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Focus: Global Supply Chain and Logistics

Our Weekly Feature Article on Topics Related to Global SupplyChain Logistics

From SCDigest's On-Target e-Magazine

- Dec. 19, 2012 -


Global Supply Chain News: Here Comes the "Container Cliff"

Talks at Standstill for East and Gulf Coast Port Workers; Dated Royalty Payment Program Still at Heart of Impasse; Will Obama Intervene?


SCDigest Editorial Staff


With the extended expiration of the contract with East and Gulf Coast dock workers set to occur in less than two weeks, global shipping may soon be dealt a fierce blow, in what some have wittily started calling the "container cliff."

Tuesday, the International Longshoremen's Association, representing workers at 14 of those ports, rejected an offer from the United States Maritime Alliance (USMX), which represents the ports and terminal in the negotiations, for a short contract extension to keep ports operational. Talks in general are said to be going nowhere.

SCDigest Says:


The royalty payments reached $211 million in 2011 alone, averaging some $15,500 per worker at the 14 affected ports.

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If the longshoremen do go on strike when the contract ends Dec. 29, it will impact container movements at ports from Maine to Houston. One estimate put the economic cost at about $1 billion per day. About 50% of the nation's total containers handled for import or export flow through the potentially impacted facilities.

The last strike by the ILA was all the way back in 1977. Now, the union has promised it will walk off the job at 12:01 a.m. on Dec. 30 if an agreement is not reached.

The USMX said this week that it offered pay raises to the dock workers that would increase the average hourly rate to over $55, or more than $110,000 a year.

The ILA said the alliance statement inflates wages paid to its members, and that it was willing to grant an extension, but only if the key issue in the talks – royalty payments that its members get for each container they handle - is taken off the table.

The USMX, blamed the union for the breakdown, accusing the ILA of rejecting a shorter extension proposed by mediator George Cohen, and being intractable on the container issue.

That royalty issue relates back to a deal done with the union in the early 1960s, as containerized freight started to take hold, and port workers were concerned the resulting improved handling of freight would lead to massive job losses. So, they were able to negotiate a fee that would be paid by ports and terminal operators on each container that moved through the port - the idea being that this would provide compensation for the loss of jobs that each container in effect represented.

"The ILA wanted to say 'Happy New Year' with a contract extension to Feb. 1, 2013 but United States Maritime Alliance, or USMX, answered with a resounding 'Bah Humbug' and rejected an ILA offer to extend the deadline of the current Master Contract through the end of January 2013," the ILA said in a statement.

The first such royalty payments were made in 1968 at the ports of New York and New Jersey. They later spread to other East and Gulf Coast ports.

(Global Supply Chain Article Continued Below)



While the number of dock workers did decline in New York, the shipping container opened up opportunities for ports and ILA members in places like Savannah and Houston. Trade volumes and the number of containers moving through the ports soared many fold over the past 50 years.


The royalty payments reached $211 million in 2011 alone, averaging some $15,500 per worker at the 14 affected ports. With the increased tonnage and a general decline in the number of ILA members in the past 20 years or so, payments per ILA member have continued to rise. At Savannah, for example, they increased from $6,028 in 1996 to nearly $36,000 per worker in 2011.

Naturally enough, the union takes a slice, bringing the ILA itself more than $20 million last year.

However, ILA workers receiving those hefty checks today have no real connection to the perceived threat from containerized traffic to manually loaded freight and handling work that started the whole program in the 1960s.

The National Retail Federation wrote to President Obama late Tuesday asking that he use his powers under the Taft-Hartley Act to essentially require that the dock workers stay on the job and keep the two sides talking.
"The U.S. economy cannot afford to wait for a strike to occur before we see administration action," said Mathew Shay, president and CEO of the retail trade group. "Allowing a strike to occur for even one day could have a negative impact."

There are no indications yet whether the administration, supportive of labor but certainly concerned as well about the impact of a strike on a still wobbly economy, would make such a move. Federal mediators are heavily involved in the current negotiations, but there has been "with little demonstrable progress" in the talks for some time, the NRF said.

How big an impact would a strike at these ports have? Is it time to change this royalty program?Let us know your thoughts either via email or in the Feedback section below. We will keep your comments anonymous by request.


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