WSJ What’s News - Workers Agree to End Massive U.S. Port Strike

Episode Date: October 4, 2024

A.M. Edition for Oct. 4. Dockworkers agree to return to work after port operators offer a 62% wage increase over six years, ending a shutdown that threatened to disrupt the economy. But there’s still a lot to be hashed out between the union and employers, the WSJ’s Paul Berger says. Plus, Spirit Airlines explores a bankruptcy filing. And, the WSJ’s Rebecca Feng explains why China’s ghost cities are haunting policymakers. Azhar Sukri hosts. Sign up for the WSJ’s free What’s News newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Markets always present challenges. Good advice and active management turn challenges into opportunities. Because passive investing simply isn't an option. Dynamic funds. Invest with advice. Visit dynamic.ca slash advice to learn more. US dock workers head back to work after reaching a deal with employers. And Israel bombs Beirut as it goes after Hezbollah's likely next leader. Plus, we'll look at the ghost cities haunting China's economy, and why rebalancing the

property market is so tricky. We came to the estimates of more than 90 million empty housing units and this problem right now is colliding with another massive problem which is China's population is expected to fall by 204 million over the next 30 years. It's Friday October 4th. I'm Azhar Sukri for the Wall Street Journal filling in for Luke Vargas. Here is the 8am edition of What's News, the top headlines and business stories moving your world today. US dockworkers have agreed to return to work, ending a three-day strike that had closed

container ports from Maine to Texas and threatened to rattle the American economy. According to people familiar with the matter, a breakthrough was reached yesterday after port employers offered workers a 62% increase in wages over six years. They sweetened their offer from a 50% proposed raise after the White House pressed the large shipping lines and cargo terminal operators, who employ the longshore workers, to make a new offer. The union had been calling for a 77% increase over the six-year period. President Biden welcomed the agreement, saying, quote, collective bargaining works, and it is critical to building a stronger economy

from the middle out and the bottom up. Journal reporter Paul Berger says that although a deal was reached sooner than expected, there's still a lot more work to do. This is only a tentative deal. The wage offer of almost 62% was basically to get the union to the negotiating table. The two sides have agreed to extend the contract that expired at the beginning of this week for the next 90 days. And so over the next three months, the two sides have to sit down and negotiate over some very thorny issues, including the use of automation on the docks, which was another big sticking point for the union. So we're not out of the woods yet, but we are at least in the clear in as much as the ports are finally going to get moving again."

Global shipping stocks, including China's Costco shipping, Nippon Yusen and Mezc fell sharply on the news of the suspended strike, which dashed hopes of higher freight rates as a result of limited supply. Looking towards the Middle East now, and Israel has carried out heavy air strikes on Beirut's southern suburbs, targeting Hezbollah's likely new leader. The attempt on Hashem Safedin, a cousin of slain Hezbollah leader Hassan Nasrallah, is the latest in a series of aggressive strikes as Israel continues to try and dismantle the militant group's leadership structure.

It wasn't immediately clear whether Safedin was killed in today's attack. Swathes of the Lebanese capital were shaken by the blasts, and several buildings were levelled by the explosions. The Israeli military had warned residents overnight to evacuate specific buildings. It wasn't clear which of the attacks were aimed at Hezbollah leadership. We are exclusively reporting that Spirit Airlines has been in discussions with bondholders over the terms of a potential bankruptcy filing. The talks come in the wake of Spirit's failed

merger with JetBlue Airways. The budget carrier has also been exploring restructuring its balance sheet through an out-of-court transaction. However, recent talks have been more focused on reaching an agreement with bondholders and other creditors to support a Chapter 11 filing. The timing of a possible filing wouldn't be imminent. Spirit has been struggling with losses and declining revenue, and as more than a billion dollars worth of its debt comes due in less than a year, Spirit shares slumped more than 30% in off-hours trading after we reported on the talks. Well another company fighting for survival is Northvolt.

Once Europe's great hope for battery independence, it's now cutting thousands of jobs and curtailing expansion plans, while at least one investor is questioning its relationship with the Swedish company. Journal sustainability reporter Yusuf Khan says Northvolt is facing troubles both at the company and macro level. On one hand with Northvolt specifically, they've raised a lot of money, a lot of cash, a lot of it through debt. But one thing they're really facing at the moment is technical difficulties. BMW, you know, cancelled a $2 billion order and that was largely because the batteries weren't up to scratch. And then the other side, you've got really overwhelming manufacturing

capacity in China that's grown in the last few years. And so what you've got is a lot of cheaper batteries coming from China, which is pushing prices down and therefore making European companies like Northvolt a lot more uncompetitive, especially if your technology is not fully up to scratch. And in other news, moving markets today, oil continues to tick higher, with Brent crude futures up a little under 1% this morning. Prices surged yesterday after President Biden suggested that US officials are considering whether to support an Israeli strike on Iranian oil facilities. And top of mind for investors today is the Labour Department's jobs report. Economists polled by the journal expected to show that 150,000

new jobs were created last month, up from 142,000 in August. The unemployment rate is expected to stay unchanged at 4.2%. The report lands at 8.30am eastern. Coming up, China's historic housing glut collides with its shrinking population, leaving cities with millions of homes they may never be able to fill and a drag on the economy. That story after the break. While the US housing market continues to be defined by a shortage in available homes that's kept prices high, China is facing the complete opposite problem. A real estate bust in China has led to a slump in property values, and it's left behind so many empty homes that

there is, by some estimates, enough available space to house the entire population of Brazil. Journal reporter Rebecca Feng told our Kate Bulevant that many cities stuck with empty homes faced the reality of not being able to fill them at all. This is a problem, I'd say, more than a decade in the making. So I say starting from roughly early 2010s or so, developers were building a lot of homes and partially that was because the property market in China is significant in many ways but one of the key ways is that there aren't that many other ways that Chinese households invest their money. So according to city research, approximately 74% of Chinese households in first and second tier cities, meaning like larger, richer cities, owned more than one home across China.

And that's how sort of over the years, real estate has become a bit of a speculative asset. And it's actually incredibly difficult to come to a number of exactly how many units were left empty. But we polled economists and basically we came to the estimates of more than 90 million empty housing units. And this problem right now is sort of colliding with another massive problem. According to United Nations, China's population is expected to fall by 204 million over the next 30 years. So the Chinese government has signalled that it understands the property market needs redressing. We saw it last week roll out a raft of measures including cutting rates and allowing buyers to refinance their mortgages. Now markets seem to have received this very positively

but tell us what are the economists saying on this? These measures are definitely welcomed by economists, but most of them said that more is needed basically to get the property market out of the rut. A Morgan Stanley economist did estimate that to solve this problem, China's government would need to basically introduce a more comprehensive bill out that involves buying up access inventory in the country's 30 to 50 largest cities and then basically turn them into public housing. And he said that he would expect that to cost roughly

420 billion US dollars. And in some cases, you've reported that there are some economists who say that no amount of money will help. some cases you've reported that there are some economists who say that no amount of money will help. Yes, and that's sort of the sad reality that we do hear from some economists. I think it's important to know that China's property market is unbalanced in the way that large cities like Beijing or Shanghai, they have massive population inflow. Young people want to move to big cities and they're oversupplied there too, but these

can be quite easily absorbed. But the problem is much, much more difficult to address in smaller cities where young residents are leaving because there's lack of opportunities or job prospects. And we did this calculation that shows that at least 60% of the Chinese smaller cities saw their population shrink between 2020 and 2023. And according to a Harvard professor Kenneth Rogoff, it is actually in these cities that more than 60% of China's housing inventory lies. And what economists mean by no amount would help is that it kind of wouldn't make economic

sense to put money into these smaller cities because there aren't enough people to live in them anyway. So these are sort of where you see really deserted places. There's this compound called State Gas Mansion in Shenyang city, northeast China. And one of the reporters went there earlier this year and he saw goats roaming around the compound. So it's grim. So what does it mean for the people who have put their savings into these properties? They're basically seeing their wealth quite rapidly declining. Right now, according to banks research, including Goldman, the price levels are sort of at 2017,

2018 levels. And a lot of economists, they are concerned that if home prices decline further to 2015-2016, that would kind of spur more owners to sell their homes because 2015-2016 were roughly the start of the last property cycle. So if more owners sell their homes, that would just depress the values for everyone. And that kind of is a problem going forward. And if you see vast majority of your wealth declining, it's unlikely that you will go out and spend, which is something that the Chinese economy right now desperately needs.

That was Journal reporter Rebecca Fung. Rebecca, thanks so much for your time. Thank you. And that's it for What's News for Friday morning. Today's show was produced by Kate Bullivant with supervising producer Christina Rorke. I'm Azhar Sukri for The Wall Street Journal, filling in for Luke Vargas. We'll be back tonight with a new show. Until then, have a great weekend and thanks for listening.