With PMA and ILWU turning to federal mediation, eventual outcome is far from certain

With news coming this week that the Pacific Maritime Association (PMA) and the International Longshore & Warehouse Union (ILWU) will work with the U.S. Federal Mediation and Conciliation Service in hopes of helping the sides find a way to come to an agreement over stalled labor negotiations, what happens now remains to be seen.

As reported by LM yesterday, FMCS will not release information regarding future meeting dates and locations and will not comment regarding the status or substance of the negotiations.

An unwelcome combination of a lack of meaningful progress and intensified conflict have resulted in ongoing and extended negotiations over a new labor contract between the Pacific Maritime Association and the International Longshore Warehouse Union (ILWU) going back to May 12, with their contract having expired on July 1. 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.

The ongoing tension between the parties has resulted in hindered productivity and also been a contributing factor in port congestion on the West Coast, especially leading up to the holiday season.

Late last year, the ILWU said that the union has bargained in good faith despite “pressure tactics” imposed by the PMA over the past six months. These tactics include the shifting of ocean container chassis away from union crews, and refusing to bargain a training program for longshore workers as terminals become more mechanized.

And the PMA said that the ILWU has now targeted the ports of Los Angeles and Long Beach by unilaterally refusing to dispatch hundreds of qualified, skilled workers for critically important positions transporting containers in terminal yards at the nation’s largest port complex.

PMA officials said that terminal congestion has been increasing at Southern California port terminals for various reasons, including increased cargo volume, a shortage of chassis and rail cars, and a lack of available truck drivers, among others.

And the PMA said these job actions, which “have already crippled operations at the ports of Seattle and Tacoma, now threaten to do the same in Los Angeles and Long Beach.”

PMA officials said that terminal congestion has been increasing at Southern California port terminals for various reasons, including increased cargo volume, a shortage of chassis and rail cars, and a lack of available truck drivers, among others. And with the ILWU’s actions, the PMA said these job actions, which “have already crippled operations at the ports of Seattle and Tacoma, now threaten to do the same in Los Angeles and Long Beach.”

What’s more it noted that those four ports cumulatively handle more than 80 percent of containerized cargo at West Coast ports.

While negotiations have largely been at a standstill going back to the middle of 2014, shippers have implemented contingency plans to ensure their cargo is getting to its final destinations. These plans have been comprised of various actions, including:
-leveraging East and Gulf Coast ports via all-water routes from Asia diverted from U.S. West Coast services to either Panama Canal or Suez Canal;
-changing points of entry as disruptions have occurred in the form of things like weather, labor, and space availability; and
- managing its carrier base between the steamship lines, draymen, and operations

With the PMA and ILWU now agreeing to mediation, it at the very least raises the level of optimism of a deal coming to fruition.

“Without the use of the mediators, there seemed no clear path to a resolution of the drawn out negotiations,” said Paul Bingham, economics practice leader at CDM Smith.  “The failure of negotiations to conclude has already affected some shipper plans for 2015.  Further significant erosion in West Coast port market shares is likely if negotiations aren’t concluded within the next few months. The involvement of the mediators should help reach resolution now.”

Bingham said that a potential resolution could mean stabilizing diversions of discretionary cargo to East Coast or Canadian ports and could also allow ocean carriers to focus on vessel operations and deployment on regular schedules that can be met rather than coping with the disruption and delays to vessel schedules and cargo experienced for the last several months.  

Resolution should help import shippers trim buffer stock inventories maintained to insure against complete port disruption or maintained to mitigate against congestion-related delivery delays, he explained and he pointed out that lower inventory levels can reduce operating capital needs and increase potential profits, or increase potential price competitiveness for the imported goods.

“Even though not all or even most of the congestion experienced was due to the ILWU-PMA negotiations, the timing is such that it will be difficult to change perceptions on the part of shippers that at least some of the congestion was related to the 2014 contract negotiations,” said Bingham. “This will affect supply-chain decision-making going forwards and likely the consequences are going to be loss of cargo, revenue and jobs across the U.S. West Coast.  Over the next two-three years, how much the market share losses will be will become clear.  Obviously the market shares will also be influenced over this period by the expected opening of the expanded Panama Canal in 2016, and expansions to all-water services on Suez Canal routes already seen in the last few years.”

News of the parties heading to mediation was welcomed by port stakeholders.

“We congratulate the ILWU and PMA for both agreeing to mediation,” said Port of Long Beach Chief Executive Jon Slangerup. “We urgently need a resolution to their long contract negotiations so they can join all of our industry stakeholders in restoring and improving productivity at all West Coast ports.”

And Kurt Nagle, president and CEO of the American Association of Port Authorities said that the AAPA believes that federal mediation will result in a fair and equitable agreement.

“Without prompt settlement of the issues, our entire nation – not just the West Coast – could suffer long-term, detrimental economic and trade-related impacts from the unpredictability of goods movements through our ports,” he added.