Q&A of the Day – How Big of An Impact Will the Longshoreman Strike Have?
Each day I feature a listener question sent by one of these methods.
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Today’s Entry: @brianmuddradio What’s the real impact of the port workers striking? What kinds of shortages are realistic? Should we be hoarding our bread (literally)?
Bottom Line: The macroeconomic answer is that the strike comes at an estimated negative economic impact at the low end of $540 million per day to the US economy, or less than 1% of GDP, that’s according to The Conference Board. At the high end you have JP Morgan’s estimate of up to $5 billion per day or 6% of the US GDP. Obviously, estimates are all over the map in the early going. In any event, talk of shortages is a bit premature at this point, but I can detail where you’d be most and least likely to see them. I would not literally be hoarding bread (for a couple reasons actually – more on that one in a minute), but I bet survival food companies will do especially well this week. Also, the practical answer is that we won’t know the full extent of what this means until it ends. I don’t say that as a copout. It's because there’s a multiplication effect that takes place the longer the strike plays out. That’s because supply chains aren’t built in a day...or in some cases even within 18-months. The range of possibilities for what this could feel like would be akin to COVID-level supply chain disruptions if sustained over an extended period to something that’s not noticeable to the average person if resolved within the first couple of weeks.
The most obvious and biggest impact right now is being felt at the wholesale level with businesses that have stopped receiving cargo they’ve already ordered. With rare exceptions, IE special ordered parts/products coming from overseas into eastern ports, consumers aren’t likely to see or feel any impact for a while. Most businesses have a bit of a cushion as well. Manufactures maintain a backlog of products in what’s known as Days of Sales Inventory. This metric is the number of days a manufacture can sell from existing inventories without disruptions. Approximately 80% of all imported goods into the US are inventoried by manufactures prior to going to market. The average across all industries is 45 days. What that broadly means is that we could go for a month and a half without any imported goods into the United States with normal consumer demand before there would begin to be extensive supply crunches across the board. But even then, it isn’t so easy.
I’m going to throw some of numbers at you that you don’t need to specifically hang onto but that is conceptionally needed to paint an accurate picture about what’s represented in this Longshoreman strike.
- 77% of imported goods come by ships processed by ports
- Approximately 60% of the port capacity in the U.S. is offline with the strike
That produces the first important number that provides insight into how great of an impact the strike has on the supply chain. Approximately 46% of all imported goods into ports in the US are impacted by this strike. So, there are two sides to this coin. On the one hand, most imported goods into the US aren’t impacted by the strike. On the other hand, it’s close to half and on the east coast specifically, we’re most susceptible to the supply shortages with the eastern ports in the crosshairs of the strikes. Here’s the next important number to consider. 11%. If you’ve wondered how much stuff we buy that’s 100% Made in the USA, meaning not reliant on any imported parts or products for the creation, packaging or distribution it’s about 11% of what we buy (most commonly food).
The question about whether Made in America, is actually made in America, has long been a bone of contention for many. If you’re buying a labeled “Made in America” product you might be inclined to interpret that as being 100% Made in America, however most commonly it isn’t. Approximately 84% of manufactured goods Americans buy are at least “assembled in the United States”, however according to the federal government a product needs to only contain 55% of American products to qualify for Made in America labeling. And this is where this situation really gets muddy. We have an idea of how much is exclusively made here. We know how much stuff is imported into the country. We know how and where it’s imported. But there’s really no way to know exactly how many products are directly impacted because of the complexity of the manufacturing process with many products we buy.
As for the category that’s least impacted. It’s food.
- 85% of Food is domestically produced
The category that’s most impacted is clothing.
- 98% of clothes purchased are imported
So that’s the lay of the land for now. The greatest impacts of the strike will be felt down the line as opposed to today or even next week. I personally wouldn’t hoard anything (except maybe wine), right now. But it isn’t a bad idea to knock out some of your shopping right now – not for food necessarily, because that’s the point of least impact if the strike drags out, but rather the stuff you know you’re going to buy that you know isn’t completely home grown.