As the days continue to get crossed off the calendar, the ongoing situation, regarding the broken-off labor talks between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX) continues to get further scrutinized, with the current contract between the parties set to expire on September 30.
The ILA is the largest union of maritime workers in North America, representing workers at 36 ports from Maine to Texas. And the USMX is an alliance of container carriers, direct employers, and port associations serving United States-based East and Gulf Coasts.
The current six-year labor deal between the parties was completed in September 2018 and covers roughly 14,500 U.S. East and Gulf Coast port workers. ILA said at the time of the deal’s completion that this six-year contract extension will bring generous pay increases, landmark protections against job-killing fully automated ports, and labor peace and stability through September 30, 2024.
As previously reported by LM, on June 10, one day before talks were scheduled to take place between the ILA and USMX, the ILA announced it had suspended talks, at a time when negotiations of local agreements under the parties’ coast-wide Master Contract were ongoing.
ILA officials explained that it cancelled Master Contract talks with the USMX on June 10, upon learning that APM Terminals and Maersk Line are using an Auto Gate system that autonomously processes trucks without ILA labor, adding that this system, which was initially identified at the Port of Mobile, Alabama, is also being used at other ports, too. An ILA spokesman called this another example of USMX members unilaterally circumventing the coast-wide Master Contract, calling it a “clear violation” of the agreement.
With talks stalled and no clear outcome known at this point, Newsroom Notes reached out to Paul Bingham, S&P Global Market Intelligence Economist Paul Bingham to get a clear read on what an East and Gulf Coasts’ ports labor strike could mean for the supply chain, as well as the economy, throughput, and port operations, and congestion.
“We have already seen impacts in supply chain managers attempting to mitigate risks by advancing shipments and utilizing West Coast port gateways more this year,” explained Bingham. “Supply chain managers recent experience with the West Coast ILWU-PMA longshore labor contract implications for their businesses, plus the broader challenges companies lived through in the freight congestion during the shipping boom during the pandemic has led to proactive steps by companies to minimize their risks from potential 2024 port disruptions on the East and Gulf Coasts.”
As for impacts on supply chains and the economy from a labor deal expiration with a strike, Bingham pointed out that a critical factor is a potential strike’s duration, noting that consequences from a strike that ends quickly within a few days may be minimal, similar to what happens with common holiday or even unanticipated weather disruptions to port operations.
“As supply chain managers have been able to prepare for potential labor disruption, impacts would be less than from an unanticipated port operations disruption,” he said. “However, if a strike extends beyond a few days, the daily impacts begin to grow despite mitigation planning, due to the attempts by supply chain managers to balance between advance mitigation costs, which can be thought of as insurance against disruption such as the increased inventory carrying costs for having more buffer stock on hand, weighed against estimated costs for recovery from disruption once it occurs.”
Examples of port disruption costs cited by Bingham, can include procurement of expensive air cargo service for immediate critical shipments, such as to keep factories operating, or modal or source supply diversion to obtain goods through other gateways still in operation.
What’s more, he observed that some exporters would be impacted by delays in delivery and payment for overseas sales, while other exporters may lose sales that they can’t recover if they are unable to ship quickly enough and customers have supplier options.
There are also direct related economic impacts from port disruptions on port-related businesses concentrated around the affected seaports where port services suppliers lose revenue when port operations stop, according to Bingham. And he added that it should be noted that those impacts are typically mostly offset when the ports return to operations, depending on the duration of the disruption and whether cargo diversion to other ports or modes of transportation has reduced the total port throughput and associated business revenue.
From a commodity perspective, he said that there are specific commodity types where port operations disruptions are more difficult to mitigate against and where offsetting impact through recovery after the port disruption is over are more difficult.
“Examples are refrigerated perishables handling where the quality of the products degrade over time and where lost sales are difficult to recover later,” he said. “While the overall share of those commodities at the coastal level is not large, for individual ports that specialize in those type of commodities, such as the Port of Philadelphia as one example, the impacts can be more significant from a longer duration strike.”
From a “length of a strike perspective, he said that impacts of port disruptions don’t continue to grow endlessly, if a strike would last for an unprecedented and unlikely extended period of time such as a month or more.
“Supply chains adjust and eventually would find re-routing and source supply and customer alternative shifts made by businesses to cope with the situation, just as we’ve seen happen with the extended disruption to ocean shipping from the extended disruptions to trade routes from the Red Sea attacks this year,” he said. “After a strike of more than a day or two is over, there is very likely some short-run vessel/terminal congestion from delayed shipments at those port terminals that don’t have excess capacity to absorb quickly the concentrated pent-up shipment volumes. That extends to dray trucking and rail capacity to handle the port cargoes inland as well in the short run. However, the U.S. Atlantic and Gulf Coast ports are not operating at capacity now, and the trucking industry and the rail industry are also not operating at capacity already either with relatively overall weak freight demand in 2024. That provides some buffer to potential post- port disruption recovery congestion that would not have been available during the peak of the pandemic shipping in 2021 and 2022 in contrast.
Even though the threat of a strike lingers, Bingham said he believes that the risk of a long-duration port disruption is very low at this point in 2024, with this being an election year and the underlying operating conditions reflecting carrier, terminal operators and shippers all having already taken steps to reduce potential port disruption risks.
“As seen in the involvement of Federal officials during the recent ILWU PMA labor contract negotiations for the West Coast ports, it is likely similar offers of Federal assistance in contract negotiations will come quickly from Federal officials this year, if needed to avoid port disruptions,” he said.
With more than a month still remaining until the expiration of the current ILA-USMX contract, it remains to be seen how things play out. But Bingham’s insight and analysis regarding the situation, make it clear that even should a strike occur, it could be fairly temporary. That is a good thing. Now, we just need to wait and see what happens from here.
