In the 1950s, it was Harry Truman’s sign that read “The buck stops here.”
In the 1970s, it was Roseanne Roseannadanna who said “It’s always something.”
Our devastating West Coast port slowdown can actually be summarized by combining the quotes. President Obama is going to do his best to “bypass the buck” and forgo letting it “stop” at his desk, and the dockworkers are always negotiating “about something.”
So, who is right, who is wrong, and when will this fiasco end?
Will the PMA lockout the dockworkers in 5 to 10 days, or is the Union a lot closer to striking a deal? The temperature is heating up and a deal or a strike could be imminent (or not).
For those who believe that government should step up to the plate and immediately stop this mess, please don’t get too excited, as it’s probably not going to happen. There is little chance that the Obama White House will invoke Taft-Hartley (to force everyone back to work) as it is contrary to the way this administration functions. The workers, so far, are “slowing down” versus striking, but the law actually says that you don’t need an official strike to invoke Taft-Hartley. A disguised work stoppage (aka “slowdown”) is prohibited when a board of inquiry declares the situation to be a national emergency.
Taft-Hartley has been used twice in the last 40 years: once under Carter for the coal miners, and once under George W. Bush for the longshoremen. The comment from the Obama White House has been that the president was confident that both sides could reach an agreement “through the time-tested process of collective bargaining.”
However, the problem is more complicated than getting a simple back-to-work order. It’s not just one issue that’s messing up the West Coast ports, it’s many.
1. What is the labor issue?
The International Longshore & Warehouse Union (ILWU) has 20,000 West Coast workers at 29 ports and their contract expired last year in July. Their prior contract was for six years and the negotiations in process include discussions about pay, benefits and safety.
The union dispute is with their employers who are represented by the Pacific Maritime Association (PMA) and their interest is to keep the ports as competitive as possible in the world shipping market.
Both parties have recently accepted a federal mediator and talks have been going on for a few weeks. Some progress has been made with regard to an issue with the chassis deployment and healthcare questions. There is a rumor that the chassis agreement could fall apart, but that hasn’t happened yet.
Separate from all these discussions, the Teamster union has been trying to organize truckers and there have been protests by truckers at several West Coast Ports. This is not related to ILWU/PMA issue.
2. How about those mega-vessels?
It’s true that the ships are bigger and bringing more cargo, but is that really the problem or just a place to allocate blame for the congestion?
Ship size for cargo is measured in TEU’s (twenty-foot container equivalent units) and ship size has been climbing from the more common 8,000 TEU vessels to go to 12,000 TEU’s (and higher) capacity.
Many will argue that it takes time to move one smaller vessel and berth another, so bigger size shouldn’t necessarily matter all that much with regard to cargo loading or unloading. In addition, bigger size means lower shipping cost per container. Almost half of all new cargo ship orders are for vessels in excess of 12,000 TEU’s and this is a trend that will continue.
Actually, the bigger problem for the West Coast ports is that the productivity (on- or off-loading containers) is relatively slow when compared to the super ports in Asia and Europe. A recent study showed Qingdao, China has a “berth productivity” of almost twice that of the Port of Los Angeles and 25 percent greater than the port of Long Beach. Clearly, when there is a greater output and a lesser input, you eventually create a scenario that is quite similar to when Lucy Arnez & Ethel Mertz worked the conveyor belt at the chocolate factory in an “I love Lucy” episode.
3. What’s with the “chassis problem”?
In the past, ocean carriers owned their own chassis (wheels for the containers) but they exited the business in 2013. Chassis deployment is now operated by leasing companies, and these groups have added to the chaos within the terminals by not being able to properly match containers with wheels. In addition, the unions want jurisdiction over maintenance and repair of the truck chassis.
4. Vessel-sharing alliances?
When Roseanne Roseannadanna was talking about “always something,” she probably had no idea that sometime in the future the Federal Maritime Commission (FMC) would allow both P3 and G6 vessel alliances to go into effect. While there have been many vessel sharing agreements in the past 30 years, these new ones that started in 2014 are much larger in scope and scale.
This is good news for consumers, as these shared agreements are economically brilliant, but the sharing has created some confusion at the ports, and there are containers that have become difficult to locate, adding to the chaos in the yards. It will take some time to get the data and information sorted out, but this clearly demonstrates the need for better information at the ports.
5. Who gets hurt by the slowdown? (quick answer: everyone)
The ports of Long Beach and Los Angeles have always been renowned as the premier U.S. maritime gateway for cargo to and from Asia, but this “slowdown” is seriously bruising their previously stellar reputation.
Risk managers that specialize in supply chains will be quick to point out that the widening of the Panama Canal will be complete in about a year, and the New Panamax will be able to handle 13,000 TEU ships instead of their prior limit of only 5,000 TEU’s. Don’t think that the East Coast ports of Elizabeth, Bayonne, Savannah, Charleston, Norfolk and New York won’t be really interested in receiving cargo with “berth productivity” rates that rival L.A. and Long Beach, especially if shippers lose confidence in the West Coast gateway.
Importers of seasonal apparel are bruised by late delivery charges and markdowns caused by these late deliveries. The former characterization of “speed to market” flies right out the window when it’s now almost impossible to time the accurate arrival of the products. The new retail term is becoming “slow to market and quick to be on sale.”
Exporters of meat and poultry estimate their losses at $30 million a week. California navel oranges (so very popular for Chinese New Year) are not going to arrive on time. Exporters of walnuts, rice and refrigerated citrus are all losing money. Truck drivers trying to deliver goods to the ports are experiencing long waits, and are unable to get their cargo to the ships. There are demurrage charges, penalty charges, storage fees and several other associated costs to go around.
The situation is just terrible for importers and for exporters and, quite frankly, it’s spinning quickly out of control. Take a look at aerial photographs of ships anchored off the West Coast ports right now, waiting to be unloaded. If the “slowdown” were to end tomorrow, it will still take weeks to clear up the mess.
6. President Obama in his recent State of the Union Address called for “modern ports, stronger bridges, and faster trains.” He also said that, “21st Century businesses need 21st Century infrastructure.”
If we can learn anything from this port slowdown, it’s that our supply chain has a severe Achilles heel and that the West Coasts ports have a surprisingly weak technology base. The impact of this “slowdown” to our nation’s economy is real and this issue has lingered way too long. Companies and individuals are being hurt, and no leader has emerged to draw this ridiculous episode to a conclusion. The “slowdown” is really bad and we certainly hope they don’t strike and shut the ports down altogether … but they could … and it might happen within 10 days.
What can you do to help? Please do write your Congressman, your Senator, your White House. Remember, if you are in pain and don’t speak up, no one will hear your voice. You can even deliver your own version of what Winston Churchill once said, and it might look something like this:
Almost never in the field of human conflict is so much damage being done to so many by so few…
Rick Helfenbein is Chairman of the Board of the American Apparel and Footwear Association and President of TellaS Ltd (Luen Thai USA). He is a fierce advocate for a robust USA Trade Agenda and speaks frequently on the subjects of supply chain and international trade. Follow Rick on Twitter @rhelfen.