U.S. Exporters May Be Most Vulnerable Shippers from Delayed ILWU Contract

When the International Longshore & Warehouse Union (ILWU) master contract expires, it tends to be bad news for U.S. shippers. Often, a great deal of the focus is on retailers importing from China, but U.S. exporters, particularly agricultural exporters, could wind up with very negative long-term ramifications from dragged out negotiations.

The current contract negotiations, which are about 10 months in already and 8 months removed from contract-expiration, could easily drag into this year’s peak season and turn contentious like the 2014-15 negotiations that kept imports from shelves during the Christmas shopping season and agricultural exports rotting on the docks.

Many U.S. exporters permanently lost international business partners during that fiasco, which had an ongoing impact, but there’s another danger for exporters this time that Friedmann brought up in the interview. The risk is shifted cargo volume from West to East and Gulf Coast ports could get locked in, changing vessel voyage patterns in a way that would be detrimental for U.S. agricultural exporters.

How Dragged Out Negotiations Could Hurt Exporters

Here’s how he explained it in the interview, which can be seen and read about in an Freight Waves article by John Gallagher:

“… bit by bit this uncertainty continues. Investment decisions have to be made, capital is being raised, and it is going to be deployed where there’s less uncertainty.

“That means if [an investor] is putting a multimillion-dollar transload or cold storage facility in a port on the East Coast, that’s where the cargo is going to go. It takes years to get through the permitting and financing, so once those investments are made, that locks in a trade route or distribution network to that location.”

…

“Our exports are soybeans, hay, almonds, meat — it’s low value compared to what we import. That means exports originating from the U.S. Midwest or West Coast need to move in the most direct and cost-efficient way to those markets,” he said, such as through Oakland, California, or Seattle.

“But if they can’t go that way because carriers are shifting vessel capacity to accommodate imports that now want to go to the East Coast — now we have a problem. You can’t drive a truckload of hay from Washington state to Savannah or Charleston or Norfolk, which is why we need to keep West Coast ports fully utilized by the ocean carriers providing those services.”

History, and Carriers, Often Unkind to Exporters

We’ve often seen carriers prioritize U.S. imports over exports. We’ve even seen agricultural exporters denied containers and service in order to prioritize more profitable import cargo. There’s no reason to believe carriers would make agricultural exporters a priority now if shifting services at exporters’ expense is more profitable.

Luckily, West Coast disruptions during these negotiations have been mitigated by reduced cargo moving through West Coast ports. However, as negotiations drag on, increasing tensions and more significant disruption become more and more likely.

As Friedmann said in the interview:

“Over the past 25 years it’s been more common than not to see some sort of work slowdowns or stoppages that have held up shipping for maybe only a couple of days. But even a three-day stoppage would take weeks to unwind and cost companies a significant amount of money.”

Frankly, that’s putting it mildly.

Update on the Negotiations

It’s hard to know how the finally resumed contract talks are going as the parties have decided not to discuss negotiations with the media. However, they did give a joint update, posted on Twitter, just today:

Remaining “hopeful of reaching a new deal soon,” as the statement says the ILWU and PMA are, at least has a touch of optimism to it. However, it doesn’t give much for shippers hang their hats on.

The statement the parties make that “news articles purporting to know what is happening at the bargaining table are speculative at best” is certainly true. But there probably is a little something that can be deduced from the total statement and put in articles.

ILWU and PMA saying “the parties have reached a tentative agreement on certain key issues, including health benefits” makes it almost a certainty that they have not yet reached agreement on the issue of automation. That’s the topic many fear will turn negotiations contentious. If they had reached agreement on that issue, the PMA and ILWU likely would say so to relieve fears over the negotiations. Relieving fears on the automation battle would likely help some to reduce pressure being placed on the parties to resolve talks quickly.

Of course, nothing will entirely resolve pressure on the ILWU and PMA to reach a new master contract agreement. The stakes and potential costs of dragged out and contentious negotiations are too high.