Could the Port Strike Kill a Santa Claus Rally?

by Dan Burrows | November 30, 2012 2:30 pm

A last-minute rush of holiday-shopping cargo makes it a great time for a strike on the docks — and a terrible time for shippers and retailers who have to deal with the ensuing logistics nightmare.

It also could put the kibosh on any potential Santa Claus rally.

A walkout by clerical workers and longshoreman this week at the ports of Long Beach and Los Angeles has closed down many of terminals responsible for handling almost two-thirds of all U.S. container shipments.

Although the vast bulk of holiday goods shipped well ahead of the shopping season, the strike has created a huge glut of wares — including everything from electronics to toys to clothes to furniture to food — waiting to be offloaded from ships on the West Coast.

A 10-day lockout at West Coast ports in 2002 cost the economy $1 billion a day, according to the National Retail Federation, and effects were felt throughout supply chains for months.

Additionally, if the strike persists, the ships waiting at Long Beach and L.A. will have to be diverted to Oakland or Seattle, Bloomberg reports[1], causing delays farther north as railroads, trucks and warehouses struggle to deal with the surge in volume.

It shouldn’t mean shortages on the shelves for holiday shoppers, but restocking those shelves after the season ends could become more troublesome and costly.

More worrisome, it’s a potential headache for Burlington Northern Santa Fe, owned by Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A[2], BRK.B[3]), and Union Pacific (NYSE:UNP[4]) — the two biggest railroads serving ports on the West Coast.

Thankfully, shares in Union Pacific have mostly shrugged off the strike so far. The stock slipped fractionally Friday, but it’s still up about 0.7% since workers walked off the job four days ago.

Let’s hope it holds up, since the market will need the railroads (and all transportation stocks) to pull their weight if we’re to enjoy a Santa Claus rally this holiday season.

The Dow Transportation Average, which is critical to chartists who ascribe to Dow Theory, underperformed all summer long and only started to outperform the broader market late last month.

That’s important, because technical analysis aside, components of the Dow Transports — such as CSX (NYSE:CSX[5]), FedEx (NYSE:FDX[6]), JB Hunt (NASDAQ:JBHT[7]) and Southwest Airlines (NYSE:LUV[8]) — say a great deal about what’s happening in the real economy.

If the Dow Transports can keep gaining, then we could get our Santa Claus rally[9], writes Sam Collins, InvestorPlace’s chief technical analyst. At this point, however, he thinks it’s still just a dream.

And if the West Coast port strike pummels shares in the transports sector, well, it will be an elusive dream at best — and a nightmare at worst.

As of this writing, Dan Burrows did not hold positions in any of the aforementioned securities.

Source URL: https://investorplace.com/2012/11/could-the-port-strike-kill-a-santa-claus-rally/

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