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Ongoing West Coast Port Negotiations Cause Major Shipping Delays

Now that the current labor contract for West Coast port dockworkers is set to expire Monday and negotiations for a new coast-wide contract are still ongoing, work at the ports has slowed considerably and is already causing substantial delays.

The six-year contract between the Pacific Maritime Association (PMA) and the International Longshore and Warehouse Union (ILWU), which covers nearly 20,000 dockworkers at 29 West Coast ports expires June 30, 2014, and although both parties have been in talks since May 12, a resolution has not yet been reached.

In a letter to ILWU president Robert McEllrath and PMA chairman and CEO James McKenna last month, a coalition of organizations representing U.S. manufacturers, farmers, wholesalers, retailers, distributors, and transportation and logistics providers, told the leaders that failure to conclude a contract agreement would have serious economy-wide impacts.

“The potential for disruptions in the flow of commerce at West Coast ports is creating uncertainty in a fragile economic climate and forcing many businesses to develop contingency plans that come at a significant cost to jobs and our economic competitiveness,” according to the letter.

West Coast ports take in more than two-thirds of U.S. retail cargo, including an overwhelming majority of goods coming in from Asia. In 2013, West Coast ports handled cargo worth $892 billion, according to U.S. Census Bureau trade data.

While failure to settle by the end of the month stands to cause major trade disruptions, delays owed to the work slowdown have already caused setbacks.

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Cherry Donaldson, operations manager for freight forwarding firm Aqualine International Inc., which processes goods through the Los Angeles and Long Beach ports, said because of the slow pace of work, cargoes are piling up and causing rampant delays.

“The dockworkers are working very slowly,” she said. “The X-ray exams alone are piling up, so there’s a long line of containers just waiting. And vessel operators are still looking for a quick turnaround, so what’s happening is, they are offloading all the containers as the vessels come in, and because of the slow work environment, containers are not getting sorted into appropriate locations where truckers have access to pick them up.”

Aqualine had an importer who brought in a full container of cargo recently, and according to Donaldson, once the container was discharged from the vessel, it took the terminal more than one week to have that container in a yard location where the trucker could collect it for transport, a process that normally happens in the same day. Many of Aqualine’s clients have already been saddled with surcharges for delayed shipments.

Some carriers, like GoodShip International, Inc., have announced a precautionary Port Congestion Surcharge of $800 per 20-foot container and $1,000 per 40-foot container, which would be applied in the event of “a strike, lockout, work stoppage, work slowdown, or other labor-related disruption.” Donaldson said this charge is only adding to the potential costs importers may have to face during these negotiations.

And the costs associated with potential disruptions at the ports stand to wreak havoc both on retailers and the economy. According to a study released Wednesday, the U.S. economy could lose as much as $2.5 billion a day if a prolonged West Coast port shutdown occurs.

The study, conducted by the National Association of Manufacturers (NAM) and the National Retail Federation (NRF) by economists at the Interindustry Forecasting Project at the University of Maryland, showed that a 20-day stoppage would reduce GDP by $2.5 billion a day, disrupt 405,000 jobs and cost the average household $366 in purchasing power.

“It is important for the parties at the table as well as others to fully understand the economic consequences of a port disruption,” NRF president and CEO Matthew Shay said. “Any supply chain disruption, whether it’s a port slowdown or outright stoppage, would cripple international trade, stymie supply chains and hurt domestic employment and consumer spending. For retailers and their customers, a port closure would mean a delay in back-to-school and holiday shipments that could significantly drive up consumer prices.”

NAM president and CEO Jay Timmons said, “Manufacturers depend on the ability of West Coast ports to efficiently move cargo valued at 12.5 percent of U.S. GDP.” He added, “A shutdown would erode that figure and inflict long-term damage to our competitiveness as manufacturers and as a nation. The parties must come to an agreement before the current contract expires.”

The last major disruption at West Coast ports occurred in 2002 with negotiations continuing until close to Thanksgiving after an impasse led to a 10-day lockout. The lockout caused major trade delays, cost the U.S. as much as $1 billion a day and reduced the number of containers coming in through West Coast ports as shippers feared bottlenecks and continued setbacks.

Most carriers currently have contingency plans in place to bypass West Coast ports including rerouting goods to East Coast ports then sending them by rail to the West, shipping early to beat the contract expiration, and even airing goods. But the diversions have led to congestion at East Coast ports and rail delays. Donaldson said Aqualine has seen a 50 percent uptick in air shipments in the last two months, likely owed to importers trying to skirt stalled shipments.

Neither the PMA or ILWU have publicly disclosed updates on the contract negotiations, but benefits are reportedly the biggest point of contention. The two sides are also working out an agreement over a tax that will take effect in 2018 under the Affordable Care Act on certain plans, which the union’s coverage qualifies for, that could cost up to $150 million.

A key source familiar with the matter said some of the issues with the contract negotiations are very serious and the situation could get progressively worse. A strike is not likely, but a lockout is possible if the slowdowns get out of hand, the source said.