Representatives from the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) are reportedly still at the negotiation table as the deadline approaches for a possible strike by about 13,500 dockworkers at 30 West Coast ports at midnight June 30. The affected ports run from San Diego, California to Bellingham, Washington and handle about 44 percent of the container cargo heading in and out of the U.S. The impact of a strike, whether short or long, is significant, according to experts.
The National Retail Federation estimates that a shutdown could cost the economy $2.5 billion per day; not exactly what the nation needs to kick-off the second half of 2014 after a bleak start to the first half. The Commerce Department this week made its third and final revision to gross domestic product for the first quarter, showing the worst three months since the peak of the Great Recession with a contraction of 2.9 percent. Inclement weather and fluctuations related to the implementation of an overhauled healthcare system keeping consumer spending at bay were mostly cited as reasons for the sluggish start to the year, although economists generally see a rebound in the second quarter.
At issue is the expiration of a contract for the union workers, which includes job security and benefit packages as well as deliberations over union-controlled jobs, safety standards, and implementation of new automated technologies that could eliminate some jobs. Wages generally aren’t much of an obstacle in negotiations between PMA and ILWU, as longshoremen are some of the best paid blue collar workers in the country, averaging about $132,000 annually for full-time employees. A hot button issue is health insurance, though, with Obamacare imposing high taxes in 2018 on so-called “Cadillac” health plans, such as that of ILWU workers who pay no premiums and incur co-pays for prescriptions of only $1. Neither party wants to foot the $150-bill related to the new tax.
Negotiations, which are typically long-winded, have been ongoing in San Francisco since May 12.
The last time ports were shuttered was in 2002, a 10-day lockout that was ended by President George W. Bush invoking the Taft-Hartley Act to open 29 West Coast ports and prevent further economic damage to the nation. The last time the emergency provisions of the Taft-Hartley Act were invoked before that was by President Richard Nixon in 1971 in a quest to stop a longshoremen strike in 1971.
The 2002 lockout was estimated to have cost the economy about $1 billion each day.
The ports are the gateway to Far East and beyond, with the ripple effect of anchoring ships and idling machinery disrupting the supply chain and rolling throughout the nation. This will hit consumers with higher prices and possibly leaving retailers short on merchandise during the key back-to-school season with the holiday shopping rush just around the corner.
Some businesses have taken preventative action by boosting inventory early. CNBC reported Friday morning that 31% of shippers surveyed have seen increasing goods shipments and that rail transports are also seeing higher shipment volumes. National Retail Federation (NRF) chief executive Matthew Shay told the network in an interview that 12.5% of the U.S. GDP is in jeopardy with a strike.
The NRF also joined with the National Association of Manufacturers to release a report detailing the potential impact of a strike. In the report, economists from Inforum deduced the impact of a 5-day shutdown to result in the disruption of 73,000 jobs, $81 in purchasing power per household and a $9.4-billion reduction in economic output. A 20-day strike mushrooms the impact to 405,000 job disruptions, $366 in purchasing power per household, and a reduction of economic output of $49.9 billion.
A survey by third-party logistics provider National Retail Systems (NRS) of big importers covering a variety of sectors found that only about half of respondents are prepared for a longshoremen strike. NRS said that the most popular contingency plan has been redirecting product to different ports, with 39% of respondents choosing East Coast ports in New England and NY/NJ. Twenty-three percent of respondents elected to go up the Pacific coastline to the Port of Vancouver in Canada, which, incidentally, languished through a truckers’ strike only a few months ago.
If a strike happens, East Coast ports could be the long-term winners. Twelve years ago, imports and exports were split essentially equally between both coasts. Following the West Coast lockout, a shift happened across the next decade favoring the East 56% to 44% as far as total cargo shipments today.
A strike on Tuesday is highly unlikely, although reaching terms by that day is equally unlikely, as these two organizations have a long history of fighting tooth and nail for months at a time to negotiate a new contract. Both parties are expected to agree to negotiate well passed the deadline, but if it drags on into the fall and towards the holidays, that’s when things could get ugly. In the meantime, economists will be watching for any effects from stockpiling inventories and re-routing of shipments and what that means to the economy.