As importers begin to plan for peak season, many have their eye on the status of labor negotiations at West Coast ports.
Since the expiration of the contract between the International Longshore & Warehouse Union (ILWU) and Pacific Maritime Association (PMA) in July of last year, both parties have been in talks to settle numerous issues that have been on the table.
But progress has been painfully slow for everyone involved—including supply chain stakeholders who are caught up in the uncertainty of determining whether West Coast ports will be capable of providing the reliable service they need both now and in the future.
The Fallout of Being Drawn Out
The drawn-out contract negotiations process and fear of history repeating itself have resulted in a pivot to the east for some shippers unwilling to take a chance that their goods will get stuck in the midst of contract wrangling.
And some say that may not be a temporary thing.
Instead, those who’ve made the pivot—even for what may have initially been considered a short-term solution—are benefiting from the infrastructure investments being made in East Coast and Gulf Coast ports and the efficiencies they can provide.
Our article in late February 2022 described how East and Gulf Coast ports have been planning and investing to make the most of new opportunities—starting with the expansion of the Panama Canal, which made it possible for bigger container ships to make their way through.
To improve their offerings, these ports implemented new projects such as dredging, terminal expansions, raising bridges when needed, expanding rail services, and creating new inland ports.
As Lori Ann LaRocco said in an article for CNBC late last year, “unresolved port labor negotiations” and the AB5 trucking law have both played a role in the eastward pivot, “cementing what seems to be with each month a more likely permanent shift…”.
As far back as December, Port of Los Angeles Executive Director Gene Seroka acknowledged that he was concerned about the impact of unresolved contract negotiations on business at West Coast ports.
Of the three key areas he said he was focused on in the near term, getting the contract settled topped the list.
“First, we’ve got to get this labor contract done,” Seroka said. “Both sides are working hard and I remain optimistic that these very capable negotiators are going to get an agreement together early next year. That’s the certainty cargo owners are waiting for, so it can’t happen fast enough.”
The other two priorities related to getting out to “work for every pound of freight” — which was part of his “whistle stop tour” in which he aimed to “demonstrate why LA should be our customers’ first choice” — and to improve service at the port.
Work stoppages disrupt services
But as Greg Miller noted in an April 9 article for FreightWaves, things may not have gone exactly as Seroka planned: “The Port of Los Angeles’ sales pitch to importers in recent months has been: We have plenty of capacity now. No more ship queues. The port labor contract expired July 1, 2022, but there has been no major disruption to imports during negotiations on the new contract. No need to ship your goods all the way through the Panama Canal to the East or Gulf coasts. Come back to LA! That sales pitch, to the extent it ever worked, died on Friday.”
What Miller is referring to is the 24-hour closure of terminal operations at the ports of Los Angeles and Long Beach from April 6 to April 7. He noted that operations “were closed for Thursday’s night shift and Friday’s day shift. Work resumed with Friday’s night shift.”
According to Miller, the “ILWU Local 13 said members didn’t show up Thursday night because they happened to be busy at a monthly membership meeting, where a new president was appointed. It said workers’ absence Friday was due to union members spending time with families for the religious holiday.”
However, the PMA viewed the work disruptions through a different lens.
In an April 13 statement, the PMA said “ILWU Local 13, the union’s largest local on the West Coast, has continued to disrupt operations at the Ports of Los Angeles and Long Beach, the nation’s largest port complex. While the union is using new tactics, the result is the same: the disruption of terminal operations.”
The PMA listed several instances of what it apparently perceived to be intentional actions on the part of the union chapter:
“Last week, ILWU Local 13 withheld labor that shut down terminals throughout the Ports of Los Angeles and Long Beach.”
“This week, the Union has unilaterally delayed the standard dispatch process, which is jointly administered by PMA and the ILWU, and refused to allow PMA’s participation in the labor dispatch process.”
“In addition, the Union has forced crucial cargo handling equipment to be taken out of operation at several key terminals.”
“This latest work action comes about a month after ILWU Local 13 in Southern California stopped complying with a contract provision providing employers the right to assign staggered shifts during meal periods so cargo can continue to be received and delivered without interruption.”
“The Union’s coordinated actions are occurring while negotiations for a new coastwise contract continue,” the PMA said. “…As has been pointed out for years, any actions that undermine confidence in West Coast ports threaten to further accelerate the diversion of discretionary cargo to Atlantic and Gulf Coast ports. Cargo diversion places quality jobs at risk far beyond the docks, including truck drivers, warehouse workers, and thousands of others whose livelihoods depend on ongoing operations at the port.”
As a result of such dynamics, Miller says uncertainty about the reliability of West Coast ports has contributed to the eastward shift: “…now-validated concerns over West Coast labor disruptions due to the expired contract compelled U.S. importers to shift supply chains more toward East and Gulf Coast ports starting in mid-2022.”
An unintended ripple effect
Miller also noted that for some, the shift could be permanent.
He said Nerijus Poskus, vice president of ocean strategy at Flexport, recently told FreightWaves, “You have more shipping services to the East Coast than you’ve ever had before. You’ve built new supply chains. [Importers] can move back, but why would they? People have gotten used to this new reality. I don’t think this has that much to do with the risk of a strike on the West Coast anymore. I don’t see the West Coast gaining all its share back.”
Underscoring the impact of unreliable port service and drops in port volume on exporters of agricultural goods, Miller also cited Peter Friedmann, executive director of the Agriculture Transportation Coalition (AgTC): “Ocean carriers put vessels in service to carry the higher-value import consumer goods. They carry the relatively lower-value agriculture exports on the backhaul. As ships that carried imports that would have called on West Coast ports are now serving Gulf and East Coast ports, agriculture exports are jeopardized.”
In a commentary for Barron’s, Christopher Tang, a distinguished professor at the UCLA Anderson School of Management, described concerns about the efficiency of West Coast ports and the unintended ripple effect that may result from workers’ resistance to automation.
“The Ports of Los Angeles and Long Beach are notoriously inefficient,” he wrote. “Among 351 container ports around the globe, the World Bank ranked the Port of Los Angeles 328nd, and Long Beach 333rd.”
“Adopting automation and digital technology would improve port efficiency, but the port workers labor union is concerned that innovative technologies may affect their members’ job security,” he added. “As such, modernizing West Coast ports is a sensitive subject as negotiations continue to replace a contract that expired in July 2022.”
Underscoring the importance of improving port efficiency and reliability, Tang described the grim alternative.
“If these ports fail to compete, it will trigger an economic downturn in the Western U.S. that could hurt the wellbeing of these port workers and their families,” he wrote. “While U.S. importers have some flexibility to choose which port to import their goods, U.S. exporters have limited choice. Time is of the essence when exporting perishable agricultural products, for instance. These exporters need to ship their fruits and vegetables through the nearest ports so that their overseas customers can receive these products while they’re still fresh.”
Growing frustration and concern
In addition to the agriculture industry, the sluggish pace of contract negotiations has created growing frustration and concern among other industry leaders.
In March, 238 national, state and local trade associations sent President Biden a letter urging him to take action.
Here are excerpts from the letter:
“The labor contract has now been expired for over eight months. Negotiations have been ongoing for over ten months, with little to no progress towards a new long-term agreement. It is imperative that the administration work with the parties to quickly reach a new agreement and ensure there is no disruption to port operations and cargo fluidity.”
“As we have witnessed, significant cargo flows have shifted away from the West Coast ports because of the uncertainty related to the labor negotiations. While there certainly are other issues impacting the West Coast ports, many cargo interests have expressly stated that they shifted cargo as a result of the negotiations. That cargo will not return to the West Coast until after a contract is final and approved by both parties. The longer there is no ratified contract only increases the probability that some portion of the freight will never return to the West Coast ports.”
“Businesses have already made their shipping decisions for the all-important peak shipping season, which will begin this summer. Even though cargo volumes have dropped, we continue to experience supply chain stress and challenges. While many continue to recover from pandemic related issues, the ongoing stress of inflation and economic uncertainty continues to impact supply chain stakeholders as well.”
“The lack of a labor contract adds to this uncertainty. While we appreciate that the parties agreed not to engage in a strike or a lockout, we are aware of several instances of activities that have impacted terminal operations.”
Hope on the horizon?
With all that’s at stake, recent reporting from the Wall Street Journal offered a potential breath of fresh air.
“Labor Deal at West Coast Ports Comes Into View,” the May 8 title read.
“Contract talks between unionized longshore workers and employers at West Coast ports appear to be headed into their final stretch following agreements on several major issues, potentially clearing the uncertainty that has been hanging over U.S. importers heading into their crucial fall selling season,” Paul Berger wrote. “Some shipping officials familiar with the talks hope a tentative agreement could be reached by June, ending a contentious period in port labor relations that prompted some of the country’s biggest retailers and manufacturers to shift goods away from the region to avoid possible disruptions.”
On May 15, Bloomberg’s Laura Curtis also offered some uplifting news.
“A tentative agreement covering longshore workers at the largest U.S. ports is within reach after a year of negotiations between the union and employers, according to a Biden administration official involved in the talks,” she wrote. “Stephen Lyons, the White House’s supply chain envoy, who was in Los Angeles in early May and is involved in the negotiations, expressed optimism.”
“The reflections I’m getting from both sides are positive, meaning we should see tentative agreements soon,” Lyons reportedly said in a May 10 email.