NRF’s Shay calls on ILWU and PMA leadership to begin negotiations on a new contract

At a time when there is ostensibly a new supply chain- and logistics-related challenge popping up daily, it bears repeating that in the run-up to the end of June, yet another is looming, which could have significant repercussions for myriad industry stakeholders.

This challenge is, of course, the pending June 30 contract expiration between the International Longshore and Warehouse Union and the Pacific Maritime Association (PMA). The ILWU represents nearly 14,000 port workers 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.

To be sure, this is not the first time a contract between the organizations has been set to expire. And one does not have to go too far back to see how acrimonious negotiations were, as in 2015, in the months prior to the June 30 deadline, it required the U.S. Federal Mediation and Conciliation Service to step in to help the sides find a way to come to an agreement over stalled labor negotiations. What’s more, the ongoing tension between the parties subsequently resulted in hindered productivity and also was a contributing factor in port congestion on the West Coast, especially as it led up to the 2016 holiday season. The PMA said, at the time, that the state of terminal productivity at the five largest West Coast ports was approaching gridlock, due in large part to what it labeled ILWU-staged shutdowns.

The Washington, D.C.-based National Retail Federation (NRF) has been keeping close tabs on this situation, especially as the days tick off the calendar, and are calling on the PMA and the ILWU “to begin contract negotiations well before the June 30 contract expiration.”

In a letter to ILWU President William E. Adams and PMA Chairman and CEO James McKenna, NRF President and CEO Matthew Shay urged them to begin contract negotiations as soon as possible. Shay explained that NRF applauds the close partnership ILWU and PMA have achieved throughout the pandemic, coupled with the ability to deal with the unprecedented cargo surge over the past two years.

“As many expect the supply chain disruptions to continue through 2022, contract negotiations should not lead to additional pressures of disruption to the supply chain,” wrote Shay. “We know key issues for both parties need to be worked out during this contract negotiation and believe the parties should sit down now and not wait to begin negotiations. Both parties should attempt to reach a contract well before expiration for the benefit of the national economy and to provide the needed certainty to all the stakeholders in the supply chain that rely on the U.S. West Coast ports. We would further ask that you issue a statement committing to the commencement of meaningful negotiations now, and to commit to continue negotiating and working without interruption, even if negotiations extend beyond the June 30 contract expiration.”

The NRF’s top executive went on to note that with West Coast port congestion issues front and center, there is a need to ensure negotiations don’t subsequently result in additional congestion issues, especially as NRF membership will be gearing up for the 2022 peak shipping season, in tandem with the timing of the expiration of the current contract. What’s more, he observed that additional disruptions will impact not only NRF members but also other supply chain stakeholders that use West Coast ports.

And he did not mince words in explaining that an NRF member survey highlighted that “even the perceived risk of a disruption will force retailers to reevaluate their use of U.S. West Coast ports, noting that “without a clear commitment to keep negotiating, cargo shifts to other gateways would likely happen even if a disruption never occurs, simply due to the need to mitigate the risk of a disruption.”  

Brian Whitlock, Senior Director Analyst with Gartner’s Supply Chain practice, said that this contract renewal is important for two reasons.

“First, it was extended in 2017 and was last negotiated in 2015,” he said. “That means the current agreement has run for seven years without change. Second, this contract renewal comes at a time when U.S. ports are highly congested and it is forecast to take the better part of 2022 to recover. If labor disruptions occur during these contract negotiations, it will create compounding disruptions that will further reduce supply chain performance and push port recovery into 2023.”

Whitlock went on to comment that over the past year, the balance of power has shifted to labor in all sectors.

“With the widespread media attention on shipping delays and impacts on holiday shopping, the PMA will need to contend with an American public that knows more about ports today than they ever have,” he said. “And during President Biden’s tour of the Baltimore port, he encouraged companies to see the value in creating well-paying jobs. These events have put a lot of wind in the sails of the ILWU.

As for a best-case scenario, Whitlock said that would be one in which the PMA reaches an agreement with the ILWU before the contract expires, avoiding labor actions or work slowdowns, while retaining their right to automate without union interference. And the worst-case scenario, he said, is that contract negotiations drag on for months past the contract deadline, resulting in worker slowdowns and severe congestion and backlogs at the ports.

Worker slowdowns, congestion, and backlogs are not things we need more of, especially not at a time when the supply chain remains constrained and hampered by a whole host of events. Nobody wants a repeat of the last round of negotiations or 2002 redux, when a ten-day West Coast port shutdown took the wind out of the economy’s sails and resulted in an estimated $15 billion in reported losses and created a backlog that took several months to be cleared.

Let’s hope the NRF’s wish comes true and the ILWU and PMA come to the table with ideas and compromises in order to work things out. The supply chain is counting on it.