Over the last 5 months, many of the US retailers have been concerned about the labor situation for US ports. Contentious labor negotiations, temporary contract extensions and even mediation by the Federal government have put a lot of uncertainty on strike disruptions at the major US ports.
It appears that retailers can breathe a little easier as labor and management have come to agreement:
In February, The U.S. Maritime Alliance (USMX) and the AFL-CIO-affiliated International Longshoremen’s Association (ILA) reached an agreement after contentious negotiations that had to be extended several times. And three weeks ago the 15,000 union memberships finally ratified the agreement which covers 14 ports from Maine to Texas that handle 40 percent of the nation’s ocean cargo.
Normally one would not see this much labour strife when an industry is down; unions typically wait until a company is on an economic upturn before threatening to strike. The shipping industry is suffering as a whole. It would seem to be bad timing on the union’s part to try to push back now; however this situation may have been different.
- All shipping companies are losing money, cost pressures are evident throughout the industry and ports are under pressure to reduce costs. These cost reduction pressures are causing management to push for higher productivity while pushing for concessions. Some of this issue can be attributed to management being more aggressive for cost reductions.
- Labor Unions may feel that they have more leverage because there are relatively few options for shippers. Shutting down a string of ports can affect the entire economy, so the impact of a strike has a much larger impact on the region and even the country. In a typical business, when labor strikes, the business could face market share loss. In that scenario both labor and management lose. In the case of ports, there are fewer options, and it is less likely that a port would lose market share if all adjacent ports were also on strike.
The economic situation for the shipping industry over the next few years should be extremely dynamic. There is more capacity than needed, and the reaction of the shipping industry is to bring in much larger cargo ships to reduce cost, but ironically also add to the over-capacity situation. This situation should continue to put downward pressure on prices. With the pending re-vamping of the Panama Canal, larger ships will have more options for ports thereby increasing the competition.
From an economic standpoint there are two common scenarios when over capacity exists. An increase in shipping demand fills the excess capacity, or several shipping lines go bankrupt, thereby reducing the available capacity. We expect to see more volatility in the shipping industry, but it appears that disruption from labor strikes is not likely in the next few years.