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

MW 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 $3 billion to $4 billion-per-day threat to the U.S. economy, Jefferies says

An impending strike at U.S. East Coast and Gulf ports could impact 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 $3-4B/day threat to the US economy," Jefferies wrote in a note Friday. "Alternative port congestion/surging freight rates could quickly follow."

Set against this backdrop, ZIM Intregrated 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" to a tighter market, Jefferies added.

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, MAERSK-DC and HLAG-GR) 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 3.7% in premarket trades Monday, as are a number of other shipping stocks. Star Bulk Carriers Corp. (SBLK) shares were up 1% and Golden Ocean Group Ltd. $(GOGL)$ shares were up 2.9%.

The current contract between the International Longshoremen's Association and the United States Maritime Alliance expires Monday, increasing the likelihood of a ports 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 the strike could reduce U.S. GDP by $4.5 billion to $7.5 billion for every week 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 US 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 US remains healthy, thanks to solid growth in real consumer spending, especially as we approach the holiday shopping season."

-James Rogers

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September 30, 2024 08:37 ET (12:37 GMT)

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