How Amazon, Best Buy, Costco and Home Depot Prepared for the Port Strike

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The International Longshoremen's Association (ILR), which represents about 45,000 longshoremen, has launched its first large-scale strike in 47 years, disrupting supply chains ahead of the Christmas shopping season. Strikes began early Tuesday morning at 36 ports along the East Coast and Gulf Coast, from Maine to Texas, after negotiations failed to produce a new labor contract by midnight. The ILR is calling for a 77% pay rise over the six years of a new contract and a ban on automation. The United States Maritime Alliance (USMX), which represents port owners, offered 50% and promised to limit automation in line with the previous contract. The USMX defended its offer in a statement Tuesday afternoon: “Our current offer of a nearly 50 percent wage increase exceeds all other recent union agreements, while also addressing inflation and recognizing the ILA's hard work to keep the global economy running.” Possibly The port owners were referring to the collective bargaining agreements forced on U.S. automakers to end their unions' strikes last year. Club holdings Amazon, Costco, Home Depot and Best Buy have been preparing for the port strike for months, trying to mitigate any impact on their ability to source goods from overseas. For now, we believe our retailers have taken appropriate precautions. “We are not concerned about the impact a strike could have on our stocks,” said Jeff Marks, director of portfolio analysis at CNBC Investing Club. It is reasonable to be concerned that port problems could lead to a domino effect throughout the supply chain, from the shipping companies that deliver the goods to the retailers that sell them. More than half of U.S. imports from discretionary categories such as apparel and home goods are most at risk, according to Barclays analysts. They added that 60% to 70% of these imports arrive at ports on the East and Gulf Coasts. A long-term strike could cause real problems, but the “likelihood of that is not high at this point,” said Seth Basham, an analyst at Wedbush. To put things in perspective, for retail goods, East Coast ports are less busy than West Coast ports, Basham said. Retailers that have already started switching to other ports or loading goods earlier are “in a better position to influence shippers,” he added. “Most retailers kind of know the ropes,” Lorraine Hutchinson, retail analyst at Bank of America Merrill Lynch, said on CNBC. “If you look at peak import shipping times, it is August. You are already ready for vacation. “Most of their holiday receipts are received between July, August and early September and are on their way to retailers' distribution centers and then to stores.” Costco has done just that. “Our buyers are full of it. They're watching it closely and we've taken as many preventive measures as possible to prepare for it,” Costco CEO Ron Vachris said during the company's latest post-earnings conference call on September 26. “We have contingency plans. We cleared the ports. We shipped in advance.” Amazon also takes a proactive approach to managing its inventory. The company is “likely increasing its inventory levels at the moment,” said Marc Wulfraat, CEO of supply chain and logistics company MWPVL. Amazon has added 24 million square feet of warehouse space across the country, known as “international inbound cross centers,” designed to hold inventory in anticipation of supply chain disruptions, such as a port strike, Wulfraat explained. Home Depot has a similar warehouse model with over a million square feet of space to store inventory in advance. Wulfraat said these spaces allow companies like Home Depot to stock up on supplies early, especially for situations like possible port strikes, so they have supplies before they're needed. Best Buy is “the most at risk in terms of the percentage of goods they sell that are imported, at about 90%, so they could certainly come under pressure if they can't adapt to these changes,” Basham said. However, because of its size, Best Buy often receives priority from its shippers, which could help it secure goods more quickly than smaller competitors. Of course, Wedbush's Basham warned that even a “one-day strike could result in a five-day freight backlog,” while a week-long strike could result in delays of over a month. An extended strike could “lead to inflation in certain classes of goods as supply chains try to rebalance by shifting incoming ships to West Coast ports,” he said. Although the risk of a prolonged strike seems low, no one wants to see a repeat of the extended delivery times that occurred during the Covid pandemic and caused much suffering to retailers. (Jim Cramer's Charitable Trust is Long COST, AMZN, HD, BBY. See a full list of stocks here.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable foundation's portfolio. If Jim discussed a stock on CNBC television, he waits 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION SET FORTH ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. THERE ARE NO fiduciary duty or duty IN RECEIVING YOUR INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.

Members of the International Longshoremen's Association union, which represents around 45,000 workers, sit on strike outside the Maher Terminal in Elizabeth, New Jersey, USA, on October 1, 2024.

Shannon Stapleton | Reuters

The International Longshoremen's Association (ILR), which represents around 45,000 longshoremen, has launched its first large-scale strike in 47 years, disrupting supply chains ahead of the Christmas shopping season.

On October 1, 2024 By John Fenwick

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