By Robert Bowman, May 27, 2014, Forbes
A coalition of 67 groups representing manufacturers, farmers, retailers and transportation providers urged the International Longshore and Warehouse Union and Pacific Maritime Association earlier this month to wrap up negotiations over a new West Coast longshore labor contract before the old pact expires at midnight on June 30. Chances are they were wasting their breath.
In fact, if history is any indication, the talks are likely to extend well beyond the nominal deadline. And, given the thorniness of the issues on the table, a work stoppage at all West Coast ports is not to be ruled out.
The prospect of yet another disruption of West Coast port activity has shippers scrambling for alternatives, including routing some cargoes through East, Gulf or Canadian ports. Nevertheless, huge numbers of containers would be affected in the event of a strike or lockout.
West Coast ports handle more than two-thirds of U.S. retail container cargoes, including the vast majority of goods imported from Asia, with total volumes of around 20 million 20-foot equivalent units (TEUs) a year. Activity this summer is expected to be especially strong, as retailers approach the peak period for bringing in products for the fall and Christmas shopping seasons.
The last disruption was triggered by a management lockout in the fall of 2002, resulting in a 10-day shutdown that ended when then-President Bush invoked the emergency provisions of the Taft-Hartley Act. The resulting backlog of containers took weeks for carriers to work off. Estimates at the time put the cost of the action to the U.S. economy at more than $10 billion.
The cost of another potential closure is already being felt, with carriers announcing a precautionary congestion surcharge of $800 per 20-foot container and $1,000 per 40-footer, in the event of a “strike, lockout, work stoppage, work slowdown or other labor-related disruption.”
It’s uncertain whether President Obama would follow the action of his predecessor in using Taft-Hartley to force an end to any work stoppage. Still, due to the high cost of any disruption, “government monitoring of the situation is expected and possible intervention could be likely (similar to the federal mediation that occurred in the [International Longshoremen’s Association] contract dispute in 2012),” according to a statement by the North American Shippers Association.
“We hope there won’t be any issues, but the sooner labor and management can agree on a new contract, the better it will be for everyone who relies on the West Coast ports,” said Jonathan Gold, vice president for supply chain and customs policy with the National Retail Federation. Other groups appealing to the negotiators included the U.S. Chamber of Commerce, National Association of Manufacturers, North American Shippers Association and American Trucking Associations.
The major issues on the table, according to the ILWU, are healthcare and retirement benefits, “fair” raises, improved safety practices and “respect for ILWU jurisdiction.”
James McKenna, PMA president and chief executive officer, said it was vital for West Coast marine terminals to control costs. “We are in a new competitive environment today, with shippers having more options. Ports in the Eastern U.S. are aggressively expanding, making significant improvements,” he said in March at the Journal of Commerce’s Transpacific Maritime Conference in Long Beach, Calif.
Despite the rhetoric from both sides, that sense of urgency isn’t necessarily being reflected in action. While negotiations got underway in May, they won’t be conducted “in earnest” until June, according to Peter Friedmann, executive director of the Agriculture Transportation Coalition (AgTC). What’s more, he said, the current contract guarantees longshore workers a payment of $70,000 a year when not working due to a strike or lockout. That’s hardly an incentive to avoid a work stoppage.
The issues are complex and sure to be contentious. The Affordable Care Act could be a major sticking point. Under Obamacare, ILWU members face a surcharge on their “Cadillac” health plans amounting to more than $100 million a year.
In addition, automation at waterfront terminals continues to be a concern for the union, which has given way to multiple waves of labor-saving technology since the dawn of containerization in the early 1960s. In previous contracts, the ILWU agreed not to oppose the implementation of automation, but it could attempt to draw the line this time — especially with the coming of new, state-of-the-art terminals at the ports of Los Angeles and Long Beach.
Perhaps the most difficult issue to address is that of jurisdiction. In recent years, the ILWU has faced a growing threat from rival unions seeking representation on or near the waterfront. They include the International Association of Machinists and Aerospace Workers and International Brotherhood of Electrical Workers. The dispute has led to shutdowns of terminals in Portland, Ore., Vancouver, Wash. and Southern California. Last fall, ILWU ended its 25-year affiliation with the AFL-CIO, of which both the IAM and IBEW are members.
Employers represented by PMA find themselves in the middle of those battles, and are under pressure from ILWU to include language in the West Coast longshore contract that shuts out other unions. Meanwhile, the jurisdictional disputes are having a serious impact on productivity, and nearly led to the departure of Hanjin Shipping Co. from the Port of Portland earlier this year.
“Both sides say they expect cargo to keep moving until an agreement is reached,” PMA and ILWU said in a joint statement when the talks kicked off on May 12. But don’t count on a smooth negotiation, let alone an early conclusion to the talks.
“We expect that a new contract will not be signed before the current contract expires at the end of June, 2014,” Friedmann told AgTC members. “There will likely be an extension, but it is possible the terminals and ILWU will continue work without a contract into July.”