How a looming port workers strike may throw small businesses for a loop

(Updated with additional information)

Time’s running out to avoid a strike at ports from Maine to Texas that has the potential to cost the economy $5 billion a day and upend the holidays for millions of Americans.

When the clock strikes midnight, the labor contract between 45,000 union dockworkers and the United States Maritime Alliance (USMX) expires, and the workers have vowed to walk without a new deal for higher wages and restrictions on automation. A strike at these 36 ports would be the first since 1977. More than 68% of container exports and more than 56% of container imports flow through East and Gulf Coast ports, according to the National Association of Manufacturers.

Any strike lasting more than a few days will likely trickle down to consumers, but small and medium-sized businesses and exporters, especially farmers, could feel the squeeze even sooner amid rising costs and product shortages, experts said. Small businesses power more than 40% of economic activity, according to the Small Business Administration.

The “strike poses severe consequences for the U.S. economy, particularly for small businesses,” said Javier Palomarez, president and chief executive of the United States Hispanic Business Council. “If a solution is not found soon, small businesses will be facing one of the greatest supply chain disruptions since COVID-19, and many do not currently have the resources to do so.”

Capitalize on high interest rates: Best current CD rates

After two years of elevated inflation, small- and medium-sized businesses are less able to cope with higher shipping costs and shortages this holiday season, experts said.

What’s at stake for farmers and agricultural exporters?

About 14%, by volume, of all U.S. waterborne agricultural exports would be affected, according to the American Farm Bureau Federation (AFBF).  It values those exports at around $318 million per week.

Products that would feel the greatest hit, according to the AFBF, include:

• Poultry: Nearly 80% of waterborne poultry exports would be jeopardized, lowering prices for poultry producers as they lose vital market access, it said. Nearly half of East Coast containerized poultry exports pass through the Port of Savannah. The drop in poultry exports would trickle down to feed suppliers, especially those producing corn and soymeal, it said.
• Soybeans: “Cutting off this vital outlet for producers is particularly biting when soybean producers are expected to harvest a record crop,” wrote AFBF economist Daniel Munch. “Soybean producers near Norfolk, Virginia — which handles over 60% of East Coast containerized soybean exports — could feel the greatest impact.”
• Hay
• Cotton
• Red meat
• Vegetables
• Dairy products
• Edible nuts

Aside from international markets like China, Vietnam and Indonesia, 3.2 million American citizens in Puerto Rico could be affected by shortages and higher prices. More than 85% of the island's food supply comes from the mainland U.S., with 90% of those shipments passing through these ports, AFBF said.

What’s at stake for small- and medium-sized businesses?

The strike could be do or die for some small- and medium-sized businesses, experts said.

While large firms like Walmart and Costco can afford to take inventories early and store them, or absorb the cost of rerouting shipments to the West coast, smaller businesses typically can’t, they said.

As a result, “some businesses could miss out on critical holiday supplies entirely,” said Ben Johnston, chief operating officer at small business lender Kapitus. “Given the low margins of most small manufacturers, retailers and wholesalers, a strike of this nature could be the difference between turning a profit or stomaching a loss for the year.”

Key sectors like retail, manufacturing, food and agriculture, and pharmaceuticals will be hit hard by the resulting supply chain disruptions, Palomarez said.

What’s at stake for consumers?

Consumers may end up facing higher prices and shortages again, some analysts said.

“Any strike that lasts more than one week could cause goods shortages for the holidays,” said Eric Clark, portfolio manager at Accuvest Global Advisors. “We could get the kind of inflation for six months similar to or worse than peak inflation levels a year ago.”

Additionally, Americans may face furloughs and job losses as the labor market is cooling, some retail experts said. Companies, especially manufacturers, who rely on low inventories to keep costs down, could face parts shortages. If that happens, “assembly lines could shut down,” said Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation.

Small businesses struggles:Many small businesses teeter as costs stay high while sales drop

Companies that planned may have a better chance of weathering any prolonged strike, said Dave Charest, director of small business success for marketing firm Constant Contact.

“Over 40% of small businesses wait until October to start thinking about the holidays, but those who have already begun reaching out to customers and ordering inventory are in a stronger position to succeed,” Charest said.

Even so, small businesses remain worried.

Already, “the mood on Main Street worsened in August,” said Bill Dunkelberg, chief economist at the National Federation of Independent Businesses, in a release earlier this month. “Historically high inflation remains the top issue for owners as sales expectations plummet and cost pressures increase.”

What's at stake for dockworkers?

The International Longshoremen's Association (ILA) is looking for a 61.5% pay increase over six years, according to CNBC.

It's also concerned about automation. In June, it halted talks with USMX over an automation dispute. In a release then, the ILA said “ILA President (Harold) Daggett made it clear that the union will take a firm stance against any technology that threatens ILA jobs.”

On Monday, USMX said in a statement it had offered to hike wages by nearly 50%, triple employer contributions to employeeretirement plans, improve health care options, and keep its current language around automation and semi-automation.”

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and  subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.