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We're seeing global shipping stocks slide as around 45,000 dock workers along the East and Gulf Coasts walk off the job. Our next guest says, and they say who stand to benefit and what industries are most at risk during this strike. Here with more, we've got Bruce Chan, Transportation and Logistics analyst at Stifel. Bruce, let's start with your base case here. How long do you believe this strike will last?

Yes, good morning, Brad, and thank you for having me. So, our base case here is two weeks, and uh there's no real hard science to that. Um but I think a lot is going to depend obviously on the political situation and the willingness of the Biden administration to intervene here. Um but uh yeah, our base case is about two weeks.

All right. So, Bruce, let's talk to us a little bit more about the economic impact here because I think a lot of investors are asking themselves ultimately what this could mean. Many of them trying to figure out whether or not it's going to have an economic ripple effect, what that means for their portfolio. What's your early read?

Right. So, the first thing I think it's important to do is to contextualize the magnitude of of what this disruption could look like. And this is not something that we think would approach uh anywhere close to the scale of the post-pandemic surge in 2021. You know, that was really a globally coordinated, system-wide shortage of supply, uh coupled with the resurgence of demand, you know, really across the world. But that doesn't mean that we, you know, couldn't or wouldn't see significant uh impact from a stoppage here. And the real key now, I think, is how long ultimately is the strike going to last. If it's something that's one to three days, you know, probably not as big of an issue. I think that's relatively digestible, especially given, you know, what we see as uh pretty slack supply um in in the uh in the freight system right now. But the longer this goes, you know, the more the impact scales, and really it starts to scale exponentially. Um so, you know, inflation for consumer goods, I think it's going to become an issue if we start to get in that two-week time frame. Uh we might start to see shortages of consumables. And then, you know, where we'd probably be most worried is for um you know, critical process inventory. Unavailability there could cause, you know, shuttering of production plants, uh potentially, you know, furloughs and layoffs. Obviously, that's something that the administration wants to avoid.

So, Bruce, with that in mind, where do you believe the administration might need to make its voice known? Where do they need to, similarly as they've stepped in in the past negotiations in the auto workers case, where might we see the Biden administration throw some weight around or try to show some solidarity here?

Yeah, so um they're they're really uh having to thread the needle politically because on the one hand, this is a pro-union, pro-labor administration. We're obviously in an election year, a little bit more than a month away from an election. Uh you've got um some of the longshore constituency in key swing states. So, you know, they've signaled that they would be supportive of an organic negotiating process. But, you know, once you get into that, you know, again, two to three week time frame where you start to see broader uh economic implications, I think is where you could see them start to invoke uh Taft-Hartley. And um you know, that would really bring about an 80-day cooling off period. But I think, you know, the key thing to think about there is that uh even during that period, you could see slowdowns in in in work. You could see um you know, the ILA bring down shifts. So, we still really wouldn't be at full capacity even in that situation.

So, Bruce, let's talk about a little bit more about the that plays here that are at risk, or maybe you could position yourself to benefit from this. One of the plays that you say are actually could be beneficiaries of this strike, I believe, are FedEx and UPS. Why?

Yeah, so uh air cargo essentially is the only clear beneficiary we can see in this situation. Um it's essentially the only way to move products in country and bypass the ports. Uh if you think about diversion to the West Coast ports, for example, the West Coast ports are operating with pretty good fluidity, um but uh they're essentially at capacity. And the same is true in Canada. Uh Halifax, the number four port in in Canada, is um you know, pretty near capacity. Uh Montreal is going through its own strike right now. That's the number two port in Canada and the number one on the East Coast. So, there really are not a whole lot of options in terms of a plan B here other than air cargo, which is um you know, significantly more expensive, probably only available to high-value goods, and you know, again, some of those critical process goods. Um so, that should be a real headwind for anybody that owns and operates uh aircraft capacity.

Is there a total economic cost that you're anticipating? And you know, even as you're kind of looking across the companies that will be most impacted, a total blow to the economy uh for the two weeks that you were talking about that this could potentially go on for?

Yeah, I mean I've seen estimates um out there in the in the trade press um you know, citing a couple billion dollars or a few billion dollars per day. Uh but again, I I think this is something that starts to scale exponentially in terms of the overall impact to the US economy. So, you know, a couple days of strike, you know, probably a more minimal impact, but you know, it starts to get you know, much more significant um you know, after that period.

But are many of these companies, many of the shippers, many of those at risk of being, I guess, challenged at least in the short term? Do they pretty much have checks in place right now that they are in better position than maybe they would have been five, six years ago before we saw more of these strikes begin to happen?

Um, you know, I would say technology and supply chain planning is is probably um a little bit better. Um so, you know, one of the things that you saw some of the you know, big box retailers uh do is to um you know, pre-position inventory. That happened earlier this year than than it has in in previous years. So, you know, as far as consumers should be concerned about holiday peak goods, I don't think there's as much of a worry there. Um but it's those, you know, consumables, especially the perishables, if you think, you know, bananas, cherries, coffee, uh European beer and wine, you know, those are things that can't be pre-loaded into inventory. Uh those are the things that I think will be a little bit more concerned about.

What in the negotiations would be perhaps the the biggest delta between the the cost structure that companies that go through and work through these ports would then have to consider post-negotiation that investors would also have to kind of price into their models as well? And and is there any inkling that that we could get to that point where some of these companies are going to have to come out and say, all right, we've got to revise what our cost of of doing business through these ports looks like and how it's going to impact impact how investors have already modeled out for for growth for these companies and the expense basis?

Yeah, thanks, Brad. Um, you know, look, I think for the importers themselves, um there is, you know, um an inflationary cost element here uh ultimately that probably gets passed through to the consumer. So um you know, uh ultimately this will be inflationary for everybody. Uh But if you think about the total logistics cost inputs for, you know, most goods, they're on average in the low single-digit percentage. So, you know, from this issue alone, we don't see a a major impact to the end consumer. Uh But for, you know, the operators that are in the middle, um you know, there certainly is an inflationary impact to consider here.