Ports strike could have $4 billion daily impact, but these container stocks are well positioned

By James Rogers

The impending strike at U.S. East Coast and Gulf ports poses a potential daily cost of $3 billion to $4 billion to the U.S. economy, Jefferies says

An impending strike at U.S. East Coast and Gulf ports could affect the U.S. economy by as much as $4 billion a day, Jefferies analysts said, but a number of container-shipping stocks could benefit from market conditions.

"East/Gulf Coast port strike poses [$3 to $4 billion per] day threat to the U.S. economy," Jefferies wrote in a note Friday. "Alternative port congestion/surging freight rates could quickly follow."

Set against this backdrop, ZIM Integrated Shipping Services Ltd. (ZIM), A.P. Moeller-Maersk (DK:MAERSK.B) (DK:MAERSK.A) and Hapag-Lloyd AG (XE:HLAG) (UK:0RCG) are "best levered" for a tighter market, Jefferies said.

Related: A port strike would be ill-timed, but disruption could boost these companies

"Container liner shares have surged, seemingly driven by short covering: The foundations of this year's container market upswing continue to keep long-only investors away from the sector, leaving the equities with considerably more volatility," Jefferies analyst Omar Nokta wrote in a separate note on Sept. 25. "However, we remain favorable on the container equities [ZIM, Moeller-Maersk and Hapag-Lloyd] due to the tighter market balance brought on by the Red Sea diversions and the increasing likelihood that this will continue well beyond 2024."

ZIM shares were up 5.9% Monday, as were a number of other shipping stocks - Star Bulk Carriers Corp. (SBLK) shares were up 0.7%, and Golden Ocean Group Ltd. shares (GOGL) were up 0.9%.

The current contract between the International Longshoremen's Association and the United States Maritime Alliance expires Monday, increasing the likelihood of a U.S. port lockdown from Maine to Texas starting Tuesday.

Related: A port strike could be an economic 'tsunami' affecting these sectors

Last week, Oxford Economics estimated that a strike could reduce U.S. gross domestic product by $4.5 billion to $7.5 billion a week while it continues. "That hit would be reversed once the strike is over, but we estimate that for each week the strike continues, it would take a month to clear the backlog, partly because West Coast ports are already approaching capacity," the Oxford team said in a note.

"The strike, which will begin on October 1 if union members and port authorities do not agree on a new work contract, has prompted many importers to frontload shipments," Oxford Economics added. This has worsened congestion at U.S. ports and contributed to an increase in overtime hours worked for manufacturing employees, according to the Oxford team. "Any disruption at ports would worsen congestion significantly as demand for imports in the U.S. remains healthy, thanks to solid growth in real consumer spending, especially as we approach the holiday shopping season."

Supply-chain analytics firm RapidRatings warns that the impact of a port strike will be felt quickly. "The East Coast port strike will affect even more companies than just the big retail and automotive companies and it will affect them fast," James Gellert, RapidRatings' executive chair, wrote in a statement. "Given the operational degradation the middle market has faced in the past few years, and the toll of inflation and capital costs, the timing couldn't be worse."

Related: Container shipping companies have been on a tear. That won't halt soon, say analysts

Gellert added: "For the companies, unions and government mediators involved in these disruptions, it would be good to remember that pain flows upstream."

-James Rogers

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-30-24 1523ET

Copyright (c) 2024 Dow Jones & Company, Inc.