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The Cost of a West Coast Port Shutdown

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.

LOS ANGELES — In a potential blow to the recovering U.S. economy, a possible West Coast port strike could cost as much as $2.5 billion a day if the International Longshore and Warehouse Union and the Pacific Maritime Association don’t agree on a new contract by next week.

According to a report issued 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 could pose another obstacle to the nation’s inconsistent economic recovery. On Wednesday, the U.S. Commerce Department revised its estimates of first-quarter gross domestic product, reporting that the economy shrank at an annual rate of 2.9 percent, instead of 1 percent as reported in May. The decrease reflected a combination of falling business inventories, lower consumer spending and declining exports.

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, Calif.; Oakland; Portland, Ore.; Seattle, and Tacoma, Wash. These ports handle 1 million tons of cargo daily. The current six-year collective bargaining agreement is set to expire at midnight on Monday. The ILWU represents dockworkers, while the PMA covers waterfront employers.

Among the issues the ILWU and the PMA are negotiating is the impact of the Affordable Health 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 June 6 that import volume at major U.S. container ports is expected to increase 7.5 percent this month. U.S. Customs and Border Protection also released guidelines this week to aid shippers in the case of disruptions that could cause major delays and divert ships from the West Coast ports.

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. 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.”