Globalist Analysis

A Striking Cost

What would be the global economic fallout of a strike by U.S. longshoremen?

What economic fallout would a longshoremen strike have?

Takeaways


The Bush Administration finally took action to end the strike in the Port of Los Angeles. It imposed an 80-day "cooling off" period on the 10,000 people that work the docks on the West Coast and their employers.

Those employees, ironically, want higher pay in a fairly unsophisticated industry — loading and unloading ships — where the average pay per "worker" approaches twice the level of the average U.S. household of four.

Meanwhile, Asian electronics manufacturers breathed a collective sigh of relief as the flow of goods to their U.S. customers resumed.

Of course, much has been written about how the just-in-time inventory systems of computer manufacturers make even a short strike potentially devastating to industry. But there is more to it than that.

For tech companies, managing the strike was not a matter of simply loading up containers and putting the containers on ships — then letting those ships sit at anchor, while the crews enjoyed the salt sea breezes around Catalina Island off the coast of California. Besides the brief delay in supply, there will be a more complex side effect of the strike.

As things stand, today, many computer manufacturers have eliminated a step in production — namely that of cleaning the PC boards (the key components on which chips and other electronics are combined) after assembly to remove acid residue.

After all, the boards come from very clean factories. Under normal use, skipping the extra cleaning step would not be noticed because the average failure period of a PC board is longer than the board's typical obsolescence period.

However, salt air exposure for longer than the normal transit period accelerates the failure process for these components. That will leave the United States with a "cohort" of PC's manufactured using potentially unreliable components.

Other electronic equipment, especially cell phones and "white box" (unbranded) PCs that have been sitting at sea for a week or more, may have expensive warranty issues in coming months.

As a result, the strike's major fallout will occur over the next few years — as owners of all types of electronics and computers wonder why reliability is even worse than usual.

Of course, there is more to it than that. The strike did more than interrupt the supply chain — and make computers less reliable. It also made shipping more uncertain.

One wonders if the real beneficiaries of the strike will not be the longshoremen — but air freight companies that can avoid the ports entirely. But air freight is prohibitively expensive — so Asian producers will understandably become a bit more reluctant to build and ship vulnerable product by sea when another West Coast strike looms.

About Christopher Whalen

Christopher Whalen is the executive vice president and managing director for Carrington Holding Company, LLC.

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