A trifecta of global crises could snarl supply chains and increase prices

A sudden flurry of global developments has the US economy staring down a troubling trifecta of major crises.

Devastation from Hurricane Helene, a dockworkers’ strike, and escalating conflict in the Middle East all threaten to scramble supply chains and inflate prices. The confluence of events comes just as the US economy is recovering from a years-long bout of elevated inflation. Coupled with a cooling but still-strong labor market, it looked possible the US would avoid a recession. These events could threaten that.

While the effects of Iran’s missile attack on Israel on Tuesday are more speculative, the other two crises happening on American soil could have more predictable impacts. Experts point to direct impacts on the prices of goods like oil, food, and industrial equipment as well as infrastructure damage that would create knock-on effects across industries.

For now, it’s a waiting game. Many of the effects depend on how long the strike and cleanup last and how quickly the parties responsible for resolving them can act.

1.Escalation in the Middle East

On Tuesday, the risk of a full-blown war between Iran and Israel escalated when Iran launched a massive ballistic missile attack on its adversary.

It came less than a day after Israel ramped up its attacks on Hezbollah with an invasion of southern Lebanon. The heightening conflict also threatens to further entangle the US, which announced it’s sending additional fighter jets and thousands of troops to the Middle East to defend Israel and reinforce US troops already in the region.

Since Iran’s offensive, the price of oil has surged up, raising concerns that a broader conflict could push oil and gas prices higher. West Texas Intermediate crude oil, the US benchmark grade, was trading around $68.25 a barrel before Tuesday’s attacks, and had shot up to around $73.60 on Thursday afternoon — a nearly 8% increase over those two days.

When petroleum prices rise, that also impacts the cost of plastics, which could raise prices on a range of goods. Some experts warn that Israel could target Iranian oil production facilities in potential retaliatory attacks, which could risk further oil price increases.

“History would say that when there is conflict in the region, the prices of petroleum remain elevated and could continue to rise,” Douglas Kent, an executive vice president at the Association for Supply Chain Management, told B-17.

2.Dockworkers on strike

Also on Tuesday, dockworkers at all the eastern US ports from Maine to Texas went on strike, threatening a slew of adverse economic impacts, including increased prices on key goods ahead of the holiday shopping season.

About 30% of goods imported to and exported from the US pass through the East Coast and Gulf ports, according to a Morgan Stanley analysis, along with about half of all US ocean imports. The strike could cause shortages of goods and push consumer prices up, but how much depends entirely on how long the work stoppage lasts, experts say.

A few days of snarled supply chains likely wouldn’t be a major hit to the economy, while a week or longer could have major impacts. Every day, the work stoppage is costing the economy up to $4.5 billion, according to JPMorgan analysts. If the strike goes for at least two weeks, it may increase inflation. If it lasts a month, it could cause a recession.

And the strike will also have knock-on impacts. For every day the ports are closed, it will take an estimated five days for supply chains to get back to normal, Kent said.

“We are in a bit of a wait-and-see mode about what the impacts are going to be,” Sameera Fazili, former deputy director of the National Economic Council under Biden, told B-17. “If the strike goes on for one day or three days, it could take two weeks for some companies to recover, some industries to recover, it could take months for others to fully recover.”

Some of the imported consumer goods most vulnerable to the port closures include perishable foods like fresh fruits and vegetables, wine, beer, liquor, toys, tires, furniture, and raw commodities like salt, sugar, and gypsum. Kent noted that automotive, pharmaceutical, and industrial equipment supply chains are also vulnerable. US meat, dairy, and poultry exports could also be disrupted, as well as coal and heavy agricultural equipment.

How much the strike impacts prices depends on how much of a cushion companies have built to deal with any bottlenecks. With the memory of pandemic supply chain crises still fresh, many businesses have become better prepared for disruptions by importing goods ahead of schedule in anticipation of the strike or diverting shipments to West Coast ports.

“The 2020 disruption presented unforeseen challenges but encouraged many firms to diversify their supply chain and seek backup sourcing: preparation that will likely soften the blow of the dockworker strike,” Lauren Saidel-Baker, an economist at ITR Economics, said in a statement.

But mitigation efforts, including redirecting shipments, cost money and push prices up. Bottlenecks also encourage carriers to raise their prices, increasing retail and consumer goods prices, Kent said.

Fazili said she’s confident the dockworkers’ union — the International Longshoremen’s Association — and the organization representing their employers — the United States Maritime Alliance — can come to a deal to raise wages and improve benefits for workers. With the election looming, Biden administration officials are particularly incentivized to grease the wheels of their negotiations.

3.Natural disaster strikes the South

All of this comes as Southern states are scrambling to handle the fallout from a superstorm with billions of dollars in damage. Dozens of people have been killed in the flooding, landslides, and high winds wrought by Hurricane Helene, which washed out an untold number of roads, destroyed homes, and devastated entire towns. Rescue and recovery efforts are still underway, with hundreds of people still missing, particularly in North Carolina.

The storm will likely have far-reaching economic impacts, including the immediate costs of providing emergency services for thousands of residents left homeless or without power or water, and the longer-term costs of rebuilding roads, bridges, and other infrastructure. Helene has likely caused between $15 billion and $26 billion in damage to property on top of about $5 billion to $8 billion in lost economic output, according to Moody’s Analytics.

In the immediate wake of the storm, a slew of residents across the affected states have reported price gouging by hotels, gas stations, and grocery stores. The hurricane has also disrupted some supply chains, including healthcare supplies and high-purity quartz needed for semiconductor manufacturing.

“The combination of these events just reemphasizes how important it is for the private sector and companies, which are the ones that control supply chains, to move away from just-in-time and from efficiency only and to recognize that disruptions are on the rise and they ought to be better prepared for that,” Fazili said.

But the superstorm also threatens much longer-term economic damage, hitting the property insurance industry and the federal flood insurance program. Homeowners in affected areas will likely deal with rising property insurance costs or even lose coverage altogether, experts say.

“In the short run, the most costly element of the disaster is the damage to homes, property and infrastructure,” Adam Kamins, a senior director at Moody’s Analytics, told B-17. “Longer term, the disaster itself is unlikely to drive people out of the hardest-hit areas, but insurance premiums could rise, denting affordability. This would be especially difficult for Florida, where many private insurers have already left the state.”