Could the Dockworkers Union ‘Cripple’ the Economy?

Quote from the ILA President and Chief Negotiator, Harold Daggett (source: Quartz)

A potentially debilitating strike has kicked off, with fears that pausing freight traffic, even temporarily, could have enormous negative impacts on the U.S. economy. 

As of October 1, 100,000 containers already sat in limbo in the New York area, with nearly three dozen more ships expected this week.

Economic Impact

There is no question this strike could devastate the economy. The U.S. relies heavily on shipments brought in by container ships. Things can quickly spiral out of control when we can no longer welcome goods.

• Delays: Strikes at major ports can lead to backlogs of ships waiting to unload, delaying the flow of goods. Companies that rely on just-in-time inventory management are particularly fragile.
• Higher Costs: Delays may force businesses to find alternative, and almost certainly more expensive, means of transporting goods. Ultimately, some of these costs may be passed on to consumers, while some may have to be eaten by the company, hurting their bottom line.
• Slowdowns: Manufacturers reliant on imported raw materials or components may experience production slowdowns or even temporary shutdowns. This could ripple through supply chains, affecting other industries downstream.

In particular, sectors like industrials, consumer discretionary, and materials, all dependent heavily on international trade and imports, could face the greatest challenge with the flow disrupted. 

Resilient Industries

While the dockworkers strike will disrupt supply chains, the impact isn’t necessarily uniform. Depending on their exposure to global trade, some sectors are likely to be more resilient than others. Here is one we believe can best ride out the strike storm, offering a glimmer of hope in an otherwise challenging situation:

Technology: Tech companies, particularly software and services-focused ones, may be less impacted by physical supply chain disruptions. Their products and services are often digital, allowing them to rely far less on supply chains and stockpiles. 

Image: MSFT vs. the S&P 500 over the past five years (source: TradingView)

For example, following the stock market crash in February and March 2020, Microsft saw its share price rapidly appreciate despite supply chain issues, which continued to persist for months afterward. In particular, Microsoft (NASDAQ: MSFT) experienced “unprecedented” demand for its cloud services (Azure). 

💡If you’re curious about the top names in the sector, be sure to check out WallStreetZen’s Best Information Technology Service Stocks to Buy Now.

The Bottom Line

If this strike persists for an extended period, some companies and their share price could be in trouble. On the other hand, more resilient areas, like tech and utilities, may experience far less negative impact.

If you’re looking to adjust your portfolio in light of the strike, it may be wise to focus on companies less dependent on physical supply chains. Strategic adjustments to portfolios now could mitigate risks and help weather the potential economic storm ahead.

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