U.S. ports strike could create disruption, but opportunity for these distribution companies

By James Rogers

The dockworkers' strike at U.S. East Coast and Gulf ports is now in its second day

The U.S. ports strike, which is now in its second day, could have implications for specialty distribution companies, according to analyst firm Stifel.

The strike, by the International Longshoremen's Association, began Tuesday and is affecting U.S. East Coast and Gulf ports from Maine to Texas.

"All eyes are on the East/Gulf Coast ports strikes, which started October 1, and if not resolved quickly could lead to shipment delays, potentially forcing distributors to increase inventory to maintain fill rates," Stifel analyst Brian Butler wrote in a note released Tuesday. "The disruption caused by the strikes may also trigger a short-term spike in ocean freight rates, which would only have a nominal impact to our coverage as the majority of shipments are locked in at May 2024 contracted rates."

Related: As port strike begins, these air-delivery stocks could be poised to benefit

"Redirected shipments to the West Coast could lead to congestion and delivery delays," Butler added. "Reduced supply may create an opportunity for larger players to push price increases and maybe drive better volumes by taking market share from competitors who are unable to fulfill orders."

A prolonged strike may also lead to delayed shipments and deliveries to warehouses, according to Butler.

Stifel maintained its buy ratings for industrial distributor Fastenal Co. (FAST), industrial-packaging company Greif Inc. (GEF) (GEF.B), and Hillman Solutions Corp. (HLMN), which distributes hardware and home-improvement products. The analyst firm also maintained its buy ratings for LKQ Corp. (LKQ), which distributes vehicle products and parts, and Karat Packaging Inc. (KRT), which manufactures and distributes disposable products for the foodservice and restaurants industries.

Related: Port strike could bring biggest impact to these retailers, says Truist

However, only 10% to 15% of Karat's current shipments are received on the East Coast and the Gulf, according to Stifel, which said that the company could benefit from customers switching from suppliers that may be more impacted and are unable to fulfill orders.

Fastenal shares are up 9.8% in 2024, while Greif Class A shares are down 5.4% and Class B shares are up 4.6%. Hillman shares are up 12.9% and LKQ stock is down 16.3%. Karat shares are up 2.9%, compared with the S&P 500 index's SPX gain of 19.7%.

The strike follows Monday's expiration of the contract between the ILA and the United States Maritime Alliance. In a statement released Tuesday President Biden urged the United States Maritime Alliance "to negotiate a fair contract with the longshoremen."

-James Rogers

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10-02-24 0931ET

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