Supply chain stakeholders call on ILWU and PMA to reach a deal

Ahead of negotiations between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA), which began this week in San Francisco, a letter to ILWU President Robert McEllrath and PMA Chairman and CEO James McKenna pleaded the case for the sides to come to an agreement ahead of the June 30 contract deadline for West Coast dockworkers.

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Ahead of negotiations between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA), which began this week in San Francisco, a letter to ILWU President Robert McEllrath and PMA Chairman and CEO James McKenna pleaded the case for the sides to come to an agreement ahead of the June 30 contract deadline for West Coast dockworkers.

The letter was sent by more than 60 maritime and supply chain industry stakeholders, including manufacturers, farmers, wholesalers, retailers, distributors, and transportation and logistics services providers, as well as industry associations, such as the National Retail Federation and the Airforwarders Association, among others.

“We urge you to make every possible attempt to conclude an agreement on a new contract before the current year expires on June 30,” the letter stated. “It is critical that a new agreement be reached without disruptions to the movement of freight.”

The letter also noted that failure to reach an agreement would have serious economy-wide impacts, with the potential for disruptions in the flow of commerce at West Coast ports creating uncertainty in a fragile economic climate and forcing shippers to develop contingency plans, which are costly in terms of jobs and economic competitiveness.

And the letter also cited the 2002 West Coast work stoppage at ports, which caused an estimated $15 billion in reported losses, and is not something all involved parties can go through again.

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.

As previously reported, the ILWU’s president Bob McEllrath has told members to “hold the line,” and encouraged them to propose strategies to address the challenges ahead, including:
-jurisdiction – efforts by the employers and other unions to “poach” Longshore jobs;
-health Care & Pensions – increased employer & government pressure to cut benefits; and
-automation – employer efforts to replace workers with new technology

As for the PMA’s stance, a report in the International Business Times cited the PMA as pointing to lost market share and the need to increase efficiency to maintain a competitive advantage against ports in Canada, Mexico, and the U.S.-based East and Gulf Coast ports.

And the report added that the PMA claims that annual earnings for full-time longshoremen average $132,046 along with generous no-deductible health benefits, while the ILWU says that the current labor contract calls for $35 per hour for the most experienced workers, or an annual salary of $72,800 per year. And according to the PMA 2013 annual report, 34 percent of longshore workers get less than 1,600 hours of work per year or roughly 30 hours a week.   

The specter of a possible West Coast port labor shutdown is keeping retail shippers attentive and preparing for alternative outcomes, depending on how long it takes for the PMA and ILWU to reach an accord.

Some shippers are focusing on having enough inventory available through the end of June but time is running out, according to Enrico Salvo, chairman of freight broker Carmichael International in an Apparel News report.

What’s more, the forecast for volumes at retail container ports in the coming months is largely positive, according to the monthly Port Tracker report issued by the NRF and maritime consultancy Hackett Associates.

For May volumes, Port Tracker expects to see a 3.5 percent increase at 1.44 million TEU (Twenty-foot Equivalent Units), with June and July expected to be up 5.6 percent and 3 percent, respectively, at 1.43 million TEU and 1.49 million TEU.

In an interview with LM, NRF Vice President for Supply Chain and Customs Policy Jonathan Gold, said that with West Coast ports such an important part of the global economy as a gateway to Asia for import and export activity.

“If talks go only a couple days past the expiration of the contract, then shippers should be fine, but it could be a different story if things go longer as far as being able to get product to market,” he said. “For exporters, it could shut down assembly line production as many companies run operations on a just-in-time basis.  And for importers getting into the peak shipping season for back to school and the holiday season, our members want to make sure they have the inventory they expect to have so consumers can get them at their stores.”

As for contingency plans if negotiations go longer than expected, Gold said one option for importers is to ship early so there is sufficient inventory on hand, although it comes with additional costs to carry inventory longer than usual. Another option is shifting cargo to East and Gulf coast ports as well as Canada and Mexico, with air cargo as option for last minute orders, which is far more expensive. 

Most larger shippers have already incurred costs for contingency planning by now, in some cases securing capacity on non-U.S. West Coast routes just in case of disruption this year, according to Paul Bingham, Economics Practice Leader, Transportation Division, CDM Smith.

“Preparations among some shippers began many months ago knowing that negotiations this year could be challenging,” explained Bingham. “That basic step for many shippers was first to increase use of non-U.S. West Coast liner service with carriers in an attempt to assure space availability in the event of a disruption by having a preferred existing customer status.  Some of the preparation has also seen shifting ordering/delivery times ahead to have buffer stocks and reduce risk of stock outs in the event of a disruption.  Other options for some shippers have been exploring source-supply shifting, in those limited instances where that is plausible in the short run, to suppliers where the supply chains that don’t depend on U.S. West Coast ports.”

The planning of timing mitigation actions takes into consideration risks to sales or output, which for many retailers is tied to selling seasons, such as back-to-school or fall holiday sales, said Bingham. And for manufacturers, he explained they might have greater ability to build buffer stocks early.  For exporters there may be less that they can do if their customers are not ready to advance their purchases.

“Even if there is no coastwise work stoppage, prolonged negotiations could lead to lower productivity at individual ports if the long shore workers become frustrated without a deal to their liking,” noted Bingham. “As we’ve seen in the past, that can happen at the long-shore union local level even if the headquarters leadership doesn’t want it. Among the shipper community, there are smaller shippers who have fewer options and lack the ability to employ substantial mitigation steps.  Some of those firms may be most at risk of stock-outs and inventory problems or lost sales, with little they can do to offset the losses unless the duration of the disruption is short enough and they have customers who are willing and ready to still buy after the disruption is over.”


About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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