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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

- May 7, 2014 -


Global Supply Chain News: Is a Strike Likely at West Coast Ports this Summer?

Handling Health Care Costs Looms Large; A $150 Million Cadillac Plan Tax?


SCDigest Editorial Staff


It's contract time again for West Coast port and terminal operators, as negotiations between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA), whose 72 members include shipping lines and terminal operators, begin on May 12 in San Francisco.

The current six-year contract expires on July 1, but if history is any guide, a deal will not be wrapped up by that time. In the past, it has taken several weeks after contract expiration to come up with an agreement, making things dicey for importer and exporters using these ports.

SCDigest Says:


Future container volumes are also at risk due to the planned opening of the expanded Panama Canal in late 2015, which likely will take a solid share of shipments from Asia to the US.

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The best scenario of course is that an agreement is reached during that time for the 13,600-member ILWU to keep working under the existing contract until a new agreement is reached. That would likely be the case if the two sides appear even reasonably close on the high-level terms of a deal. But there are no guarantees that strikes won't be seen, perhaps isolated actions instead of port-wide.

To start, for example, the ILWU could hold occasional "emergency union meetings" that would turn one-hour lunches into three-hour shutdowns, according to Bruce Carlton, president and CEO of the National Industrial Transportation League (NIT League).

Such a tactic would simply be a way to remind ports and terminals that the ILWU has power, Carlton said, and will become more likely as negotiations drag on.

Though both sides are playing nice, with a minimal war of words at this point before the actual talks, in the memory of many is the rather nasty and prolonged negotiations between East and Gulf Coast ports and the longshoreman's union there before a deal was finally reached in early 2013, months after the contract initially expired. Though in the end there was no strike, one was perilously close many times, risking what was termed a "container cliff" for the economic damage that would have ensued from such an action.

"All our members have been preparing their contingency plans for a while because they all knew this is coming," said Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation. "You probably won't see the contingency plans hit until the negotiations start."

Retailers and brand companies in categories from toys to apparel are said to be plsnning on bringing some highly predictable merchandise from Asia in early, before the contract expiration is reached. Others may look at routing some shipments into ports in Mexico or Gulf Coast ports such as Houston.

This is especially true for brands and retailers connected to the "back to school" season that starts in late July and who would be especially at financial risk from a work stoppage in mid-summer.

Air freighting is always an option too, though that is many times more expensive than ocean freight.

(Global Supply Chain Article Continued Below)



What are the Key Issues?

Most everyone is interested in avoiding the fiasco of 2002, when West Coast port operators enacted a 10-day lockout of the Longshoremen when a timely agreement could not be reached, causing a variety of supply chain disruptions.

NIT League's Carlton is in fact very optimistic that things will go well, saying that "Overall, the atmospherics are so much better than what we've seen in the past. Adults are in the room, but they have a tough job ahead of them."

In the East Coast negotiations, the big issues were automation at the ports and an obscure but costly royalty that the ports had the pay the union for every container moved, a relic dating back to the 1960s.

On the West Coast, automation will certainly be a topic, but looming much larger is who will pay what for health care. Currently, longshoremen pay nothing for their healthcare coverage and only $1 for prescriptions.

Some may remember discussions at the time the Affordable Care Act (Obamacare) was passed that there would be a tax on overly generous "Cadillac" health insurance plans.

Well, the ILWU plan would fall under this designation. The law calls for a 40% excise tax on employer-sponsored plans spending more than $10,200 per employee or $27,500 per family.

That would mean that starting in 2018, PMA members will have to pay a hefty $150 million tax on the healthcare plans provided to longshoremen, on top of paying the full cost of the insurance itself to some of the most highly paid union members in the US.

The PMA will obviously want to change this situation. The reality is it would be better off even just requiring union members to pay more for their health coverage and making up the difference in wages, as this would at least avoid the trigger of the excise tax.

But the PMA will also be looking to push back in the level of overall cost increases it can absorb, in part due to weak growth in container volumes that are at most ports still below pre-recession levels.

"The terminal operators up and down the coast are very concerned about this," said Carlton.

And of course, future container volumes are also at risk due to the planned opening of the expanded Panama Canal in late 2015, which likely will take a solid share of shipments from Asia to the US via an all water route to the East Coast, rather than to the West Coast and by train to the East.

In 2008, the 29 West Coast ports' share of containerized imports was 48.6% of the US total. In 2013, that share had fallen to 43.5%, and is likely to slump further.

And the double edged sword for the union is that the cost to process each container plays a role in which ports an importer or exporter uses. So if an agreement pushes costs too high, that may simply accelerate the move from the West Coast to other ports.

Do you believe West Coast port negotiations will go smoothly? What should shippers do now? Let us know your thoughts at the Feedback button (email) or section (web form) below.


Recent Feedback

There was no strike in 2002. There was a lockout.

ACA Employer tax starts in 2018. That means there will be a 3 year contract.

Negotiations will go as they always do. An argeement will be reached at the 11th hour, or the Union will agree to continue to work.

Big Bob has to look like he pushed the Employers as far as possible, when he feels like he has done that they will settle.

Stop acting like Chicken Little with all the "strike" talk. Every one on both sides is making money, lots of money.

Jim Tessier
Labor Consultant
May, 27 2014