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The International Longshoremen's Union, which represents about 45,000 workers at ports across the East and Gulf Coasts, is set to strike next week. That's if they can't come to a deal by the September 30th deadline. To discuss what impact a prolonged strike could have on the country's supply chains and the broader economy, we've got Jason Miller. He's a supply chain management professor over at Michigan State University. Jason, thanks for being here. I want to just jump into the potential impact that this could have, right? To what extent, and, and, you know, for, for viewers listening who maybe are not familiar with the supply chain challenges and economic impact of a strike like this, talk to me about kind of the degree of the potential impact of this.

Yeah, the degree of impact really is going to be a function of how long a potential strike takes place. If we're looking at 24, 48 hours, it wouldn't be that disruptive on the big scale of things. And again, that's always taking everything back, thinking about the type of disruptions we saw in 2021 and 2022. On the other hand, you start getting into a week or more, you're going to have an extensive pile up, and you can think about this as each additional day at that point, it's exponentially longer to unwind the situation. So, a few day strike, not that bad, but an extended strike will be very disruptive, um, especially for importers in certain sectors.

Jason, how likely do you think that is?

Certainly at this point right now, given both sides are not talking and they're very far off in terms of wages, in terms of discussion of automation, it seems likely that we will have a strike at this point. So, my base case right now is there will be a strike. It's really a question of how long will that take place, um, once it would begin.

What's your base case for the longevity of the strike and just the degree to which they do kind of have bargaining power given the degree of impact?

So right now, my base case would be we would get a couple days in and I find it difficult to believe that the Biden administration will not invoke the Taft Hartley Act. And essentially have a commission form, deliver a report, and at that point there'll be an 80-day cooling off period. We would expect some slowdowns over that period, um, because workers may not be working quite as fast, but it's very difficult for me to see how this plays out. Let's say a two-week extended strike given the amount of disruption that would take place.

So then given the fact that maybe it's not going to take that long, but let's play devil's advocate. Let's say that this is that this strike actually happens. It does last for one or two weeks. Inflationary pressures that we could see as a result, economic impact, GDP hit that we could see as a result of a prolonged strike. I guess, more accurately, Jason, what does that look like?

So from an inflationary standpoint, I'm not very worried about that. When you look right now at the piece of the CPI that's still the biggest driver of year over year inflation, it's that shelter component. And we know that's coming down because of, uh, the trend of a new tenant rent index that's produced by the Bureau of Labor Statistics. Where we do start to see more of an impact though is in certain industrial sectors. So, on the export side, by far the most affected commodity is plastic resins. So we're going to start seeing, you know, reduced exports because right now year to date, we've shipped over 6 million metric tons of resin out of the US and containers out of the East and Gulf Coast ports. On the import side, the most affected sector that I see is the auto space, just given the key role that auto parts play as an import. This is especially the case for the German automakers. Their plants are in the US South. There's really no opportunity to reroute those imports. Um, and also the South Korean automakers, the majority of the auto parts imports from South Korea come into the US through the East and Gulf Coast ports going to Alabama and Georgia as a final destination.

And Jason, I want to get your take on something I heard from Chris Versace. He's thematic research chief investment officer. He was on our show yesterday and discussed the potential impact the strike could have on inflation and therefore future potential rate cuts from the Fed. I would love to get your reaction on the other side here.

We also have this upcoming long shoreman strike that could be, you know, really crippling to supply chains, particularly on the East Coast and the Gulf Coast ports, uh, could also kind of take inflation back up. And if that happens, then we have to requestion, uh, what the Fed may do between now and the end of the year.

So Jason, do you think that the potential inflationary pressures from this are going to be as widespread as Chris mentioned there, or do you think it'll be a little bit more contained to certain, you know, products or sectors?

Yeah, I certainly view it as much more contained because again, you always have to look and say, roughly 10% of consumer spending of all types comes from imports. That's based on data from the San Francisco Fed. And that's imports of all types. So even including crude oil that obviously isn't affected because it's coming primarily from Canada. So I'm not really worried about this from an inflation standpoint. I'm more worried about it from a sort of cascading disruption standpoint. If we're looking at a multi-week disruption taking place.

Jason, I know you've dug into this a little bit, and if we do see a strike, you, you were able to kind of figure out what sectors or maybe what products would be hit the most. What did you find there?

Yeah, so apart from auto parts, as consumers, the biggest one that sort of jumped out to me is actually bananas. Um, you know, we've imported so far this year over 2 million metric tons of bananas. And most of those, about, you know, two-thirds to 75% come in through the East and Gulf Coast ports because this is what we call a low-value density item. It's something that you need to get it close to the final market with the most efficient transportation mode possible, which is containerized water in this case. So you can't reroute this product all through the West Coast and, you know, truck bananas from Southern California all the way to, let's say, New York City. That's not a profitable endeavor. And so it's also a product with a short shelf life. And so that would be the one where, if I was a consumer and as a consummate consumer of bananas myself, I'm looking at saying, okay, that could be one that if there's a multi-week strike, it could be hard to get the quantities that folks are used to, just because it's a perishable product. Um, and so from the everyday consumer standpoint, that's probably the one you feel the most. Um, but a lot of other goods, we've already sort of front-loaded a lot of imports, so I don't see the holiday side of things being too disrupted at the moment.

All right, Jason Miller, thanks so much for joining us here this morning to break this down. Michigan State University supply chain management professor, we appreciate the time.