West Coast port labor situation weighs on Peak Season prospects

In recent years, when it comes to freight transportation and logistics market changes, there have been a few constant themes: an uncertain economic outlook, varying levels of employment in the United States, and slowly recovering housing and automotive markets, among others.

Another emerging trend in recent years has been the absence of a traditional Peak Season, due to the aforementioned items above, as well as others that have been prevalent like low GDP output and fairly low inventory levels, too.

But things have the potential to be somewhat different in 2014. One major reason for that has to do with the ongoing contract negotiations between the Pacific Maritime Association and the International Longshore Warehouse Union, which center on wages and benefits and job security, among others, for the roughly 14,000 port workers (that are ILWU members) in California, Washington, and Oregon and 20,000 total workers at the 29 West Coast. Contract talks are still ongoing. 

These negotiations, as reported by LM, have resulted in shippers being proactive in the event of a possible port strike that would have the potential to result in delays for hundreds of millions of dollars in cargo for west coast ports and the economy, as was the case during a ten-day work stoppage in 2002. Should something similar occur this time around, it stands to reason shippers have learned from the past, based on very high import numbers at the nation’s two largest ports in Los Angeles and Long Beach, which together handle more than 40 percent of U.S. incoming container traffic moving through West Coast ports. In June, POLA and POLB saw annual import gains of 16.5 percent and 382,666 TEU (Twenty-foot Equivalent Units), and 8.8 percent at 610,516 TEU, respectively.

Even with potential labor gridlock on the horizon, the findings of a Logistics Management reader survey found that there is increased optimism towards a 2014 Peak Season.

The survey, which polled 103 buyers of domestic and global freight transportation and logistics services, found that 68.1 percent expect a more active Peak Season compared to 2013, with 25.0 percent expecting it to be the same, and 6.9 percent calling for it to be less active. The optimism was apparent considering that in 2013 barely more than half of the survey’s respondents, at 51.1 percent, expected a more active Peak Season.

What’s more, the survey found that the impact of Peak Season on day-to-day operations is not to be understated, with 45.8 of respondents describing the impact at very significant, 44.4 percent calling it somewhat significant, and a mere 9.7 percent viewing it as not very significant.

Among the reasons cited by respondents for increased Peak Season activity were increasing volumes and a better general overall outlook for the U.S. economy. Conversely, though, things possibly standing in the way included things like capacity-related issues.

A bulk ingredients distributor said that there seems to be a general shortage of equipment already, adding he does not have a hard time envisioning that could lead to certain lanes in the fall getting “ugly,” and a retail shipper observed that there is a fair amount of anecdotal evidence in the market pointing to many carriers reaching capacity before his company’s Peak Season truly arrives.

As for shippers not expecting much in the way of a true Peak Season, many of the reasons for that echoed past years, including not enough long-term evidence of an improving economy and the uncertainty of the West Coast port labor situation.

“The Peak Season really has been a question mark in recent years,” said Philip Sanfield, Port of Los Angeles director of media relations. “There are many factors at play with the economy, shipping alliances, and the port labor talks. There are lots of things in play, with a bit of uncertainty as to how things will shake out at this point in our opinion.”

Ben Hackett, founder of maritime consultancy Hackett Associates, said that with a fair amount of inventory coming into the U.S. earlier than usual, as evidenced by early volume gains at the ports of Los Angeles and Long Beach, this year’s Peak Season is likely to resemble those in past years and be flat.

“That is what it feels like at the moment, with inventories up earlier than usual at this point of the year,” he said, adding that he believes that “the inventory-to-sales ratio will continue to decline as a result of higher consumer spending and the impact of potential west coast port disruptions, and while there may not be a major Peak Season due to the high levels of inventory, goods will continue to flow.”