The immediate future of the global supply chain lies on a negotiating table in San Francisco, where the union representing all West Coast dockers is negotiating a new contract with the assembled shipping bosses.
The current contract, which covers the International Longshore and Warehouse Union’s more than 22,000 workers in the 29 ports along the US Pacific coast, expires on July 1.
At stake is the continued flow of goods into the country after two years of supply chains being disrupted by pandemic-related lockdowns, material shortages, rising fuel prices and the occasional bogging of giant ships in the Suez Canal. 40% of all U.S. sea imports pass through West Coast ports, with more than 30% of all containerized imports arriving in the ports of Los Angeles and Long Beach, which together make up the nation’s largest port complex.
Previous contract talks extended beyond the expiration date and resulted in significant disruption to port operations as workers and shipping companies represented at the table and on the west coast were challenged by the Pacific Maritime Assn. Industry group, excited for a better deal.
In 2002, negotiations deteriorated to the point where the PMA, which represents 70 shipping lines and terminal operators, locked out its workforce for 10 days pending intervention by the George W. Bush administration. In 2014 and 2015, the Obama administration also stepped in to help end a year-long contract dispute riddled with slowdowns and disruptions.
The background to the negotiations is very different from previous rounds. In 2002 and 2015, shipping companies suffered either slim profits or outright losses as a spate of new mega-ships kept freight rates and shipping revenues low.
But the past two years have brought financial bonanzas to ocean shipping companies, with the industry as a whole posting more than $150 billion in profits in 2021. One of the industry leaders, AP Moller-Maersk, had the most profitable year of any company this year in Danish history with a profit of $18.7 billion – a trend the shipper has continued into 2022, with a reported profit of 6, $8 billion in the first quarter alone.
At the same time, total imports from Asia to the US West Coast have increased over the years, giving ILWU workers more power over their crucial point in the global flow of goods. A surge in import demand last year caused an historic backlog at the LA port complex, with more than 100 gargantuan container ships idle offshore waiting to dock at certain times during the holiday season. That number has since fallen to 30 ships waiting to be unloaded, but as labor negotiations unfold this summer, supply chain experts are bracing for a new round of lashes.
Port congestion “has improved,” said Christopher S. Tang, a distinguished professor at UCLA Anderson School of Management who studies supply chains, but “this will be short-lived as the tsunami comes.” The deep-sea shipping season usually kicks off in August for the back-to-school and holiday periods, and retailers burned by delays in previous years are getting a head start in anticipation. Combined with a backlog of ships idle at the port of Shanghai, which has faced strict COVID-19 lockdowns, Tang believes another crisis is about to hit.
With the supply chain and its link to inflation back in the national spotlight for the first time in decades, both sides of the table opened talks with cautiously positive rhetoric in pre-negotiation statements and a consensual media blackout began.
ILWU President Willie Adams wrote that “The men and women of the ILWU look forward to the opportunity to meet with employers and seek a treaty that honors, respects, and respects good American jobs and U.S. importers and exporters and protects”. in an open letter published in early May. James McKenna, chief executive of the PMA, said in a video statement that the organization was committed to negotiating a new contract without disruption.
Politicians have already intervened, urging both parties to reach an agreement. Adams was called to the White House for a meeting last October to discuss the supply chain with President Biden, Vice President Kamala Harris and Transportation Secretary Pete Buttigieg, among others. Gavin Newsom and Biden administration port ambassador John Porcari. In May, as talks began, Sen. Dianne Feinstein of California released a letter to Adams and McKenna urging them to come to an agreement quickly, noting that any slowdown or disruption “exacerbates global supply chain disruptions.” would.
Should the negotiations heat up, the Biden administration has also indicated that it will intervene. “We don’t have to get involved in these negotiations unless we have to,” Labor Secretary Marty Walsh told Bloomberg in a May interview.
The potential for conflict is clear. McKenna, CEO of PMA, emphasized the fact that ILWU workers receive “world-class wages” averaging $195,000 per year for full-time employees, plus benefits, and explained that the PMA is committed to promoting automation at ports to advance
ILWU President Adams countered both points in his open letter. “We make no apologies for earning wages that enable workers to provide for their families, retire and receive the health care these difficult and dangerous jobs require,” Adams wrote, noting that “Decades of previous negotiations have turned docker jobs into good laborer jobs.”
On the automation issue, Adams was more assertive, writing that “automation not only kills good jobs, it also stops moving more freight” and poses a national security risk as infrastructure hacking becomes more widespread.
After two years of working through the pandemic, with shippers posting record profits, the historically well-organized and powerful ILWU is likely looking for increases to beat inflation, according to Jake Wilson, a professor of sociology at Cal State Long Beach who has written several books hat about the ILWU and global logistics work.
“When you look at the added value and importance of dockworkers’ work, it’s just a small percentage of a highly profitable overall system for these giant corporations,” Wilson said.
Dockers on the West Coast are the highest-paid logistics workers in the United States, but Wilson noted that “these jobs are still coming under increasing pressure — workers on the docks haven’t had a raise in years, there’s ongoing pressure to work more hours working and working through the night and other demands that would require the hiring of more unionized longshoremen.”
The numbers support Wilson’s argument. According to its annual report, the PMA paid out $2.26 billion in wages and an additional $1.55 billion in benefits in 2021. The shipping industry made $150 billion in profit.
A 10% across-the-board increase for West Coast dockers would increase West Coast labor costs from $3.8 billion to about $4.2 billion. That $400 million increase represents a little over a quarter of 1% of the industry’s gains over the past year. The estimated cost of the 10-day work stoppage in 2002 was in the billions for the US economy. Ten days of lost profits in the $150 billion year would add up to more than $4 billion for the shipping companies alone.
“What is truly unique about dockers around the world is their strategic location at the world’s bottlenecks. There’s a lot of pressure working in the ports,” Wilson said. “The money is there, the shippers are accumulating huge amounts of profits, while most people are not.”