West Coast work stoppage poses long-term threat to US agriculture exports, group warns

Bill Mongelluzzo, June 12, 2014, Journal of Commerce

A port shutdown due to an impasse in ILWU contract negotiations would be disastrous for agricultural exporters in the short term, but the loss of business resulting from a failure to address persistent productivity issues would be even more damaging to West Coast ports and dockworkers in the long term, the Agriculture Transportation Coalition said today.

 

In an open letter to Robert McEllrath, president of the International Longshore and Warehouse Union, and James McKenna, president of the Pacific Maritime Association, AgTC said macro-economic and logistics trends now underway will force a diversion of agriculture products to other gateways if productivity issues at West Coast ports are not addressed.

 

“While not all of these factors are immediately impacting West Coast cargo volume, all of them loom as threats to permanently divert cargo from West Coast terminals. That would not be in the interests of either imports or exports. If unchecked, they will limit agriculture export access to global markets, and cargo volume for your terminals and jobs,” AgTC stated in a warning to both the union and the employers’ association.

 

⇨ Complete coverage of the ILWU negotiations

 

The ILWU-PMA contract negotiations began on May 12. The current contract will expire at midnight on June 30. Both parties have kept a tight lid on the negotiations taking place in San Francisco, which is their standard operating procedure.

 

While no red flags have emerged from the negotiations, agricultural exporters live in fear of a work stoppage such as occurred from a 10-day employer lockout during the 2002 contract negotiations.

 

Peter Friedmann, AgTC executive director, said even a temporary port shutdown can result in a long-term loss of business for U.S. agriculture. He recounted how Japanese confectioners during the 2002 port shutdown turned to Turkey for their almonds, and some of that business remains lost to California almond growers to this day.

 

While the PMA and ILWU can avoid a repeat of 2002 by negotiating a contract without a work stoppage, the agreement should also recognize the economic, logistics and port productivity trends already underway that threaten the growth of West Coast ports, Friedmann said. Those trends include:

 

Manufacturing of consumer goods is gradually migrating from China and North Asia to lower-cost production countries in Southeast Asia and the Indian subcontinent. That trend favors all-water services to East Coast ports via the Suez Canal.

Two-thirds of U.S. consumers, and six of the seven fastest-growing states, are in the eastern third of the nation. Importers are building large distribution warehouses and shipping more consumer merchandise directly to East Coast ports.

Imports generate empty containers when the imported merchandise is unloaded. This provides an abundant supply of equipment to handle exports moving via East Coast ports.

Some of those ports have productivity rates of 40 or more container lifts per crane, per hour, which is “significantly faster than the average at U.S. West Coast ports,” Friedmann said.

West Coast gateways will lose the advantage they have of deep harbors capable of accommodating mega-ships with capacities of 8,000 20-foot container units and greater as East Coast ports deepen their harbors.

The Canadian Pacific Coast ports of Prince Rupert and Vancouver, with direct intermodal rail connections to the Midwest, are already moving significant container volumes that otherwise would have gone through U.S. West Coast ports.

Economists predict that when the Panama Canal enlargement project is completed in 2016, the larger canal will provide a cost-competitive alternative to West Coast ports for agricultural exports to China.

Rapid growth in the shipment of oil and petroleum products in the upper Midwest has reduced the rail capacity available for intermodal shipments of agricultural products to West Coast ports.

West Coast ports are the preferred gateways for agricultural exports to Asia because the direct route from the U.S. interior through West Coast ports is cost-competitive. However, agriculture exports to Asia can easily be replaced by the same products from other growing countries if transportation costs in the U.S. are too high, Friedmann said.

 

“Forest products and agriculture have extremely low margins. A few pennies per unit determine if the potatoes, lentils, soybeans, etc., are going to be sourced from this country, or another,” he said.

 

Agricultural products, especially fresh produce, are very sensitive to transit times, with even a day or two delay in transit causing degradation of quality and possible loss of sales. Cargo-handling efficiency, enhanced by the reliability of ports that are free from work stoppages and slowdowns, are necessary to maintain the status of West Coast ports as the preferred gateway for agriculture exports to Asia, AgTC stated.

 

AgTC therefore urged the ILWU and PMA to “work towards assuring long-term cost and operational competitiveness of U.S. West Coast ports.”

 

Friedmann also invited the ILWU and PMA to join AgTC in a “serious dialogue to understand why agriculture and forest products are, like you, captive to our geographic location, and what it will take to keep our cargo flowing across West Coast docks.”

 

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