AI at the Root of Port Workers Strike

The port strike scheduled to take place at midnight on Oct. 1 is set to happen. The contract for 45,000 longshoremen and port workers is set to expire at the end of the day today, Sept. 30, and as of this writing on Sunday, September 29, there is no deal between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX). Roughly 36 ports from Texas to Maine will shut down, including the Port of New York and New Jersey, the nation’s third-largest port by volume and cargo handled.

The cost of the strike is likely to be limited if it is relatively short, said Patrick Anderson, president of Anderson Economic Group, a Michigan research firm with expertise in estimating the cost of disruptions such as work stoppages. But a prolonged strike of weeks or more could be a severe economic blow, where the effects would be felt well into 2025. “We would be in uncharted territory,” he said.

At the center of the contractual impasse are higher wages to adjust for inflation and the threat of artificial intelligence (AI)-driven automation that is going to eliminate tens of millions of jobs globally. The ILA union wants a 77% increase in wages spread over the next six years and wants the USMX port operators to cease the implementation of automation that comes in the form of robots and computerized loading, transfer and storage of cargo. Port operators seek to limit their vulnerabilities to labor troubles, union workers seek to save their livelihoods and the threat to disrupt international commerce this week is very real.

CNN reported that USMX has offered upward of 40% in wage increases over the six-year contract, a person with knowledge of negotiations said. The ILA is reportedly asking for raises of $5 an hour, per year, which would be an immediate 12.8% pay hike on the current top pay of $39 an hour. Repeating that $5 an hour increase each year would result in raises totaling 77% during the life of the contract. The ILA also wants to share in the profits shippers have reaped, with rates more than doubling in a year.

For all its potential to achieve great things, artificial intelligence, or AI, is, by estimates, going to eliminate large swaths of various workforces globally. According to a report by Goldman Sachs, AI could potentially replace the equivalent of 300 million full-time jobs while creating a boom in productivity for multiple industries — such as logistics and freight management at America’s busiest ports.

The application of Robot Process Automation (RPA), Machine Learning (ML) and Cognitive Automation are all part of Intelligent AI, or AI automation, none of which requires higher wages for overtime, paid time off, workers’ compensation, vacation time off, sick leave, family health insurance, disability insurance or pensions and matching 401K contributions. These technologies work together to enhance operational efficiency, reduce errors, work-related injuries and drive operational costs lower.

For the ILA union to demand the USMX port operators ban the implementation of advanced technologies is just not going to be a part of any final agreement as I see it. If it were just about wages, then sure, it stands to reason that a new contract could be hammered out, as was the case in the United Auto Workers (UAW) strike, the Hollywood strike, the Kaiser Permanente strike and the hotel worker’s strike. Although in the UAW and Hollywood strikes, job security at the expense of AI was part and parcel to negotiations.

Assuming the USMX does not budge on its intentions to implement technological advancements to operate the nation’s ports and the strike becomes prolonged, the economic impact could be significant. Supply chain disruptions will lead to delays, increased costs that will be passed on to consumers and could cost the economy $5 billion per day, according to a report by JPMorgan. The East and Gulf ports account for more than half of U.S. container imports.

“The supply chain will start to get shocked after a couple of weeks,” Adam Kamins, a senior director of economic research at Moody’s Analytics, told ABC News. “If it gets beyond that, we’ll start to see some much more significant implications.” President Joe Biden retains the power to prevent or halt a strike under the 1947 Taft-Hartley Act that puts into place an 80-day cooling off period. In a statement, a White House spokesperson said the Biden administration does not intend to intervene but is “monitoring and assessing” ways to address the potential impact of a strike for the nation’s supply chain.

Imports most affected include fresh fruits and vegetables. Bananas, of which 75% come through the East and Gulf ports cannot be rerouted. A significant share of the nation’s imported auto parts, clothing and apparel, consumer electronics, toys and holiday-related products could see material delays.

In 2002, a strike among workers at West Coast ports lasted 11-days before then-President George W. Bush invoked the Taft-Hartley Act and ended the standoff. However, the last time East and Gulf Coast workers went on strike, in 1977, the work stoppage lasted seven weeks. “Strikes are never easy,” Dennis A. Daggett, executive vice president of the International Longshoremen’s Association, stated this month. “But in today’s world, with labor laws stacked against us and corporate greed at an all-time high, it remains one of the most powerful tools we have in our fight for justice.”

While there is hope for government intervention to halt the strike, the USMX and the ILA haven’t met since June, and as of this past weekend, no talks were scheduled. The USMX filed an unfair labor practice complaint with the National Labor Relations Board last Thursday, seeking to get the union back to the table, but was unsuccessful.

From the pandemic days, it became crystal clear how the global supply chain is so intertwined, and given the market’s upbeat tone last week, investors don’t seem to think the ILA’s bark has much bite to it and that the government will ultimately intervene. However, if the Biden administration does not get involved right away, the stock and bond rallies could hit a speed bump heading into earnings season and make for what could be an attractive opportunity to buy the dip in the market’s leading stocks.