Challenges Remain at West Coast Ports Despite Labor Agreement

Delays and uncertainty will continue to plague the ports in the short term and when the current deal expires.
LOS ANGELES – Mar. 10, 2015 – Shippers, carriers, longshoremen, businesses and consumers alike can breathe a sigh of relief in light of the tentative deal the Pacific Maritime Association (PMA) and the International Longshore and Warehouse Union (ILWU) reached on February 20. For the past nine months, labor disputes between the PMA, which represents waterfront employers (e.g. carriers that provide deep sea cargo transportation services), and the ILWU, which represents dockworkers, contributed to delays at 29 West Coast ports. These delays stemmed mainly from the ILWU’s slowdown tactics, although the PMA’s suspension of vessel operations for four days in February also contributed. The tentative five-year deal reached late last month should help restore shippers’ confidence in the West Coast ports, which handle about 42.0% of the nation’s containerized freight and cargo valued at 12.5% of GDP, according to the National Retail Federation.
However, delays and uncertainty will continue to plague the ports in the short term and when the current deal expires. Port officials say that they will not clear their container backlog for 45 to 60 days. Because the ILWU and PMA do not typically return to full productivity and manning levels in the immediate aftermath of a contract resolution, this projection likely underestimates the backlog; the Port of Los Angeles reports a lengthier three-month period until their backlog is cleared. As such, goods will continue to sit on docks or ships for prolonged periods. Shippers with time-sensitive cargo, including perishable items, will incur the highest costs from persistent holdups. Additionally, the fact that West Coast port operations are consistently disrupted for months during years when labor agreements are negotiated (e.g. 2002, 2008 and 2014) tarnishes the ports’ reputations. As such, in another five years, businesses reliant on West Coast ports can expect more congestion surcharges from the ocean carriers and trucking companies (i.e. providers of national trucking services and local freight trucking services) that handle their containers, as well as major delays and inventory shortages.
The latest PMA-ILWU dispute has driven home the importance of planning contingency routes, which many shippers are continuing to do until the congestion on the West Coast eases. Retailers and providers of freight forwarding services have shifted some of their cargo volume to ports on the East Coast, which are near major population centers and headquarters for many large retailers that dominate US container imports. Additionally, growing ports such as Charleston and Savannah experience little to no labor disruption. Shippers are also diverting their goods through Gulf Coast, Canadian and Mexican ports to avoid West Coast delays, and many have turned to air cargo transportation services as an alternative to ocean carriers for shipping high-value goods to and from Asia. Still, when West Coast ports are functioning at normal productivity and without crippling backlogs, they are regarded as the most cost-effective way to market for about 70.0% of US imports from Asia. The competitive advantage these ports can offer in terms of location and infrastructure makes the tentative agreement reached last month a positive step.