LOS ANGELES — A surge of cargo is hitting West Coast ports as importers race to get their goods ashore before a key labor contract expires this evening.
This story first appeared in the July 1, 2014 issue of WWD. Subscribe Today.
The International Longshore and Warehouse Union and the Pacific Maritime Association are expected to continue negotiating a new contract today — and while the outlook is generally positive, importers are taking the better-safe-than-sorry route. A strike, were it to come, could take a toll of as much as $2.5 billion a day.
There have been slowdowns and delays at some ports as importers rush to move cargo. At the port in Long Beach, Calif., the second busiest in the U.S., an increase in cargo, along with a shortage in chassis to transport shipping containers and a number of temporary workers covering for ILWU employees who are on vacation, has led to delays during the past week, according to Art Wong, a spokesman for the port. While there have been complaints about the wait to move cargo, he said he couldn’t estimate how long the delay would be.
“It’s not that anybody is doing anything intentionally or making it slow,” Wong said. “Everybody is in a rush to get it out of the port. Once it’s out of the port, they’re done. It can sit for a week or two weeks. This is stuff they don’t need to get into the stores until August or September.”
A strike, if one were to happen, would be a blow to the recovering U.S. economy. According to a report issued Thursday by the National Retail Federation and the National Association of Manufacturers, a 20-day stoppage would reduce the gross domestic product by $2.5 billion a day, disrupt 405,000 jobs and cost the average household $366 in purchasing power. A 20-day port shutdown scenario also would lead to a $6.9 billion loss in exports this year, and its effects would linger into next year with a $1.7 billion loss in export activity. An import disruption during this same 20-day period would cost the economy $8.3 billion this year and an additional $2 billion next year.
“For retailers and their customers, a port closure would mean a delay in back-to-school and holiday shipments that could significantly drive up consumer prices,” said Matthew Shay, president and chief executive officer of the NRF.
A protracted dispute at the ports also could pose another obstacle to the nation’s inconsistent economic recovery. Last week, the U.S. Commerce Department revised its estimates of first-quarter GDP, reporting that the economy shrank at an annual rate of 2.9 percent, instead of 1 percent as announced in May.
The ILWU and the PMA have been engaged in negotiations since May 12 to hammer out a new contract covering 13,600 workers at 30 U.S. West Coast ports, including those in Los Angeles; Long Beach; Oakland, Calif.; Portland, Ore.; Seattle, and Tacoma, Wash. These ports handle 1 million tons of cargo daily. Los Angeles and Long Beach combined handle $1 billion worth of cargo each day.
The current six-year collective bargaining agreement is set to expire at 8 p.m. Eastern Daylight Time today, contrary to previous reports stating that it was to end 17 hours earlier. The ILWU represents dockworkers, while the PMA covers waterfront employers. If recent contract negotiations are any indication, both parties won’t likely settle on a new agreement before the expiration. But it appears the PMA will keep the ports open and the ILWU will keep its members working under existing terms until a new one is finalized.
Among the issues the ILWU and the PMA are negotiating is the impact of the Affordable Care Act’s excise tax, which goes into effect in 2018 and could cost up to $150 million. Both the ILWU and the PMA have considered a shorter duration for the new contract, lasting possibly three years instead of six.
In order to avoid any potential disruptions at the ports, importers have increased their shipments ahead of the contract’s deadline. The NRF and Hackett Associates reported last month that import volume at major U.S. container ports was expected to increase 7.5 percent in June. The Port of Los Angeles said import volume was up 8 percent in May from a year ago and estimated that June figures could show a similar increase.
Adding to the economic burden, carriers may charge port congestion surcharges. According to the Outdoor Industry Association, a Boulder, Colo.-based trade group for manufacturers, retailers and other companies in the outdoor recreation industry, at least three members of the Transpacific Stabilization Agreement — Hapag-Lloyd, Zim Integrated Shipping Services and United Arab Agencies — have said they will impose a surcharge in the event of “labor-related unrest” resulting in congestion at port terminals.
The last time there was a major disruption at the ports was in 2002, when the PMA locked out workers and the White House sought a federal court order to end the 10-day lockout. The OIA said the work slowdown and subsequent lockout from 12 years ago resulted in nearly $1 billion in losses a day. The ILWU said the only time its members went on strike over port contract negotiations was in 1971.
“Manufacturers depend on the ability of West Coast ports to efficiently move cargo valued at 12.5 percent of U.S. GDP,” said Jay Timmons, president and ceo of the National Association of Manufacturers. “A shutdown would erode that figure and inflict long-term damage to our competitiveness as manufacturers and as a nation.”