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Focus: Global Supply Chain and Logistics

Our Weekly Feature Article on Topics Related to Global Supply Chain & Logistics
 

From SCDigest's On-Target e-Magazine

- Aug. 27, 2014 -

 

Update! Global Supply Chain News: PMA and ILWU Say they have Reached Deal On Contentious Healthcare Issue


Resolution of this Issue Could Lead to Quick Contract Approval

 

SCDigest Editorial Staff

 

 

Update Aug. 27, 2014, 9:15 AM: 

 

The Pacific Maritime Association and the International Longshore and Warehouse Union (ILWU), which represents workers at 29 West Coast ports, announced late Tuesday afternoon that they had reached a tentative agreement on the contentious issue of healthcare benefits.

 

As described in our original story below, the current healthcare plan for dock workers would be considered a "Cadlillac" plan under the Obamacare rules, subjecting the ports as represented by the PMA to as much in $150 million in annual penalties if unchanged.

 

But apparently the two sides have come to some accord on the issue.

 

A joint press release from the two sides said that they had "reached a tentative agreement on terms for
health benefits, subject to agreement on the other issues in the negotiations. The parties have agreed not to discuss the terms of this tentative agreement as negotiations continue."

 

Since healthcare was viewed by many as the most challenging issue in the negotiations, this would seem to auger well for a full agreement  before too long.

 

 

Original Story: As West Coast Port Labor Talks Drag On, Some Shippers Getting Nervous, While Alternative Ports Back Up

 

Negotiations Soon to Enter Their Third Month; Lack of Rail Capacity Limits Canadian, Mexican Alternatives

 

 

It is now almost two months since the contract between the Pacific Maritime Association, which represents West Coast ports and terminals, and the International Longshore and Warehouse Union (ILWU), which represents workers at 29 West Coast ports, expired, with no sign of an agreement in sight.

The talks continue to be characterized as "cordial," and there has been nothing in the way of a "war of words" that often characterizes labor negotiations. But in reality little is known about the state of the negotiations, which do involve some contentious issues, and some shippers and importers are concerned that eight weeks without a deal may mean the issues are serious enough that a strike may yet be a real possibility.

SCDigest Says:

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Canada is a great Plan B, but if it were Plan A then shippers would be using them regularly.

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In addition to basic issue of wage increases over the life of a new six-year contract, healthcare is a huge issue in the discussions. That's because the coverage ILWU workers receives will be categorized as "Cadillac" plans under Obamacare, subjecting the PMA to huge penalties if the status quo remains - as much as $150 million annually, starting in 2018.

The PMA and the union will be among the first to negotiate this issue, with the ports clearly looking to reduce coverage enough so that it falls below Cadillac plan thresholds. But the union will want wage compensation for taking that hit.

Another key issue will be port automation, which to date the ILWU has not fought aggressively, but it may be looking to slow the automation tide in a new deal.

The last update the ILWU has on its web site is from July 22. The last update on the PMA site is from July 25, and simply says that talks are continuing. The Los Angeles Times newspaper, which generally stays well on top of port issues due to the impact the ports of LA and Long Beach have on the local economy, hasn't written anything about the talks in many weeks.

Officials at the Retail Industry Leaders Association (RILA) are concerned the lack of an agreement is going to cause supply chain issues for its members.

"While goods continue to move at an efficient rate through the West Coast ports of entry, each day without a finalized agreement jeopardizes the movement of goods destined for shelves during the all-important holiday season," said RILA president Sandra Kennedy in an open letter to both sides of the negotiations. She added that many importers that begin diverting freight to non-West Coast ports inside or outside the US may decide to make some of those moves permanent.

That's the last thing the West Coast ports need, as they continue to lose market share, with their share of inbound containers falling from 50% in 2002 to about 44% in 2013.

Alternatives Struggling to Keep Up with Diversions

As many importers have decided for now at least to divert some freight to Canadian, Mexican or East Coast ports through the Panama Canal, the limits of such moves are starting to be felt.

Cargo is backing up in Canada, highlighting the lack of capacity that Canada's Pacific ports have for handling the massive amount of U.S.-bound cargo.

 

The port at Prince Rupert, for example, saw container traffic soar 49% in July from a year earlier.


(Global Supply Chain Article Continued Below)

 
CATEGORY SPONSOR: SOFTEON

 
 

In early August, in fact, DP World, the U.A.E.-based terminal operator at Port Metro Vancouver, said it would no longer handle U.S. bound cargo, citing a lack of rail cars to receive the containers, though TSI Terminal Systems, the largest container terminal at Vancouver, said it would continue to accept U.S.-bound cargo for now.

The issue in Canada is largely one of rail lines. Rail capacity out of both Vancouver and Port Rupert is very limited compared to LA/Long Beach or Oakland, for example. Mexico's only sizable Pacific port also has limited rail service as well.

"Canada is a great Plan B, but if it were Plan A then shippers would be using them regularly," Jason Kuehn, associate partner at New York-based transportation consulting firm Oliver Wyman, told International Business Times this week.

But others think that some decent portion of diverted traffic could lead to permanent changes in flows.

 

"If people are using the Canadian ports now out of concern for a slowdown, and they like what they see and they like the processing times and the experience, they'll continue to funnel some of their traffic that way," says Emma Griffith, a director at Fitch Ratings in New York who covers air and sea ports.

So with almost no insight into the status of the talks dragging soon into their third month, all shippers can do is hedge some bets, but likely leaving them still vulnerable to a strike that could come out of nowhere in coming weeks.

 

What is your strategy for managing the long West Coast port negotiations? Are you seeing back-ups in Canada or Mexico? Let us know your thoughts at the Feedback button (email) or section (web form) below.


 

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