching the Docks: How the ILA Strike Could Reshape Inflation and the Economy
EDITOR’S NOTE: ILA has called off its strike till Jan 25. We will be bringing behind the scenes maneuvering that achieved this.
Our August report accurately predicted the faster-than-expected cooling of inflation, culminating in the Federal Reserve's 0.5% rate cut in September. Most economists at this point were warning about the protracted battle against “sticky” inflation.
This precision underscores a critical insight: while the Fed and other economist have sophisticated models, they often overlook the movement of physical goods and its effect on inflation. We are afraid they are going to make the same mistake again. In this Report, we go behind the scenes to assess the impact of the International Longshoremen's Association (ILA) strike on economy, politics, and markets.
Inflation: A Primer
Before diving into the main story, it's important to recall the rollercoaster decade we’ve just experienced. Post-pandemic, the U.S. economy puzzled everyone—first with its unexpected strength, then with surging inflation.
For many economists, the rise and fall of inflation from 2022 to 2024 remains a mystery. The Consumer Price Index (CPI) spiked by 7.5% in 2022 before cooling to around 3%, lingering at that level for nearly a year, and then dropping to a 2.5% increase in the latest reading. However, our analysis suggests the true inflation rate may be even lower, as economists often overestimate prices by weighing goods and services that are less common for most households and using a distorted rent equivalent metric.
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While some credit the Federal Reserve for stabilizing the economy, we see it more as fortunate timing. The Biden administration’s fiscal support balanced out the Fed's monetary tightening. “Jerome Powell was caught off guard by inflation’s rise. He then hurt the economy by delaying rate cuts," says a senior economist from a Washington policy institute. “Neither Powell nor other policymakers fully grasped the rapid economic shifts, leading to some awkward decisions.”
A veteran supply chain expert argues that the core issue was supply chain disruption. "The economic upheaval was wholly due to these disruptions, and the Fed’s only response was either to pump money or hit the brakes. Ultimately, neither addressed the real issue of improving the flow of goods."
Stanford economist John Pencavel adds, "Strikes, supply chain interruptions, and labor shortages all fed the inflationary spiral, but the labor market’s role was often misunderstood."
Now, as the International Longshoremen’s Association (ILA) strike reaches its third day, involving 45,000 dockworkers across major U.S. ports, its potential impact looms large. A labor researcher warns that "more than a third of U.S. exports and imports could be affected," potentially costing the economy at least $4.5 billion each week.
Our projections suggest the Fed may soon expedite rate cuts using standard policy measures—tools that may prove inadequate if inflation is more supply-chain driven than demand-based. As we move into Q4 of 2024, this labor action could redefine trade flows, inflation, and the broader economic landscape.
As one labor economist succinctly puts it, "You can't predict the economy by just watching the numbers; you have to watch the docks."
The ILA Strike – The Next Big Supply Chain Disruption
For most people, Unions have been in a decline since they can remember. Once a cornerstone of the US economy, Unions now represent just 10% of American workforce, half of it in Government, much of which is barred from labor actions.
Amid this decline in Union and Union activity, the International Longshoremen's Association (ILA) strike, now in its third day, remains notable. The strike has halted operations at major U.S. ports, affecting one-third of the nation's trade. A maritime industry analyst notes, "This work stoppage marks the first of its kind in almost 50 years, potentially altering the dynamics of labor relations and trade flows." Unlike the last time, when President Carter invoked Taft-Hartley to force the union-workers back, President Biden has said he will not intervene.
To quantify the scale: 45,000 dockworkers are currently off the job. Their absence reverberates through an economy still adjusting to post-pandemic realities. But this action doesn't stand alone in the current labor landscape.
A labor researcher provides context: "In 2023, over half a million workers across industries—from Hollywood to UPS—participated in nearly 400 strikes. Even though the labor activity remains a fraction of where we were in 70’s, before President Reagan broke the backs of Union, we have seen a very meaningful rise in strikes in recent years.” This surge in activism has tangible roots. "Workers, emboldened by successful strikes, are demanding higher pay and benefits as inflation erodes their purchasing power," the researcher explains.
Historical context underscores the significance of current labor actions. A labor historian reports, "The 1970s saw an average of 289 major work stoppages annually, involving over 1.5 million workers." This number dropped to 13 per year by the 2010s. Today's uptick in strikes represents a measurable shift in labor's approach to negotiations.
The ILA's demands reflect broader industry concerns. Yet, many believe ILA is overreaching and it will be on the losing side in the long-term, even if it gains this time around.
To put it in context, under the previous contract, dockworkers earned between $20 and $39 per hour to start, with experienced workers making up to $81,000 annually. Some, through overtime, reached $200,000 a year. So, no, the dockworkers are not the poor workers one might be imagining, fighting the rich capitalists. A union spokesperson clarifies, "Our fight extends beyond wages. We're advocating for job security in the face of increasing automation."
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Stanford economist John Pencavel offers insight into the underlying issues: "Today's strikes address more than wage inequality. They're about power dynamics and perceptions of fairness." He highlights a critical disconnect: workers often view inequality in absolute terms, while economists use relative measures. "Workers express outrage at the earnings of certain managers and business owners," Pencavel notes. "They perceive the system as fundamentally unfair."
Others put it more bluntly. An economist at Yale told us: “ILA workers and the bosses know they control the supply and have seen what that can do with pandemic. It’s no different than what the Oil Cartel learnt in the 70’s.” But she had a warning for ILA. “While the Oil Cartel was able to push the world to a brink, it also created alternative sources. We may see something similar and an increasing push to automate if this strike drags on.”
Section 3: Economic Stakes and Political Maneuvering
The political ramifications are clear. A political analyst states, "This is the first ILA strike since 1977, introducing economic uncertainty at a crucial time." However, with union approval at 71%—a level not seen since 1965, according to Gallup—labor organizations may find themselves in a strengthened position.
The Biden administration's response reflects this shift. While urging "fair and swift" negotiations, it has not invoked the Taft-Hartley Act, which could mandate an 80-day return to work. A political strategist observes, "Supporting unions has become a political necessity in certain districts, rather than a liability."
As the ILA strike continues, its impacts extend beyond immediate economic effects. It serves as a measurable indicator of labor's evolving influence in shaping 21st-century American economic policy. The idle ports and waiting ships represent more than a temporary disruption—they quantify a potential recalibration in the balance between labor and management interests.
The ILA strike's economic impact extends far beyond idle cranes and empty docks. Recent analysis projects that over a third of U.S. exports and imports face delays, potentially costing the economy $4.5 billion weekly. Some industry insiders warn of costs escalating to $5 billion daily if the strike persists.
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For consumers, the timing couldn't be worse. "Holiday season shopping could see prices increase by up to 10%, particularly for goods imported through the affected ports," a retail analyst warns. An e-commerce shipping expert adds, "The disruption will filter through as we get close to December and inventories shrink. SMBs will be the worst affected by the strike."
Our discussions with top union officials suggest a prolonged standoff. This persistence complicates the political landscape as the 2024 presidential election approaches. A source within Vice President Harris's campaign reveals, "President-elect Kamala Harris will press a lame-duck President Biden to invoke the Taft-Hartley Act," if she wins and the strike remains unresolved. The source explains, "Unlike Biden who works on instinct, Harris has a much better pulse on the economy, and understands she needs to first and foremost keep the economy in a good place."
Conversely, a Trump victory might harden Biden's stance. A high-ranking Trump Campaign official states, "Trump is looking forward to returning to the White House with the strike still on. He will do what Reagan didn't and once and for all demolish the bureaucracy within the Unions." An old friend and Trump bundler adds, "Don loves a fight. This is where he's at his best."
Stanford economist John Pencavel contextualizes these labor actions: "These strikes are not just isolated events. They are part of a larger narrative about power dynamics in labor markets." With inflation at 3.7% year-over-year as of September 2024, the strike's potential to pressure supply chains could force difficult Federal Reserve decisions.
A senior economist at a major bank cautions, "Most say it won't impact inflation—they are wrong; it will show up." The Fed's tools, effective in managing money supply, struggle to address goods flow disruptions.
Historical precedent also suggests a potentially lengthy dispute. The 1977 dockworkers' strike lasted 57 days, costing the economy hundreds of millions. It only ended as President Carter intervened to invoke Taft-Hartley. A similar duration now could significantly disrupt consumer spending, which accounts for about 70% of U.S. economic activity.
Both political parties are balancing supporting labor against potential economic fallout. A campaign strategist notes, "In some swing states, a strong pro-labor stance can make or break a campaign. But that has to be balanced against the realities of inflation and economic growth. It's a delicate tightrope."
A New Era of Labor Power and Technology’s Role
At the heart of the ILA strike lies a deeper conflict: the tension between labor’s traditional demands and the technological changes reshaping the workplace. As we had reported in a different context, the pace of automation has started to pick up again as Elon Musk and Mark Zuckerberg have shown that you can cut 10, 20, sometimes 80% of the workforce without losing much of the functionality. Many dock workers believe they are next, and we agree.
"We're not just fighting for wages; we’re fighting for our relevance in an industry that’s rapidly automating," says a veteran dockworker. The port industry has seen significant advancements in automation and logistics over the past decade, with companies pushing for more technology to improve efficiency and reduce labor costs. The strike, in many ways, is a battle over the future of work itself.
According to a recent labor analysis, automation could affect as much as 80% of jobs in shipping and port operations over the next decade. While many have been predicting the change for years, experts believe we are much closer to automating a number of port jobs than before.
Employers argue that new technology can streamline port operations and improve safety by reducing the need for manual labor. But for dockworkers, automation presents a direct threat to their livelihoods. “Job security is our number one issue,” emphasizes an ILA spokesperson. “The technology being proposed doesn’t just reduce work; it eliminates entire job categories."
The issue of automation is not unique to the ILA. Across sectors, from manufacturing to retail, workers are confronting similar challenges. "Work has become more skill-biased, that is, biased towards those who can oversee computer and other technological advances," notes Stanford economist John Pencavel. The result is a shifting power dynamic in labor markets, where workers who can adapt to new technologies find opportunities, but those tied to traditional roles face increased vulnerability.
A study by a leading labor think tank revealed that workers in automated industries are twice as likely to face job displacement within five years as those in non-automated sectors. "More than 40% of port workers could see their roles change drastically or disappear entirely within the next decade," says a maritime labor expert. In response, unions like the ILA are demanding not only wage increases but also retraining programs, protections against job loss, and a say in how technology is deployed in their industry.
The economic impact of such automation could be profound. Currently, dockworkers in the ILA earn a median wage of $81,000, but that figure rises significantly when overtime is factored in. Approximately one-third of longshoremen in the New York Harbor area, for example, earned more than $200,000 per year, according to a 2019-2020 report. The potential replacement of these well-paying jobs with automated systems would not only affect union members but could also have a ripple effect on local economies that depend on port-related employment.
Union leaders argue that automation should not come at the expense of the workforce. "We understand that technology will play a role in the future of shipping, but workers need to be part of that conversation," an ILA official states. “We’re fighting for a say in how our industry evolves—not just to be told what our future will look like.”
From a broader perspective, labor disputes around technology reflect a larger struggle in the American workforce, where unions seek to regain ground lost over decades. "Union membership in America has been falling since the 1970s," notes Pencavel, "but strikes like the ILA’s suggest a potential turning point." The decline in union power has gone hand-in-hand with a rise in wage inequality, and the resurgence of labor actions like this one raises questions about how technology, wages, and worker power will coexist in the future.
The intersection of technology and labor is set against a landscape of rising inequality. A recent report shows that the top 1% of earners in the U.S. have seen their income grow by 160% since 1979, while the bottom 90% have experienced only a 26% increase. Dockworkers, who historically have leveraged their strategic position in the supply chain to secure better wages, now face a different battle: remaining relevant in an industry increasingly dominated by automated cranes, autonomous vehicles, and artificial intelligence-driven logistics.
Yet, the strike isn’t just about fighting change; it’s about shaping it. “Strikes tend to be more frequent and longer when workers have opportunities for other possibly temporary work, as indicated by a low unemployment rate,” says Pencavel. And with the unemployment rate hovering around 3.5%, dockworkers feel they have the leverage to push for their demands before the full effects of automation are realized.
In several recent strikes, we have seen controlled automation being a major point of contention. We believe it will be a key point in these negotiations as well. Yet, as history has taught us, automation once it becomes realist, it becomes real.
The outcome of the ILA strike will likely set precedents for how technology is negotiated within labor contracts across industries. Yet, just as likely, it will be an afterthought in years to come as dock work is automated.
As the Strike Continues, where do we go from here?
As the ILA strike drags on, its economic consequences are starting to crystallize, threatening to turn America's ports into ghost towns and sending ripples across industries. The immediate concern isn't just the damage inflicted but how long it will last and what lasting marks it will leave on trade, inflation, and the labor market.
Estimates indicate that each week of stalled port operations could cost the U.S. economy up to $4.5 billion, with potential escalation to $5 billion per day if the strike extends, disrupting critical shipping lanes. Retailers are already bracing for a price surge, warning that a prolonged strike could increase costs by as much as 10%, particularly during the holiday season. Given that consumer spending drives nearly 70% of U.S. GDP, the strike's drag on economic growth could be substantial.
Supply chain disruptions reach far beyond the docks, threatening hundreds of thousands of jobs in trucking, warehousing, and logistics. A logistics expert warns that "more than 100,000 people could be temporarily out of work" as the ripple effects spread.
From a policy perspective, inflation is the elephant in the room. Although the Consumer Price Index had settled at 2.5% year-over-year by September 2024, delayed goods and rising prices could push it beyond 3%. The Federal Reserve's potential rate cuts—meant to ease monetary pressure—could fall short, particularly if inflation is driven by supply shortages rather than demand. "Interest rate adjustments can't solve the problem when the supply of goods is choked," explains a senior economist. This disconnect underscores the limits of monetary policy, echoing the missteps seen during the inflation surge of 2022-2023.
Labor dynamics add another layer of complexity. "Strikes tend to last longer when unemployment is low, as workers feel more empowered," notes Stanford economist John Pencavel. With unemployment at a modest 3.5%, dockworkers are seizing their moment, knowing their bargaining position is strong.
Politically, the strike is a tightrope. The White House has urged "fair and swift" negotiations, yet refrains from invoking the Taft-Hartley Act, underscoring the delicate balance between supporting labor rights and averting economic fallout. "It's not just economic; it's deeply political," observes a policy strategist. With the 2024 presidential race approaching, how leaders handle the strike could shape both the economy and labor relations.
But the underlying story is one of widening gaps—between worker pay and productivity, and between labor and capital. Since the 1970s, worker productivity has soared by 61.8%, yet hourly compensation has lagged far behind, rising only 17.5%. Dockworkers argue that inflation and living costs make their demand for better wages and job security a matter of survival. “Our members deserve a share in the prosperity they help create,” says an ILA spokesperson.
However, critics argue that the strike may spotlight wage disparities without addressing systemic issues like income inequality. “Dock workers can strike because they make 100k a year.” An economist specializing in labor policy notes, “Labor actions highlight pay gaps but don’t tackle the broader, structural problems across sectors.” She believes the increasing labor action is just a blip and just like the pandemic, many will forget about it in a few years as automation takes hold in multiple sectors of economy.
A labor economist at Yale had the last word, “this isn’t the fight among have and have-nots. It’s the fight between have’s and have-more’s.”
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