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West Coast Ports See Extended Disruption as Labor Talks Drag On

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June 7, 2023

(Bloomberg) —

The biggest shipping gateways on the US West Coast are enduring the longest labor-related disruptions since 2015 as talks between port employers and dockworkers close in on one year without a contract. 

The two sides are clashing over how to divide carriers’ pandemic-era profits in a market that’s returned to rock-bottom freight rates. 

The previous labor contract covering 29 ports from California to Washington State expired July 1, 2022. The International Longshoremen and Warehouse Union, representing 22,000 dockworkers, and the Pacific Maritime Association, which represents ocean carriers and terminal operators, have been negotiating since May 2022.

Until now, the PMA and ILWU have been quiet as they negotiate and port operations have been running relatively smoothly, with the exception of a few regional flareups during slow cargo periods that were brief and contained.

But labor shortages and other disruptions that shut or slowed terminals in Seattle, Los Angeles and Oakland last Friday have continued intermittently into this week, the PMA said in a statement Monday.

“Before the last 48 hours we were seeing a lot of progress,” Port of Long Beach Executive Mario Cordero said in an interview on Bloomberg Television Tuesday. “Obviously there is an issue there that has caused some pause in the discussions.”

The stalemate was already starting to disrupt cargo flows. Late Tuesday, officials who monitor marine traffic around the twin ports of LA and Long Beach said that the movements of six container vessels slated for Tuesday and Wednesday were canceled or delayed.

Cordero said terminals at Long Beach were open Tuesday and the issue is “a bump in the road” before the two sides eventually reach a resolution.

Just last month a tentative deal looked close, as the two sides reached an agreement on automation, building on an earlier deal on health benefits. 

At issue now is a demand by the ILWU for a wage increase of $7.50 per hour, for each year of the proposed contract, the Journal of Commerce reported Tuesday. That would amount to a nearly 100% raise in dockworker wages over the course of the proposed six-year agreement.

“The longshoremen want the type of increases that fully reflect the profitability that the carriers had earned during Covid as if that profitability was continuing  — and it’s not,” said Peter Tirschwell, vice president for global intelligence and analytics at S&P Global Market Intelligence. “That’s where the clash is.”

Carriers are also bristling over a ILWU request that pay increases be made retroactive to July 1, 2022, because of the union’s refusal to negotiate for several months last year due to an impasse over automation, Tirschwell said. 

“If they had signed a deal last year, carriers with all their profits likely would have agreed,” said Stephanie Loomis of Rhenus Logistics. “But now the tides have shifted and rates have collapsed.”

The PMA blamed the terminal issues on “concerted and disruptive work actions” by the ILWU, which denied that talks have broken down. Both sides declined to comment on details of the negotiation.

White House watching 

Unlike its intervention in previous disputes at West Coast ports or in December 2022 to prevent a potential rail strike, the White House hasn’t indicated its willingness to get involved in the current negotiations. The Biden administration maintains it’s monitoring the situation, but has said it’s their strong preference is for both sides to negotiate a contract without the administration’s involvement, according to White House officials.

One bright spot is that shipping bottlenecks that helped fuel inflation in recent years appear to have cleared up, with one measure of global supply-chain stresses plummeting to a record low last month. 

Even so, the Biden administration is facing repeated calls from retailers worried about extra costs and delays, especially as issues such as a Panama drought compound risks to maritime trade routes.

Other routes

Many cargo owners have been diverting Asia-originated shipments to East and Gulf coast ports, via the Panama Canal in recent months to mitigate risk of labor disruption. 

The Retail Industry Leaders Association, whose members include Home Depot Inc., Target Corp. and Best Buy Co., said some businesses will keep some or all of their cargo away from West Coast ports until a contract has been ratified.

Now, facing capacity constraints and rising fees at the Panama Canal due to a severe drought, cargo owners may be left with more expensive and time-consuming alternatives: routing goods from Asia through the Suez Canal instead of Panama, or risking delays at LA-Long Beach and paying for extra rail rates. 

“All of this is costly,” said Loomis of Rhenus Logistics. “Now with this labor stoppage on West Coast, that is just going to make that choice less and less palatable.”

–With assistance from Jordan Fabian.

© 2023 Bloomberg L.P.

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