Key Points: – The major port strike on the U.S. Atlantic and Gulf coasts has tentatively ended after dock workers agreed to a 62% pay raise over six years. – The current contract has been extended through January 15, 2025, allowing time for further negotiations, particularly over unresolved issues like the use of automated machinery. – The brief strike disrupted supply chains, with billions of dollars of goods stranded offshore, but the immediate threat to inflation and layoffs has been averted with the resumption of port operations.
The major port strike that disrupted shipping operations along the U.S. Atlantic and Gulf coasts this week has come to a tentative resolution. Workers represented by the International Longshoremen’s Association (ILA) reached a tentative agreement on wages and a contract extension, temporarily halting the strike that had begun early Tuesday morning.
Tentative Deal Reached After Intense Negotiations
Under the tentative agreement, dock workers would receive a 62% pay raise over six years. The union had originally pushed for a 77% wage increase, while the shipping industry group initially offered 50%. Yesterday’s offer came after pressure from the Biden administration to raise wages and expedite a resolution.
The agreement extends the current contract until January 15, 2025, providing time for both sides to negotiate the new long-term contract. The strike had raised significant concerns over the supply of essential goods like fruits and automobiles and threatened to exacerbate inflation if prolonged.
Immediate Return to Work
The ILA and USMX issued a joint statement on Thursday evening, confirming that all job actions would cease immediately, and work covered under the Master Contract would resume. Despite the wage deal, some major issues remain unresolved, particularly around the use of automated machinery, a sticking point that will feature prominently in upcoming negotiations.
Economic Impact and Supply Chain Disruptions
This week’s brief strike marked the first time the ILA had walked out since 1977. The impact of the strike was already being felt across industries, with thousands of shipping containers diverted to incorrect ports and billions of dollars’ worth of goods left stranded offshore. A longer strike could have increased inflationary pressures on consumer goods and triggered layoffs due to supply chain disruptions. However, with operations resuming, the immediate threat to supply chains has been averted, and attention now shifts to the longer-term contract negotiations that will determine the future of port labor relations.
Key Points: – The Federal Reserve’s recent rate cut provides only marginal benefits to U.S. manufacturers. – Rising raw material costs and competition from Chinese imports continue to challenge the U.S. manufacturing sector. – Energy price hikes and potential port strikes add to the pressures faced by U.S. factories.
The Federal Reserve’s recent decision to cut interest rates by half a percentage point has sparked hope among some U.S. manufacturers. However, for many factory owners, the benefits of the rate reduction are overshadowed by ongoing challenges, including competition from China, high raw material prices, and labor disruptions.
Drew Greenblatt, president of Marlin Steel, a small manufacturer of wire baskets in Baltimore, represents one such case. His business had seen a surge in demand during the COVID-19 pandemic when a major client shifted orders from China to the U.S. However, this boost was short-lived, as the customer reverted back to cheaper Chinese suppliers, leaving Greenblatt grappling with surplus capacity and excess workers.
“The rate cut is welcome, but it doesn’t solve the real issue,” Greenblatt said. “We need more aggressive trade actions to level the playing field.”
The Federal Reserve’s rate cut is the first in several years, aimed at stimulating economic growth by making borrowing more affordable for businesses. In theory, lower interest rates should spur investment and expansion, but for manufacturers like Greenblatt, the rate reduction doesn’t alleviate the more significant issues plaguing the sector.
U.S. manufacturers continue to face heightened competition from low-cost Chinese imports. Despite tariffs and trade restrictions, companies often find themselves losing business to Chinese firms that offer more affordable products. In many cases, even with lower interest rates, the cost advantage of Chinese imports is too great for U.S. factories to overcome.
“The rate cut doesn’t fix supply chain issues or lower raw material costs,” said Cliff Waldman, CEO of New World Economics. “These are the real concerns U.S. manufacturers are dealing with, and lower borrowing costs won’t solve those problems.”
While competition from overseas remains a significant concern, domestic challenges also compound the difficulties faced by U.S. manufacturers. Rising electricity costs, particularly in states like California, are taking a toll on energy-intensive industries. Kevin Kelly, CEO of Emerald Packaging, shared how his family-run business, which produces plastic bags for produce companies, saw a steep rise in electricity costs over the summer.
“We just didn’t anticipate such a sharp increase in our power bill,” Kelly said. “We’ve had to adjust our production schedule and shut down some operations during peak hours, but it’s still eating into our profitability.”
The specter of labor unrest and potential port strikes further exacerbates the challenges. With a possible strike looming at major East Coast and Gulf of Mexico ports in October, manufacturers fear disruptions in supply chains, which could cause delays and drive up costs. This would be another setback for U.S. factories that are already navigating supply chain bottlenecks and inflationary pressures on inputs.
For many manufacturers, the Fed’s interest rate cut, while beneficial, offers only limited relief. Supply chain disruptions, rising raw material and energy costs, and stiff competition from Chinese imports present much more significant hurdles.
As Greenblatt noted, “The rate cut helps, but it’s just a small piece of a much bigger puzzle. We need stronger trade policies and measures that address the root causes of our struggles.”
The U.S. manufacturing sector, once a cornerstone of economic growth, now finds itself in a precarious position. While the rate cuts may provide a short-term boost, longer-term solutions are required to address the structural challenges the industry faces. Without significant reforms in trade policies and support for domestic production, manufacturers will continue to struggle despite favorable interest rates.
Key Points: – Lineage, the world’s largest temperature-controlled warehouse REIT, goes public with a $4.4 billion IPO – Shares rise up to 5% on first day of trading under ticker “LINE” – Largest IPO since Arm’s $4.8 billion listing in September 2023 – Company’s success driven by aggressive acquisition strategy, with 116 acquisitions to date
In a landmark event for the 2024 stock market, Lineage, the global leader in temperature-controlled warehousing, made its public debut on the Nasdaq Stock Market. The company’s initial public offering (IPO) raised an impressive $4.4 billion, marking it as the largest public offering since chip designer Arm’s $4.8 billion listing in September 2023.
Lineage’s shares, trading under the ticker symbol “LINE,” saw an encouraging start, rising by as much as 5% during their first day of trading. The company priced 57 million shares at $78 each, near the top of its initial $70 to $82 target range. This pricing implies a valuation of over $18 billion for the cold storage giant.
The successful IPO is a testament to Lineage’s remarkable growth strategy and its critical role in the global food supply chain. Starting from a single warehouse, Lineage has expanded its operations through an aggressive acquisition approach, completing 116 acquisitions to date. This strategy has transformed Lineage into a global powerhouse with over 480 facilities across North America, Europe, and the Asia-Pacific region, boasting a total capacity of approximately 2.9 billion cubic feet.
Adam Forste, co-founder and co-executive chairman of Lineage, highlighted the company’s unique growth trajectory on CNBC’s “Squawk Box” just before trading began. “We started with one warehouse and we’ve done 116 acquisitions to turn Lineage into what it is today,” Forste explained. He also noted that many families who sold their companies to Lineage rolled their equity into the larger entity, creating a network of stakeholders celebrating the IPO together.
Lineage’s business model addresses a critical global issue: food waste in the supply chain. With an estimated $600 billion worth of food going to waste during or just after harvest, Lineage’s temperature-controlled storage facilities play a crucial role in reducing this waste and its associated environmental impact. Food waste currently accounts for about 11% of the world’s emissions, making it a significant contributor to climate change.
The company’s successful market debut comes at a time when IPOs have been relatively scarce, making Lineage’s offering particularly noteworthy. It’s more than twice the size of cruise operator Viking Holdings’ IPO in May, further emphasizing the scale of this public offering.
Lineage’s strong market reception also reflects investor confidence in the cold storage sector, which has seen increased demand due to changing consumer habits and the growth of online grocery shopping. The company’s global network of cold-storage facilities positions it well to capitalize on these trends and continue its expansion.
The IPO was underwritten by a group of major financial institutions, including Morgan Stanley, Goldman Sachs, Bank of America, J.P. Morgan, and Wells Fargo, further underscoring the significance of this offering.
As Lineage begins its journey as a public company, investors and industry observers will be watching closely to see how this cold storage giant navigates the challenges and opportunities of the public market. With its strong market position, proven growth strategy, and critical role in the global food supply chain, Lineage’s future looks promising as it embarks on this new chapter in its corporate history.
The Supply Chain Part of Inflation Can be Declared Dead, Now What?
New data shows the supply chain is no longer putting meaningful pressure on inflation — will rising prices finally sail off and stay there?
Historically, the Global Supply Chain Pressure Index (GSCPI) is now on the low side. In fact, for the monthly period ending February 28, it’s below its 25-year average. What’s more, is this is the first time the GSCPI has released a below-average reading of supply chain pressure since August of 2019.
This is significant as the supply-chain issues related to the pandemic, would seem to be transitory and are now no longer the issue. From March 2020 until this more recent report, consumers with easier money available, including stimulus checks, drove demand higher for goods. The suddenness of the onslaught of demand for goods caught the modern world’s “just-in-time” inventory management systems off guard. To make that situation much worse, lockdown policies slowed global production, and shipping and transport became entrenched in gridlock due to undermanned loading docks all under some level of new pandemic processes designed for health and safety.
Inflation climbed as the price of shipping was bid up substantially, and shortages of products on shelves caused retailers to lessen demand by hiking prices. Some products, particularly new and used cars, experienced sharp price increases as supply chain-related shortages on automotive components such as computer chips and other parts became difficult to obtain.
Will Inflation Finally Recede?
An 18-month-long period of rampant inflation in goods, including vehicles, electronics, food, and sporting goods, (including bicycles for both indoor and outdoor use became unavailable) began to decompress starting in early 2022. The supply chains had slowly worked through the main causes.
Around this same period in 2022, inflation pressures began to build in services. As price hikes for goods lessened or backtracked, the cost for services, including wages, shot up. This is still fueling inflation today.
Often, the fear or expectation of rising prices drives inflation and vice versa. This may be the reason Fed Chairman Powell used the description “transitory” long past the period that it was obvious that inflation was likely persistent. If the Chair of the US Central Bank had suggested back then that we had a long-term problem, the worst of it may have arrived faster and been worse. Conversely, now that higher-than-target inflation is here, it makes sense for Powell to speak more hawkishly, this helps alter expectations of ongoing high rates of inflation.
With inflation primarily coming from services, the medicine for reducing the demand for human services is lessen demand, or even more difficult, increase the labor force. This is a bitter pill for the economy and creates an issue with the Federal Reserve which has two mandates, one to keep inflation modest and the other to maximize employment.
Take Away
The GSCPI is an indicator that the goods-based part of the economy has normalized. Inflation is still raging in services, which are barely tied to services. The hope is that the Fed can reduce the demand for higher and higher wages or perhaps bring more capable workers into the workforce. Another part of this plan may have nothing to do with tightening credit conditions. Talking publicly about being resolved to squash inflation also has an impact on expectations which will reduce the prices charged for service.
The initial battle, the one that kicked off the price hikes (supply chain), has ended, now we have to see how the rest of the Fed’s fight against inflation, both in policy and psychologically, plays out.
Delivery speeds of goods worldwide have improved, impacting everything from shipping and freight to retail stores – and it should help provide a lower inflationary balance between demand and supply. Demand is waning, and supply speeds are normalizing. Months-long back-ups of ships are now gone, with shipping rates close to pre-pandemic levels, the post-pandemic era now has to adjust again.
Supply Chain Pressure
A government measure compiled by the Bureau of Labor Statistics (BLS) consisting of transportation and manufacturing pressures, called the Global Supply Chain Pressure Index Pressure (GSCPI), shows significant easing during 2022.
Global supply chain pressures are well off the high reached last December, although they have just modestly ticked up. The largest contributor to this slight reversal is the increase in supply chain pressures from Chinese delivery times, though improvements were shown in U.S. delivery times and Taiwanese purchases. The GSCPI’s recent movements suggest that developments in Asia are slowing down the return of the index back to historical levels.
Shipping Impact
Goods are moving through the largest U.S. port complex faster than at any time since cargo was backed up for weeks at the Los Angeles-Long Beach docks during the pandemic. The average dwell time for containers is just 2.8 days, according to the Pacific Merchant Shipping Association. Meanwhile, U.S. container imports reached their lowest level in November since the early months of 2020.
The improvements and reduced demand have impacted ocean shipping rates. The daily spot rate to move a shipping container from Asia to the U.S. West coast is near $1,400, down from about $7,500 in July and roughly $15,000 a year ago, according to the Freightos Baltic Index. This current cost represents a slight discount over pre-pandemic rates.
Freight Impact
Maersk is a large logistics company that is involved in many aspects of shipping and tracking. Vincent Vlerc will take over as CEO on January 1. Mr. Clerc said, “You can’t deploy more capacity than what our customers need.” He explained, “we are going through a significant inventory correction in the U.S. and Europe, and we made significant capacity adjustments to our capacity in and out of Asia.” Maersk has indicated it is transporting 30% fewer containers across the Pacific since last year.
The current chief executive of Maersk, Soren Skou said, “it’s obvious that freight rates peaked and began to normalize, driven by falling demand and an easing supply-chain congestion.” In November, the shipping company lowered its 2023 forecast for container demand. It now expects a decline from 2% to 4%, from a maximum decline of 1% previously.
Rail Transportation
The major railroads, in addition to having averted a strike, have managed to hire more train and engine crew members during the second half of 2022. Recruiting had been challenging earlier. They reopened some hump yards and took out locomotives from storage to help ease some bottlenecks.
These changes helped to improve rail service from a low in the Spring when dwell time and train speeds were historically low. “We have turned the corner on service,” Norfolk Southern CEO Alan Shaw said during the company’s investor day in early December.
The railroads say they intend to draw more cargo currently on trucks back to rail, as rail service improves.
Parcel Delivery
FedEx and other regional carriers are having an easier time delivering packages. On Tuesday, FedEx reported average daily parcel volumes fell 10.2%, declining for the fourth straight quarter. There is a trend where shoppers are venturing back out; this has reduced online shopping.
There is now a surplus of capacity to deliver packages. In 2020 and 2021, their ability to deliver fell short of daily capacity.
Before the holiday season, parcel carriers noted consumers had reduced online orders. People seemingly have other pent-up demands to meet. They have resumed spending on travel, parties, and entertainment. Also, in-person shopping has increased post-pandemic.
Impact on Retail
After more than a year of paying higher and higher prices for shipped goods, Walmart and other retailers can resist price increases. In fact, they may even be successful negotiating discounts. With significant inventory and, in some cases, excess inventory, retailers have more bargaining power with shippers and suppliers. Dollar General Corp., after years of blaming high transportation costs as a drag on the business, said in December that falling transit prices could begin lifting the company in 2023.
Take Away
A new balance is being found in the shipping and delivery of goods. Where there was once more demand than supply, a more normal balance is surfacing. This balance is a relief to both sellers and buyers as products become available. Even more, it is likely to help bring inflation down. Also working to help this balance is higher interest rates that are intended to slow demand while supply-side channels catch up. The balance is much closer than it was when the Fed began tightening, this helps bring the costs of goods down, and as an added gift to those most hurt by inflation, it also has helped ease tight labor markets.
