A Good Time To Work Out Labor Issues At West Coast Ports?

Last night container shipping line A.P. Moeller-Maersk reported a job action at the Ports of Los Angeles and Long Beach. International Longshoremen Workers Union (ILWU) Local 13 crane operators and top handler drivers decided to reject their job assignments for the evenings second shift, which affected all operations in the ports for the night shifts. Maersk reported that every terminal in the harbor canceled vessel, yard, rail and gate operations, with no certainty as to whether they would start again today. While this appears to be an escalation in a dispute that has been going on since last summer, the question is will it further moves towards a settlement? As far as international supply chains and imports are concerned, especially the key trans-Pacific trade lane, this is perhaps the least disruptive time for a major service interruption. Exports are a different story. Perhaps it is time for both sides to settle?

U.S. import demand has been waning. The Journal of Commerce reported that ocean carriers had already planned to cancel 50 voyages from China between the end of March and the end of April, representing 443,000 twenty-foot equivalent units (TEUs) of capacity. This included 12 sailings from the Yantian International Container Terminal in Shenzhen, China, which has long anchored the primary South China to North American and European trades. This was in the face of a 37% year-on-year decline in imports from China in February. All this is with a backdrop of high retail inventories in the U.S., which continues to put pressure on import demand. We did say some time ago that all that over-ordering during the pandemic would eventually catch up to everybody, and that time appears to have arrived.

The big question is when will traffic rebound? The traditional peak season for imports starts with the retail back-to-school and holiday shopping seasons in the summer. But U.S. domestic housing construction has been really weak because of higher interest rates, depressing demand for furniture and appliances. Retail sales have been under a lot of pressure, and many retailers still have too much inventory on hand. The retail inventory/sales ratio is still pretty high, and turmoil in the banking sector is not especially great for consumer confidence. So while there is hope that the second half of the year might be the light at the end of the tunnel, that light is looking a little dim at the moment.

Anticipation of labor strife has given a lot of impetus to shippers to shift cargo from the West Coast to Gulf Coast and Atlantic ports, which have seen strong volume growth. By the end of last year, the Port of New York and New Jersey passed Los Angeles/Long Beach in traffic handled. Thus the Pacific Maritime Association (PMA), who represents the ocean carriers and terminal operators, is motivated to get to a new contract so that shippers have confidence to use West Coast ports, and the ILWU has a weaker hand than during the height of port congestion in 2022.

There are mixed signs on progress. ILWU workers in Hawaii apparently reached a local agreement with Matson Navigation Co. and Pasha Maritime Services, but neither the ILWU nor the PMA appear to signal whether that this points to broader movement. And local issues continue to plague ports like Oakland and the Northwest Seaport Alliance in Seattle-Tacoma.

Exporters, especially those who move agricultural and forest products through West Coast ports, are probably the ones who will suffer the most. They need reliable transportation, and disruptions make it difficult to full commodity contracts.

This is a good time to work out labor issues at the West Coast ports. It would be to everybody’s benefit, and nobody’s leverage in the negotiations appears to be at its peak. As the threat of a major disruption drags on, shipper customers will be forced to find more alternatives.