Labor peace finally arrives for West Coast ports

Labor peace has finally officially arrived for West Coast ports. Following the Pacific Maritime Association (PMA) signing off on ratifying a new five-year contract with the International Longshore & Warehouse Union (ILWU) on May 20, the ILWU followed suite on May 22, saying that 82 percent of its longshore worker members voted to ratify the tentative contract agreement between the parties that was reached on February 22.

The new contract, said ILWU and PMA, will be retroactive to July 1, 2014 and run though June 30, 2019. And when the deal is officially made complete, it will cover roughly 20,000 port employees and ILWU members at West Coast ports in California, Oregon, and Washington, with more than 40 percent of U.S. incoming container traffic moving through West Coast ports at the Ports of Los Angeles and Long Beach, according to industry estimates. The PMA represents shipping lines and terminal operators at 29 West Coast ports.

PMA officials said that the contract is comprised of an enhanced arbitration system that is designed to support waterfront stability, capacity growth and productivity, adding this is especially important given the increasingly competitive environment West Coast ports face now and into the future for various reasons, including the long-anticipated opening of the expanded Panama Canal. And PMA also said that the health care changes maintained in the contract will foster greater efficiency, cost containment and fraud prevention for the long-term, explaining that to date, these efficiencies have already delivered significant savings to the health care plan, with ILWU members continuing to enjoy a generous, employer-paid health care plan. ILWU explained that the contract not only provides good jobs for its members but also maintains excellent health benefits, improved wages, pension and job safety protections, limiting jobs outsourcing, and an improved system for resolving job disputes.

Both PMA and ILWU leadership were pleased to see a deal finally come to fruition. ILWU International President Robert McEllrath said that “the negotiations for this contract were some of the longest and most difficult in our recent history,” adding that “membership unity and hard work by the Negotiating Committee made this fair outcome possible.” And PMA President and CEO Jim McKenna noted that with West Coast ports serving as an economic engine for the United States, supporting millions of workers and trillions in economic impact, with PMA looking forward to building upon the incredible advantages West Coast ports offer and winning back the trust and confidence of the shipping community.

The impasse between the parties goes back to July 2014, when their existing contract expired. Among the issues that led to a tense negotiating environment between the pair were differences on several issues, including wages, pensions, health-care benefits, arbitration process rules and operations.

These differences led to nine months of labor unrest and uncertainty that impacted freight flows and port operations in the form of terminal congestion and related supply chain challenges until PMA and ILWU reached their tentative agreement. During this time, emotions on each side ran high, and when prospects of a new deal were at its bleakest point, the sides turned to the U.S. Federal Mediation and Conciliation Service in hopes of helping the sides find a way to come to an agreement.

And when the parties initially reached a deal in late February, industry estimates suggested it would take about two months to clear out the cargo backlog at West Coast ports. At certain points, the two largest West Coast ports, the Port of Los Angeles and the Port of Long Beach had roughly 30 container ships waiting for a berth between the two ports.

Once the tentative deal was reached, Ben Hackett, founder of maritime consultancy Hackett Associates told LM that he expected that ships would discharge very rapidly, resulting in backlog getting cargo out of the ports. To augment things, though, he said large alliance carriers would need to make better use of terminals in an effort to be more efficient, adding that even with the labor disruption there were some West Coast port terminals that were relatively empty.

While the West Coast ports dealt with myriad backlog issues, East Coast ports stood to reap the benefits of those problems, and they did see increased cargo volumes with shippers forced to make contingency plans to get their cargo into the U.S. in advance of the holiday season.

Data from Panjiva, an online search engine with detailed information on global suppliers and manufacturers, observed that through the end of April, East Coast ports “far outperformed their western counterparts in terms of year-over-year growth.” During those four months, Panjiva said East Coast ports processed 13.57 percent more shipments than they did in the same period in 2014, while West Coast ports saw their numbers decrease 7.27 percent. The ports of Savannah, New York / Newark, Houston, and Charleston paced export growth, with the largest increases in terms of the number of shipments handled, and New Orleans, Boston, and Philadelphia also saw double-digit growth. Panjiva added that exports declined on both sides of the country, but at a slower pace on the East Coast than the West.

Hackett said that even with increased volume gains heading to the East Coast, it is not likely to result in a permanent shift.

“It is likely volumes will swing back to the East Coast, but the majority will come back to the West Coast primarily because of cost of shipping,” he said. “Another factor is the close distance between West Coast ports and intermodal facilities for shipping into 53-foot boxes moving on rail and trucks. Those things are what will push cargo volumes back West, coupled with East Coast transit times being substantially longer than the West Coast. It comes down to time, value, and money.”