Hard lessons from the West Coast port crisis

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Brandon Fried is the executive director of the U.S. Airforwarders Association

Forwarders’ Forum (from the print edition):

When McDonald’s restaurants in Japan could no longer wait for French fries delayed by the West Coast port labor slowdown, the company turned to air cargo, shipping 2,600 tonnes from the United States to Japan.

With that, the popular food chain joined other companies affected by the port congestion, which has had a significant impact on the entire supply chain – particularly those who rely on the West Coast ports to move their goods and prod­ucts around the world and throughout the country. Labor and management may have reached an agreement to end the deadlock, but now we are left to ponder its residual im­pact and what lessons, if any, were learned.

The 29 West Coast ports that were affected by the slow­down together handle more cargo volume than any other region in the U.S., and an estimated 12.5 percent of the nation’s GDP. During the negotiations, the work that was stopped during the Presidents’ Day long weekend resulted in an estimated cost to U.S. trade of US$1.9 billion a day.

During the port crisis, airlines offering cargo services saw their volumes reach new heights as shippers on both sides of the Pacific clamored for space on freighters and in the bellies of passenger jets. November shipments from Asia-Pa­cific to North America increased 17 percent, year-over-year, with yields improving 9 percent.

The International Longshore and Warehouse Union (ILWU), which represents workers at West Coast ports, places blame for the crisis on the ocean carriers that have added new, larger ships and also decided to exit chassis ownership. The larger vessels have up to three times the carrying capacity of previous-generation ships and save about 25 percent in operating costs, with full loads. Today, chassis are owned mostly by third-party leasing companies or truckers, and this has resulted in shortages that have played a role in increased truck waiting time and congestion.

Cities and states, anxious to attract increased economic activity, have also played a role, attracting shipping lines with low fees while subsidizing the true cost of port opera­tions and expansion. The new ships save money for carriers but increase port costs by billions of dollars, as harbors need to be dredged to accommodate their larger size.

The Pacific Maritime Association, which negotiates labor contracts with the ILWU on behalf of the West Coast ports, claims that ILWU members pay no health care premiums, pay $1 per drug prescription and receive generous pensions. Workers receive a compensation package that is among the most lucrative for blue-collar workers in the United States. Full-time workers earn an average of $147,000, annually, along with a non-wage benefits package costing more than $82,000 per active worker, per year.

Unfortunately, while the West Coast ports and their labor union may be adversaries, both are fighting the even larger opponent of an internet-driven economy, where retailers selling computers and flat-screen TVs are putting pressure on transportation providers. How many of us have seen an item in a store and purchased the same one for a lower price through an internet provider? As a result, large retailers are less willing to pay viable rates for ocean transportation because their customers will not allow a corresponding in­crease in merchandise cost. During one of the worst global recessions in history, budget-minded consumers seeking savings favored big-box discount retailers such as Wal-Mart, Target and Costco for inexpensive prices, most likely de­rived from aggressive supply-chain negotiating, including transportation rates.

Despite the massive volumes of cargo transiting through the ports of Los Angeles and Long Beach, shippers and im­porters may have learned a lesson during the slowdown and the nine-month negotiation process. Some shifted cargo to Canadian and Mexican ports and have begun to consider the future viability of bypassing the West Coast in favor of the East as soon as the new generation of larger ships can tran­sit the newly dredged Panama Canal. The lesson learned is that importers are savvy and will use any means necessary, including air cargo, to get products onto the shelves.

As West Coast dock workers enjoy the benefits of this new contract, this lesson should be kept in mind, as the next negotiation and slowdown is likely to be met with better-prepared customers with adjusted, more flexible supply chain strategies. These adjustments may avoid U.S. port disruptions – or worse, any port in our country – in favor of inexpensive destinations in Mexico and Canada willing to accommodate the challenge of new market realities.

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