West Coast port dispute latest US supply chain threat

supply chain disruptions
supply chain disruptions
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The West Coast port labor dispute is again threatening the US supply chain. Given that the West Coast is among the nation’s major retail container ports, the outcome of failed negotiations could be so damaging that President Biden has had to intervene. So what are the issues at hand, and what’s at stake?

The heart of the matter

The International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) employer group are knee-deep in negotiations following the July 5, 2022, expiration of their labor contract. The contract was between 22,000 West Coast dockworkers and shipping companies. Both industry and the White House are closely watching discussions regarding a new agreement. The US supply chain is recovering from last year’s crisis, where ships queued at clogged ports and containers stacked up on docks during the country’s peak holiday buying season.

The contract includes 29 Pacific Coast ports from California to Washington State that deal with nearly 40 percent of US imports. What is the concern? Any work stoppage or slowdown could worsen the already damaged supply chain, fuel inflation, and aggravate pressure on a faltering economy that is dropping Biden’s popularity. Also, this is prime time for businesses that rely on maritime trade to import goods to sell to consumers during the year-end holiday period.

Automation concerns

Why not simply extend the current agreement? The shaky contract talks, which started in May, have focused on automation, wages, and worker safety. The ILWU points out that ocean carriers have recorded colossal profits during Covid. At the same time, shippers insist that dockworkers have salaries averaging six figures. The main concern seems to be automation. The union is pushing against shipping companies wanting to automate port systems as this threatens jobs. Still, shippers insist that US ports must modernize to boost productivity. Both parties have released opposing studies on the impact of automation and exchanged slights in the media.

Worst case scenario

Should negotiations fail, the worst-case scenario would be a workers’ strike. However, the PMA and ILWU issued a joint statement that they won’t extend the contract. However, cargo movement and normal operations will continue at the ports until they can reach an agreement. The parties added that they understand the strategic significance of the ports to the US, regional, and local economies and are aware of the urgent need to finalize a new coast-wide contract.

Nevertheless, it has no secret that along with the contract’s expiration is its “no strike” clause. Hours before the expiry, over 150 business groups representing industries from apparel to toys, trucking, and agriculture, begged Biden to intervene. The groups asked Biden to get the ILWU and PMA to find a quick resolution, extend the contract, commit to continued good-faith discussions, and avoid more interrupting activities. Furthermore, cautious shippers are not taking chances and redirecting their cargo from the West Coast to escape possible slowdowns, especially at the country’s busiest port complex. However, their actions increase costs and contribute to slowdowns at ports in New York, Houston, Savannah, and others.

Government steps in

As mentioned, Biden has been watching the oncoming faceoff to the point of taking the unusual decision to meet with the two groups in Los Angeles on June 10. Since then, his secretary of labor has been checking in with both sides weekly. While unusual, this wouldn’t be the first time the government has to step in when West Coast port labor contract negotiations faltered. In 2015, dockworkers went on strike for eight days, causing trade flow to get stuck and draining around $8 billion from Southern California’s economy alone. President Obama had to dispatch his labor secretary to broker a deal.

About two weeks after the June meeting, Biden signed legislation to improve ocean shipping supervision to help curtail inflation and reduce export bottlenecks. The new bill enhances the investigative authority of the Federal Maritime Commission (FMC), the US agency supervising ocean shipping, and boosts transparency of industry methods. In addition, Biden has promised to “crackdown on ocean carriers whose price hikes have hurt American families.”

Key takeaway – delays from the flood of cargo last year are still rippling through the economy

According to the US Consumer Price Index, Congress has few tools to fight inflation, which reached 8.6% in the 12 months through May. Furthermore, the delays from the flood of cargo last year are still rippling through the economy creating goods shortages and adding to inflation. The last thing the Us economy needs is more delays at West Coast ports.

Learn more about global supply chain disruptions, logistics, and more in our blog

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