Bank failures, record oil prices, potential automotive bankruptcies…what next? How about a major port strike in the West Coast of the United States? Believe it or not, a strike could happen at any minute now. The dockworkers who manage the California, Oregon and Washington state ports have been operating without a contract for two weeks as of today. A series of six months of negotiations between management and unions to resolve terms about working conditions, benefits and compensation failed to culminate on July 1st when the contract expired. Since then dockworkers have been continuing to perform their daily responsibilities with a few exceptions. In the past few days, workers have begun to take coordinated breaks designed to disrupt productivity. The result has been a 10-15% productivity decrease in port operations, but this is just the beginning…
What are the impacts?
Imagine if the negotiations reach a stalemate resulting in a temporary work stoppage! What would be the impacts of a port strike to US retailers such as Wal-Mart, Home Depot, Target, Lowes, Best Buy and JC Penney who are critically dependent upon Asian imports to fill their shelves?
West Coast ports are the critical entry point for inbound ocean containers arriving from China, India, Malaysia, Vietnam and other Asian exporters. Together the 29 ports in the states of California, Oregon and Washington represent $1.3 Trillion in annual domestic business impacts. $1.3 Trillion is roughly equivalent to the Gross Domestic Product of the entire country of Canada or Mexico.
Dockworkers failed to reach a consensus with management during the last round of contract negotiations in 2002. As a result there was a 10-day shutdown of critical West Coast ports that cost the US economy over $1 Billion per day. Since 2002, port volume has increased by over 45%, raising the stakes of a potential shutdown even higher.
Who are the players?
- Pacific Maritime Association – effectively acts as the management entity for the 71 different companies who operate the ports. Owners include cargo carriers, terminal operators and stevedores. What is a stevedore? A stevedore is a company who manages the process of loading and unloading container ships. Stevedores typically own the equipment used to manage the freight and manage the longshoreman who facilitate the process.
- International Longshoreman and Warehouse Union (ILWU) – is an AFL-CIO organization that is one of two major labor unions in the US for dockworkers. The other is International Longshoreman’s Association which represents the East Coast, Gulf States and Great Lakes ports. The ILWU represents over 40,000 members in over 60 unions from Oregon, Washington, California, Alaska and Hawaii.
What are the issues?
- Compensation and Benefits – Health care benefits and salaries are listed amongst the key issues by the union. However, statistics provided by Pacific Maritime about dock worker compensation might lead one to side with management. The average full time employee earns $136,000. Union members with the title of “Clerk” receive $145,000 and Foreman gross over $200,000. Members enjoy a benefits package that costs over $50,000 per employee including full health insurance with no deductibles.
- Safety – Compensation and benefits are better understood if you consider the dangerous environment that dock workers operate in. Over 17 employees have died in the past six years since the contract was renewed. Many workers claim that pressure from port operators to improve productivity leads longshoreman to take shortcuts that compromise safety.
- Environment – The port facilities are filled with transportation and loading equipment that collectively generates a significant amount of pollution. A longshoreman’s work is performed amongst trucks, ships, locomotives, tug boats, tankers, barges, yard hostlers, cranes and forklifts. Pollution not only affects the dock workers during business hours, but it affects friends and family throughout the West Coast region who are subjected to smog and poor air quality.
What can importers do to avoid being impacted by a potential strike? One strategy is called “port diversification”, which I introduced in a post earlier this year. Instead of all Asian routing shipments through the US West Coast Ports of Long Beach and Los Angeles, retailers are being to explore alternative options such as:
- Routing of shipments from India through the Suez Canal and into US East Coast hubs such as Baltimore, Savannah or Charleston.
- Routing of shipments south of the US to Mexico. Intermodal links enable transfers of containers to rail cars for travel to the Midwestern US states of Texas, Oklahoma and Kansas.
But even with re-routing, a port strike would have a massive impact on the US economy adding further turmoil to an already financially disastrous year…
