LOS ANGELES—The West Coast ports could be approaching a labor strike, as an ongoing management lockout at west coast ports inflicts incalculable damage on the American economy, the White House is intervening to help resolve a 9-month-old dispute between dockworkers and their bosses.
After nine months of labor negotiations, the Pacific Maritime Association and the International Longshore and Warehouse Union have been unable to reach an agreement, and it could mean the complete shutdown of the West Coast Ports, according to Kurt Strasmann, senior managing director of the port logistics group at CBRE.
After management began locking employees out of the ports, turning a long-simmering labor dispute into a costly economic conflagration, U.S. Labor Secretary Tom Perez flew out to San Francisco on Monday to encourage both sides to resolve the last sticking points in contract negotiations that have gradually collapsed in recent months.
The ports in question handle close to a trillion dollars of cargo per year, and serve as chokepoints at the end of many different complex chains of production. The slowdown threatens the economic security of every other economic actor along those chains. When fruit shipments can’t get off the docks, that’s not just bad for the Doles and Tropicanas of the world. It also hurts every trucker who runs fruit from farms to ports, every field laborer who picks the fruit, every vendor the farmer does business with, every supplier those vendors rely on, and so on.
It is complicated, therefore, to calculate the total economic cost of the breakdown in negotiations. The last time west coast port owners locked out workers, for 10 days in 2002, it was estimated to cost the country a billion dollars per day. The cost today could be twice that, according to some projections.
The lockout is already hurting a variety of businesses, according to research and estimates collected by the Wall Street Journal. An agricultural trade group estimates that the ports strife has reduced exports from that sector by $1.75 billion per month so far. A consulting firm estimates that retailers are facing a combined $7 billion jump in their overhead for the year. Car companies and clothing manufacturers can’t get parts from ship to shore, a potential catastrophe for companies that use the just-in-time inventorying strategy popularized by Japanese firms in the 1980s and ’90s. And even for firms looking to avoid the west coast entirely, the Pacific coast crunch is raising costs. It is 25 percent more expensive to move good from China to the east coast of the U.S. than it was 13 months ago, according to another market analysis.
The ports dispute dates back to the beginning of last summer. Dock workers have been operating without a contract since July 1, 2014, when the previous agreement between unions and ports operators expired. The ensuing negotiations govern 20,000 laborers at 29 ports from San Diego to Seattle.
At the outset, diplomacy reigned and both sides appeared eager to strike a deal and avoid the massive, costly economic disruption that would come from even a partial shutdown of the ports. “There hasn’t been a lot of saber-rattling on either side,” a labor expert from the University of Washington told Bloomberg in July. By late August the sides announced a tentative agreement on how to divvy up health care costs, and observers were predicting a relatively straightforward resolution and contract renewal.
But as negotiations for a new contract remained stalled and weeks of out-of-contract labor turned into months, optimism faded and the sides took to the press to denounce one another. In December, McDonald’s started rationing french fries at its Japan locations because the mounting dysfunction at American ports on the Pacific was threatening its supply chain. By early January, a federal mediator had to be called in as each side had entrenched, with management reportedly believing that workers were intentionally slowing down the flow of cargo to try to pressure the owners into making contract concessions, and union officials protesting that management was using the press to cast blame on workers rather than continuing to negotiate in good faith.
Now management has taken the extraordinary step of locking out dockworkers, and ships are piling up. The Ports of Los Angeles and Long Beach move cargo so quickly during normal operations that it’s unusual to have even a single ship anchored outside the unloading zone to wait. There are at least 36 ships sitting at anchor outside the two ports.
“Some people have come in to help mediate, but they could shut it down any day. This is a very important time right now.” A strike would mean the complete shutdown of the five West Coast ports: Los Angeles, Long Beach, Oakland, Seattle and Tacoma. The result would cost the national economy $2 billion per day, and have a significant impact on the Southern California economy—where the combination of the Los Angeles and Long Beach ports account for 35-40% of all goods coming in to the country. The West coast ports together account for 44% of the total goods coming into the country, which equates to 12.5% of US GDP.
In the event of a shutdown, companies are either forced to reroute to Vancouver or through the Panama Canal to the gulf ports and the Southeast ports, or wait it out and hope that the dispute ends soon. However, everyday that a ship stays out in the port and is not able to unload, it costs upwards of $50,000 per day, according to Strasmann..
In addition to the affect a shutdown would have on the economy, it will also have an affect on the industrial market. In the short term, companies may rent temporary industrial warehouse space near other ports. “I think in the short term those places near large ports, like Houston, will benefit; however, not all ports are capable of handling ships of this size,” says Strasmann, who reassures that any affect on the industrial market will be temporary. “In the long term, I don’t think it will affect our real estate much, because it is all about speed to market. It is still the most efficient, fastest and low cost for Asia to ship to the west coast and the truck across the country.”