West Coast labor negotiations are making shippers nervous

West Coast labor negotiations are making shippers nervous

westcoastportThe Pacific Maritime Association, which represents the West Coast port employers and the International Long shore and Warehouse Union (ILWU) have been in contract negotiations for over 2 months.   These two groups together involve over 29 West Coast ports.   While there has been no indication that contract talks are breaking down, many shippers are getting nervous.    Last year there was a similar issue on the east Coast that got settled in April 2013.  Read More

Economists estimate that a work stoppage could have a 1 Billion dollar per day impact on the US economy.  Both the ports and the labor union have a lot at stake.

From the ports perspective:

  • Cost has been an issue for quite some time and many ports are losing money.   The US port workers are among the highest paid workers in the US and have some of the best benefits.   US West ports is said to be only 20% as efficient as some of the foreign ports.
  • The Panama Canal expansion will bring more Southern and Eastern ports into play, resulting in even more cost pressure.  Many of the ports in the Southeast are not unionized.
  • Under Obamacare, the existing health care plan would be labeled a “Cadillac” plan and the employers would see a significant cost increase.

Form the Unions perspective:

  • The union has a long term interest in protecting jobs and sees many ports starting to invest heavily in technology to make the ports more efficient.  The ILWU will be trying to negotiate agreements to mitigate potential workforce reductions.
  • The employers will be pushing hard to put some of the health care increases on the workers, or to reduce the benefits of the plan.   Unions typically fight the hardest when existing members see a reduction in compensation or benefits.

Timing is everything:

  • From the union’s perspective, this may be a window of opportunity.   Goods for the holiday season are soon to be coming to port.   A strike closer to Christmas could have a devastating effect on retailers and thus give the union more leverage.
  • The 2014 elections in November also come into play.  The current administration may be more hesitant to get involved with many Democrats up for election and badly needing union support.   When the longshoreman tried to strike in 2002, President Bush invoked the rarely used Taft-Hartley act, which prevented a long term shutdown.  It would be interesting to see if President Obama would be willing to take that same step under the circumstances.
  • The Panama Canal expansion is set to be finished in 2015.   The completion is believed to be a supply chain game changer (more info).  While it is unknown how much West Coast traffic could be affected, both the ports and the union would be ill advised to “test these waters” with a strike once the canal expansion is completed.  The union may see this year as a much better time to negotiate.

Alternatives:  Many shippers are currently exploring alternatives; unfortunately there may not be very many good ones.

  • Vancouver Canada is one option, but there is already a push back with DP World Vancouver announcing that it will stop accepting U.S.-bound containers intended for direct transfer to rail, citing a lack of railcars to handle the surge of cargo headed across the border (Source)
  • More traffic could be diverted through the existing Panama Canal, but there may not be enough rail way infrastructures in place today to effectively handle all the diverted traffic to Southern ports.
  • Mexico has one sizable port that could handle some traffic increase, but rail road infrastructure is greatly limited.
  • Air Cargo is an extremely expensive option as costs are nearly 16 times higher than sea transport. (more info)   Air cargo would be an option for a very small percentage of traffic.

The bottom line is that there are not enough workarounds to handle work stoppages in the US ports.  The US could end up seeing much higher shipping costs with significant delays if a strike of any duration were to transpire.

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