West Coast Port Shutdown Has Ripple Effect

The news out of San Francisco on Friday, February 6 was not auspicious for oceangoing commerce. Nor was it good for the lengthy inland chain of producers, manufacturers, packers and truckers who send goods of all kinds to market at the nation’s West Coast ports. The Pacific Maritime Association announced that the weekend’s vessel loading and unloading operations would be temporarily suspended, with yard, rail and gate operations continuing at terminal operators’ discretion.

On behalf of 72 companies among the world’s leading shipping lines and terminal operators, the PMA negotiates and administers maritime labor agreements with the International Longshore and Warehouse Union including a coast-wide contract covering roughly 13,600 longshore, clerk and foreman workers at 29 ports along the West Coast. These ports drive nearly half of all maritime trade in the United States, including more than 70% of all imports from Asia.

PMA stated that because ongoing union slowdowns had brought ports up and down the coast almost to a standstill, PMA member companies concluded that they would no longer continue to compensate workers at “premium pay for diminished productivity.”

“After three months of union slowdowns, it makes no sense to pay extra for less work,” said PMA spokesman Wade Gates, “especially if there is no end in sight to the union’s actions which needlessly brought West Coast ports to the brink of gridlock.”

On average, union dock workers earn a salary average of $147,000 per year and would see their wages climb about 3 percent under a proposal, along with fully-paid health care costs of about $35,000 per year per union member. Pension costs would also rise under a proposal, according to the PMA.

The PMA was founded in 1949, when break bulk cargo was transported in the belly of ships. Since then, it has negotiated several landmark labor agreements with the ILWU, including the Mechanization and Modernization Agreement of 1960 that paved the way for containerized cargo to reshape the industry. The metal cargo container, now recognized across the globe, is the standard means of transport for many of the goods that fuel the U.S. and world economies.

A spokeswoman for the ILWU said in an email February 6, “The PMA is playing a dangerous and unnecessary game of brinkmanship by idling vessels for two days in a not-too-disguised effort to intimidate the ILWU membership.”

On February 5, ILWU President Robert McEllrath said, “PMA is leaving ships at sea and claiming there’s no space on the docks, but there are acres of asphalt just waiting for the containers on those ships, and hundreds of longshore workers ready to unload them.”

On February 6, 26 ships were waiting at anchor outside the ports of Los Angeles and Long Beach.

This is particularly bad news here in Tulare County, which last year took its place as the nation’s number-one agricultural producer. News of the port shutdowns came just days before the county was to host its annual World Ag Expo, the largest show of its kind in the world.

“The ports shutdown is a devastating blow to California farms–we are extremely disappointed by the stalemate and the waste of wholesome healthy fresh produce, nuts, and other Ag products not able to reach their destinations abroad. This slow down has a huge ripple impact all across the Ag sector and is causing tremendous economic impact and other setbacks,” said Tricia Stever Blattler, executive director of the Tulare County Farm Bureau. “Especially with the drought moving into a fourth year, it is so difficult to watch these products go to waste knowing how much work goes in to producing these crops with limited water.”

“Today’s announcement by the Pacific Maritime Association further jeopardizes California citrus exports as the industry reaches what would normally be peak demand for California fruit,” stated California Citrus Mutual President Joel Nelsen.  “Last October we began warning those in government about impacts to our $2.4b industry that historically exports 25 percentage of its fresh tonnage; that warning manifested into little action.”

California navel oranges and lemons began a major push into Asia and Australia in late December, beginning an export season that runs well into April.

“But already we have quantified losing 25 percent of our opportunity year to date,” said Nelsen. “Fruit is rotting on the docks, sales are being canceled by the customer and our industry has slowed its harvesting so as not to place matured fruit into the market place. All this damage is created by two entities that seek to maximize their economic well-being while sacrificing others.”

In 2002, the PMA and ILWU reached a landmark agreement that ushered in an era of technology for the West Coast waterfront; in 2008, they agreed to enable automation at port terminals. Since 2002, the workforce has increased as new technology has enabled greater cargo volumes at West Coast ports.

The port shutdowns threaten an export opportunity representing $500 million for California citrus alone.

For the 20012/13 season the industry exported approximately 28m cartons of navel oranges with an estimated value of $385m. Lemons ranked second, with six million cartons exported at a $109m value.  The previous season comparable numbers were 28.7m cartons at $385m and almost identical figures for lemons.

Further compounding the problem is that needed inputs that arrived in December continue to sit on docks unable to be loaded onto trucks and shipped north to industry locations. Some of California’s citrus is being trucked to ports along the Gulf Coast for export via the Panama Canal as those ports and ones along the East Coast are said not to be involved in the work stoppage.

“Holding hostage food destined for those that want it thereby diminishing revenues for innocent stakeholders is not a vehicle that should be pursued, but that is exactly what the two parties are doing.  Apparently government condones the activity,” concluded Nelsen.

2002 saw the last comprehensive shutdown of West Coast ports. Contract negotiations had broken down completely, and a lockout was imposed on the ILWU that was lifted after 10 days under a court order sought by President George W. Bush, invoking the 1947 Taft-Hartley Act.

A comprehensive port shutdown could cost the U.S. economy roughly $2 billion a day, according to the National Retail Federation. The ports that handle about one-quarter of the nation’s international trade, amounting to nearly $1 trillion annually.

The two sides are negotiating a new contract after the previous contract expired last July.

The PMA has accused the ILWU of foot-dragging–work slowdowns–since last October as a means to leverage negotiations on behalf of its 20,000 dockworkers. The ILWU, blaming the PMA for worsening port congestion due to a change in shipping practices, painted the PMA’s February 6 closures as an exaggeration of the magnitude of the crisis.

Last month a federal mediator became involved, and while Union officials have admitted that a settlement is near, still to be decided are the issues of compensation and how to arbitrate future disputes.

Pressure has been steadily mounting on the two sides to wrap things up. In a February 9 letter to Robert McEllrath of the ILWU and James McKenna of the PMA, California’s Senators Feinstein and Boxer co-penned the following letter:

We write today to urge you both to swiftly resolve the outstanding issues that remain in your contract negotiation which has been underway since the expiration of your previous agreement in July. Time is absolutely of the essence because significant economic damage has already been done to those people and businesses that rely on the efficient functioning of our ports. The economic impact of the increased congestion at the ports is simply unacceptable and unsustainable.

At the time of this writing, seventeen ships are anchored at bay awaiting the opportunity to come into port at the Port of Oakland. Twenty-two ships are anchored at bay awaiting the chance to dock at the Los Angeles – Long Beach Port Complex. As we understand it, in normal times these ships rarely have to wait to dock. Ships have been diverted from California ports in search of more efficient offloading sites. Long term damage to the competitiveness of California ports may have already occurred. These are terrible circumstances.

The continued congestion, delays, terminal closures, night shift reductions, and slowdowns at the ports have led to extremely late deliveries and billions of dollars in disrupted sales of critically needed goods, including agriculture and textile products in important export markets.  This is an especially grave concern as it could potentially undermine long term demand for American products.  For example, we have learned that the citrus industry is entering its peak exporting season in February and March but has been experiencing customer delivery delays of three to four weeks. Further, we have learned that a large shipment of California rice destined for Asia is likely to be cancelled, costing farmers in our state tens of millions of dollars in income.  The slowdown at the ports has also disrupted the supply chains of California-based retailers, and has forced them to rely more on expensive air freight services to ensure their products reach American consumers.  Clearly the ramifications of this slowdown are hurting the California economy and our households, small businesses and communities. This is unacceptable.

We strongly urge you to focus on the remaining issues at hand and to reject any further pressure tactics which contribute to the slowdown. Last month, we were heartened to see both of your organizations pursue voluntary Federal mediation assistance and are hopeful that you can leverage the expertise of the Federal Mediation and Conciliation Services (FMCS) to work through your remaining disagreements.

We urge you both to recognize that the current impasse has serious and troubling ramifications for our state and for our nation. The stakes are far too high for the status quo to persist. It is imperative that you achieve an agreement immediately.

Executives from leading industry associations discussed the dire economic effects of the West Coast port situation on February 11–the day on which PMA/ILWU negotiations were set to resume– on Manufacturing Talk Radio, a live Internet broadcast to business and industry around the world.

According to Peter Freidman, executive director of the Agriculture Transportation Coalition, the agriculture industry could lose many foreign buyers permanently to other countries that can supply produce more reliably because their ports are mechanized, making them less vulnerable to the kind of months-long impasse faced by the PMA and ILWU.

Mark Hirzel, President of the Los Angeles Customs Brokers & Freight Forwarders Association, added that brokers and forwarders might shift imports away from West Coast ports, steepening a 12-year decline in traffic. In 2002, West Coast ports handled roughly 60 percent of the nation’s container volume, a figure which by 2014 fell to below 44 percent.

But Freidman pointed out that agriculture cannot make a practice of shipping perishables to Gulf States or East Coast ports for overseas delivery because the longer farm-to-consumer time would result in an unacceptable level of spoilage.

To Jonathan Gold, Vice President for Supply Chain and Customs Policy at the National Retail Federation, the impasse super cedes retail issues, impacting every segment of the economy and rippling outward on a global scale. A recent study by the National Association of Manufacturers and the National Retail Federation indicated that a port strike could see daily losses as high as $2 billion, and it was stated that losses already may be approaching that amount because of the ripple effects the container congestion has already caused in supply chains.

On February 11, it was reported that there was nearly no space at the Los Angeles and Long Beach ports to offload containers from the 40 ships waiting at sea, and no room either at those ports for empty containers to be stored while waiting to be loaded with exports to go back on ships headed across the Pacific.  Imports and exports through West Coast ports were, therefore, in a logjam.

According to Manufacturing Talk Radio, The White House stated that the president was aware of the situation and that it was up to the two sides to work things out.

But later on the 11th, the PMA announced that all 29 West Coast ports will be “mostly closed four of the next five days.” Because it would have to pay holiday or weekend wages, it said, the PMA stated it would not hire crews to load or unload ships on February 12, and between February 14 and 16.

“The union is standing by ready to negotiate, as we have been for the past several days,” ILWU President Robert McEllrath said in a written statement, suggesting that the PMA was “trying to sabotage negotiations.”

On February 14, amid further stalled negotiations, The White House announced it was at last prepared to send US Secretary of Labor, Thomas E. Perez, to San Francisco in an effort to broker a settlement. It was not until the 16th that a spokesman for the labor secretary said that Perez would arrive the following day.

“We hope Secretary Perez can really get the parties to work out whatever their final issues are and get a deal,” said National Retail Federation executive Jonathan Gold on Fox Business News.

Asian exporters, meanwhile, have faced rising shipping rates. Some have been forced to reroute their goods by more expensive air freight.

On February 15, Japan’s Honda Motor Co. announced that, because of port-related delays in parts shipments, it would slow production for a week at plants in Ohio, Indiana and the Canadian province of Ontario.

With costs rising everywhere and no known limit to the damage this impasse could do to recovering economies across the globe, at press time only one thing remained clear: The estimated $2 billion in daily damage it could cost the US economy might be merely a drop in the bucket as the effects of the port shutdown ripple across ever more countries and ever widening markets.

This story was compiled by sourcing the Associated Press, the PR Newswire and the websites of the PMA, ILWU and Senator Dianne Feinstein.

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