West-Coast Port Fiasco Does ‘Permanent, Irrevocable Damage’

The labor dispute that wreaked havoc on West Coast ports and on shippers for months was tentatively settled on February 20. By then, it was too late.

Cargo had been delayed for weeks. Perishable goods with sell-by dates were stuck in refrigerated containers somewhere. Companies around the country spent endless working hours to keep the supply chain from collapsing. Cargo was shipped by air at a big additional cost. Demurrage charges and other costs piled up. Manufacturers, like Honda, ran out of parts and had to cut production…. It was a fiasco shippers won’t forget.

Growers in the Central Valley of California, when they want to export their produce to Asia, don’t have a choice. Shipping these goods across the country to ports on the East Coast or the Gulf or to Canada is too costly and takes too long. Other companies have the same problem. They’re captive customers of the West Coast ports. But not every company has that problem.

There is the near-term impact.

“Damage to the first quarter is done, and there’s nothing we can do about it,” Journal of Commerce economist Mario Moreno told the annual TPM Conference in Long Beach.

In January, the volume of US containerized imports was down 10% from a year ago. West Coast ports, which handled about 54% of the imports last year, weighed heavily. For instance, at the Port of Los Angeles, volume plunged 28%, at the Port of Oakland 32%!

And February, Moreno said, doesn’t look a lot better. It will drag down the whole year, with total US containerized imports inching up a crummy 1.7% in 2015, rather than the 6% he’d projected earlier.

Exports look even crummier. It’s not just the West-Coast port problems, but also the strong dollar and, worse, lackluster demand in Asia and Europe that are expected to drag down total US containerized exports by 4.4%, Moreno said. It would be the second year in a row of declines.

Exports add to GDP. Goosing exports is how everyone in the world wants to fix their economies, in a zero-sum game. But it’ll be tough for the US.

Industry analysts and port executives project it might take another two to three months to clear out the backlog. According to the JOC, “The congestion is so severe that it will tax the ability of marine terminals, longshore labor, truck drivers, and equipment providers to clear out the backlogs while attempting to handle new vessel arrivals each week.”

Then there is the long-term damage.

“Completely unnecessary and completely man-made” congestion has caused “permanent and irrevocable damage,” explained Adam Hall, senior director international logistics at Dollar General, which ranked 33rd on the 2013 JOC Top 100 Importers list. “The reason I say that is that we have figured out better ways to move our cargo that don’t involve the West Coast.”

Dollar General will shift more of its Asian imports from its centers in Southern California to its centers near Savannah, Georgia. “We have a bicoastal strategy that enables us to move back and forth,” he said. Shipping from Asia via the West Coast is faster and cheaper than the southern route via the Panama Canal, but reliability is more important than speed for some cargo, Hall said. “We will not be married to any one port.”

The biggest shippers – importers in the import-dependent US – such as Wal-Mart, Home Depot, and Target, use the so-called four-corner strategy with facilities at the northern and southern ports on the West Coast, the East Coast, and the Gulf. They’re not married to one port either.

And the fiasco has taught even smaller companies to look for alternatives to West-Coast ports.

In a JOC survey of 138 shippers, 65.4% said they would reroute cargo to avoid West Coast ports this year and in 2016. Of those, 22.7% said they’d reroute 10-30% of their cargo, 11% said they’d reroute 31-50%, and 9.5% said they’d reroute over 50%. In other words, over 20% of the shippers said they’d reroute over 31% of their cargo to avoid West Coast ports!

That’s a lot of business that will be lost.

And shippers will source some of their merchandise closer to the US, or even in the US, to avoid the eternal “cycle” of labor disputes, said Steve Wolfe, VP of global supply chain and logistics at Stanley Furniture.

“Not only is it getting old, it’s more and more disruptive and raising costs to the point that bringing manufacturing back may end up being break-even, though it’s probably commodity specific,” he said in his survey response. “Our company is certainly beginning to look for alternatives as well as many of my peers in various commodity segments.”

This is good news for parts of the US, including ports on the East Coast and the Gulf Coast, and for ports in Canada, and it may be good news for manufacturing if it pans out. But its bad news for West-Coast ports and the industries that have sprung up around them, and for warehouse facilities, truckers, railroads, etc. that are focused on the West Coast.

It comes on top of the expansion of the Panama Canal – to be completed no later than next year – that will allow even larger vessels to squeeze through, which would bring down shipping costs of the southern route and make it more competitive with truckers and railroads in the US.

This is what happens when the two sides in a dispute hold the already struggling economy of an entire nation hostage to further their own goals. They played a sordid blame game in the media here for months. Every time an article on the port congestion appeared, it seemed to contain propaganda from one side that the propagandists at the other side fiercely denied by issuing their own propaganda. The idea was to eke out an advantage by holding a big gun to the nation’s head.

But the gun backfired. It caused permanent damage to all involved, for the benefit of the same sectors in other parts of the country, in Canada, and even in Panama. And now the whole world marvels how such a convoluted, spread-out, French-like disruption of commerce by a small number of actors could happen in the US.

Americans are borrowing like never before to buy cars. The industry is already dreaming about new all-time highs. Auto lending to subprime customers has soared. But now the spigot is getting turned off. Read… The Unnerving Thing Wells Fargo Just Said About the Auto Boom

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  14 comments for “West-Coast Port Fiasco Does ‘Permanent, Irrevocable Damage’

  1. Vespa P200E says:

    Chalk it up to the union thugs for yet another greedy and short-sighted maneuvers to set the motion for their eventual demise via more automation.

    What really gets me is that these societal leeches get away it like SF area BART workers during 2014 strike who held those from lower rung of the society hostage (cannot work from home, part timers, etc) whose salaries and benefits for HS/GED grads are reported to be $126k as tickets agents and janitors.

  2. FriendlyGuest says:

    Good for them. The union needs more pressure to organize at the other ports.

    Vespa, BART “train operators and station agents have a maximum annual salary of $62,000 with an average of $17,000 a year in overtime pay”.[85] (For its part, BART management claims that in as of 2013, union train operators and station agents average about $71,000 in base salary and $11,000 in overtime annually, and also pay a $92 monthly fee for health insurance.) wikipedia

    • publica says:

      @Friendly guest… you leave out that they also have some of the cushiest pensions in America, and the healthcare they pay 92 bucks a month for is platinum level, so they’re getting huge discounts on that. They also have some of the worst customer service on the planet. Vespa is entirely correct about whom that strike really hurt- poor black people who had to make it to work without public transportation. I don’t understand why liberals support government unions. The private sector needs unions, but public unions are anti-liberal since you negotiate against the people.

      • FriendlyGuest says:

        publica, I don’t doubt your comment is entirely correct. and for the record this “liberal” is vehemently opposed to public sector unions. in fact i think “public servants” should be banned from organizing. on the other hand, i completely support private sector unions.

        it is a well known anti-union strategy to publicize, truthfully or untruthfully (doesn’t matter) some extremely highly paid union members wages/benefits who are a small minority in order to pit workers and sympathizers against eachother. it’s quite effective too.

        again no sympathy for public sector unions here. but at the same time bashing them and calling names like “thugs” and “societal leeches” isn’t my thing.

    • Vespa P200E says:

      Hmmm… Geesh wonder who has been manipulating Wikipedia open to pretty much anyone to “collaborate and change and better yet manipulate”.

      Check out the table from this link which shows $127,675 and that was back in 2011:

      “Here, taken from information provided to the California State Controller from their “Raw Export” page (refer to “2011 Special District Data), with analysis from the California Public Policy Center available to download in an Excel spreadsheet, is how much the average full-time BART worker made in 2011:”


      • FriendlyGuest says:

        $127K includes employer provided benefits. Their salaries are $77K annually or about $37/hr. That’s a bit much I agree but it’s not like they are making six figure salaries like you insinuated in your first comment. Plus they live in SanFrancisco one of the most expensive cities in the west.

        Regardless of that, and as I wrote in another comment, I’m not a supporter of public sector unions, only private. Yes, there is a difference and it’s significant.

        But I guess in your opinion, if workers are organized then they all must be “thugs” and “societal leeches”.

        a non-unionized private sector CPA

  3. Petunia says:

    Having grown up in a family of merchant seamen I can tell you that the unions killed the shipping business in America.

    The strike in the west coast will only make the shippers look for ports in Mexico and truck the cargoes in, in Mexican trucks, to the US. I don’t begrudge any working person a living, but $140K, to do what is essentially an automated job is more than enough. They will get an $85K pension a year too. My father retired from the union with 45 years of service and got $375 a month. My grandfather put in 20 years and got $350 a month.

  4. Jeff says:

    I found this article from the Sacramento Bee of interest. Titled “Port congestion rooted in megaships overwhelming ports, not labor dispute”. So while there is no question that the dispute between the International Longshore and Warehouse Union and the Pacific Maritime Association has seriously aggravated the problem of container gridlock, it was not the cause. Nor will a labor accord yield a swift end to port congestion.

    Now maybe this is just propaganda as Wolf mentioned, but my gut tells me that this is more in line with the truth of the matter than anything else I have read to date. What a shit show!!

    Link to article, http://www.sacbee.com/opinion/california-forum/article9924578.html

    • Wolf Richter says:

      Jeff, if the congestion hasn’t cleared up be the end of summer, they have a point. But it will likely clear up by then.

      Then of course, there’ll be voices that say that we need to modernize our ports and automate them, as China is already doing. That would speed up everything. Guess who is the most vigorous opponent of port automation? The force that has prevented it so far?

      • FriendlyGuest says:

        The automation angle is interesting. I’ve spent many an afternoon staring out at parts of one of the largest ports in the world, Rotterdam. They have some of the most cutting edge automation there. Yet at the same time the Dutch and Europe in general have some of the strongest organized labor. Obviously labor lost the battle, even there, to automation. Are the longshoremen unions on the west coast ports THAT strong that they have blocked automation from taking place?

        • Vespa P200E says:

          Didn’t know that you the ahem self proclaimed CPA is proud card-carrying union member who has been traveling the ports of the world “benchmarking”, perfecting the blackmailing and yeah counting ships or something.

        • FriendlyGuest says:

          Vespa, what in the world are you talking about? I only mentioned that I’m a white collar worker and not in a union so you wouldn’t call me any names. But geez now you’re calling me a a blackmailer or something because I’ve seen the Rotterdam ports?

      • Jeff says:

        Good point Wolf, the passage of some time will illuminate the facts of the matter. I am currently in the process of moving to New Zealand, so this fiasco affected me directly. My shipment was delayed in Long Beach for approx 45 days.

        One would think, that the ship builders and the port infrastructure would be on the same page. Why would you build a ship that cannot be accepted at the port and offloaded in a efficient manner? Or pass through the Panama canal? It is clear that there is an obvious disconnect between the new 18,000 to 24,000 TEU capable ships and the current Port Infrastructure at US ports, automated or not. Square peg, round hole scenario. This is another good article on the future issues of Port / ship incompatibility. It is a constant game of the Ports playing catch up to the ever growing size of the ships being produced. Add in a dash of Unions here and a pinch of greedy, unorganized Asian packed mega-ships there, and you have recipe for disaster.


  5. Julian the Apostate says:

    I grew up in a blue collar union household from three generations of railroad men. I watched my father’s life get turned upside down whenever the union went on strike.
    Part of this was his fault as he lived from paycheck to paycheck and never put anything extra away for these events. He got a small sum from the union called ‘strike pay’ but it was a pittance and during one particularly long strike accepted food stamps to get through it. When I saw the look on his face I made up my mind to not work for unionized firms.
    I became the black sheep of the family and went into trucking. By the end of his life he told me I had been right to not to work for the railroad, after they moved the shops to Little Rock AR.
    The unionized truck firms are steadily going under. There is so much capital expense involved in keeping trucks on the road that they can’t stay in business and still the unions want more and more and throttle the firms that employ them.
    And not just the firms, but the states that are closed shop states – like California. People flee these states to right to work states because the standard of living is better, then in an act of self-immolation vote for the very politicians and programs that destroyed the states they escaped from.
    And now they have run out of OPM and can’t figure out why the trick no longer works. Unions punish merit, dragging it down to a mediocre average and charging more and delivering less. Screw the company, the first fifteen minutes are mine.

Comments are closed.