The deal between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX) would increase the wage costs of dock workers by 62% by increasing the hourly wage from $39 per hour to $63 per hour, allowing dock workers to earn $131,000 per year without working overtime.
The steel industry is breathing a sigh of relief, however, that the strike has been suspended and potentially averted and they will continue to be able to import semi-finished steel, such as billet and slab, as well as pig iron, according to Felix Bello, North America steel analyst at Fastmarkets.
“The impact is all good” because it avoids the severe and painful cost of disruptions in the supply chain, Bello said.
Future implications for imports and automation
Sources are mixed on how inflation generated by the higher dock worker wages will play out in the economy for consumers, industries, and steelmakers and steel consumers.
“The challenges at the ports make it even more difficult to import steel coil into the US from Europe and Brazil [and] this difficulty will have an inflationary effect on consumer prices,” a mill source said.
The mill source said the costs of the deal will be spread across the economy and push personal consumption price inflation above the Federal Reserve’s target of 2%.
A southern distributor had a similar view, stating that the impact of higher shipping dock costs would be “most significant [for] consumer goods that arrive by containerized ships for low value, retail-oriented items, like those bought a big retailers like Walmart, Target and Home Depot.”
“Many of the containerized imports have some exposure to being perishable, or becoming obsolescent or written down,” the southern distributor said. To minimize those risks, big US retail chains may decide to curtail their reliance on imports for those goods in the future, they added.
For steel imports, the cost dynamics are different, the southern distributor said. “The larger bulkier items like beams, slab, billet, et cetera, are so large and the labor to unload them is so mechanized that the higher wages will have less of an impact on the cost per ton.”
A northeastern distributor similarly said: “The cost of freight isn’t a huge percentage [of the cost of steel] so I think that’s negligible as far as the end unit cost, but it will give producers a reason to raise prices.”
But there could be fallout, too, from heightened uncertainty around imports, the southern distributor said.
“The threat of strikes and the reality of sharply higher wages will inevitably and ultimately lead to less imports and more re-shoring in the years to come,” and with it, more regionalization of trading, the southern distributor said.
Bello said: “The current [trading] cycle is taking us over the short term, the next five years, toward regional trading blocks, like North America.”
A steel buyer found the union’s opposition to automation especially troubling. The tentative deal has not addressed the union’s opposition to further automation.
“It is understandable why the longshoremen would like to ban automation. But, eventually, the ports will need to be more efficient to keep costs down to be competitive. We have seen other industries implement automation and not replace existing workers,” the steel buyer said.
Uncertainty around deal ratification
Most steel industry sources expect the workers to ratify the agreement “because most people would love to make $131,000 a year without overtime,” the steel buyer said.
A labor economist, however, was worried. “The biggest fear for me is if the union fails to ratify the deal. [Workers] overwhelmingly rejected a decent deal at Boeing,” according to Arthur Wheaton, director of labor studies at Cornell University School of Industrial and Labor Relations in Buffalo, New York.
Should a deal not be reached by January 15, the strike could resume, and that would pose a significant challenge to the US steelmakers and steel consumers, sources said.
