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American ShipperWarehouse

Unease on the waterfront

Shippers using U.S. East Coast ports build contingencies for potential ILA strike.

By Chris Dupin

   Talks to negotiate a new master contract between the International Longshoremen’s Association (ILA) and the employers of its members were not slated to begin until late March in Tampa, Fla., but already some shippers are beginning to make contingency plans in case the two sides fail to reach an agreement.
   The current contract runs through Sept. 30, giving the two sides a full six months to bargain. And for 35 years there has not been a national strike by the members of the ILA, which represents dockworkers from Maine to Texas, including the Great Lakes region.
   While James Capo, the chairman and chief executive officer of the United States Maritime Alliance (USMX), told an audience at the Journal of Commerce-organized Transpacific Maritime Conference in Long Beach, Calif. in early March that he was “hopeful, maybe even confident that we will be able to reach an agreement without any disruption,” some shippers found remarks by ILA International President Harold Daggett at the same forum less assuring.
   During a panel discussion with Capo, Daggett said he was not threatening a strike, but that “we’ve got four hurdles to jump over.” He said the union could go on strike if its demands in four areas—technology and automation, jurisdiction, chassis, and container weights—aren’t met.
   Automation would be the toughest issue to negotiate, he indicated, saying “introduction of new technology and automation at a port terminal can, if left unchecked, be a disaster for organized labor.”
   “We know technology is coming and we know we can’t stop it forever, but we will not be deterred from protecting our work and our jurisdiction,” Daggett said.
   “If you think you are going to bring in fully automated piers like they have in Rotterdam or in Liverpool, you wiped out all the longshoremen locals over there. That ain’t going to happen here on the East Coast. We are not going to stand for it. That is definitely going to be a strike issue, those four items I read off,” he warned.
   Daggett singled out Global Terminals in Jersey City and Bayonne, N.J., which he says has “big plans for automation.”
   He compared Global Terminals’ actions to the APM Terminal in Portsmouth, Va., which he said promises “no jobs lost,” for now, without any promises for the future. “We now know this is a recipe for disaster and a way to utilize attrition to kill our jobs and our union,” he said.
   Daggett did include some conciliatory remarks in his speech, saying “we are willing to work with you, but you have to work with us too.”
   Benny Holland, Jr., the ILA executive vice president, said “we don’t intend to have a strike. But if we are pushed to the hilt, we have no choice but to. I can tell you now it is our intention to keep moving that cargo from the manufacturer to the consignee and consumer….I don’t want anyone leaving here thinking they need to divert their cargo.”
   One senior liner executive said Daggett’s remarks were “a little dangerous, to be chasing cargo from the East Coast when the shipping industry is losing billions of dollars.”
   Capo admitted some customers “are very nervous, I have spent the last four or five months out talking to a lot of people,” said Capo. “At least calm them down. They have to recognize this process takes time. We would certainly not like to drive off business.”
  Jonathan Gold, vice president, supply chain and customs policy for the National Retail Federation, said even before the Long Beach event “people were already looking at contingency planning just to be on the safe side” and Daggett’s remarks had “just reinforced folks. For those who had not been thinking about it, now they are.”
   A disruption at the end of September would be particularly bad news for the retail industry since it would come during the peak shipping season for Christmas merchandise. A 10-day lockout in 2002 of International Longshore and Warehouse Union members on the West Coast also occurred in early October.
   Gold noted the 2002 labor troubles were one of the factors that led many shippers to modify their supply chains so they moved more cargo from Asia through ports on the East and Gulf coasts instead of relying exclusively on West Coast gateways. He estimated that today about 30 percent of retail cargo moves through East and Gulf coast ports.
   He did not think shippers will necessarily lighten up on the amount of cargo they move through East or Gulf coast ports immediately, but said “I think they will talk to their carriers and ask ‘do you have a contingency? What can we do if something does occur?’ ”
   If it looks like there’s going to be a strike, shippers moving cargo from Asia could shift more cargo to the West Coast or look at bringing in shipments earlier than they normally do, though Gold said that would increase warehousing and storage costs.
   “Everybody is running pretty lean inventories and it’s really a just-in-time model that they are focusing on,” he said. A change would mean “you would have to incur some inventory costs if you decide to bring things in earlier for the holiday season.”
   An executive at a large forwarder said Daggett’s comments “most likely left quite a few shippers not only startled, but also with another item on their to-do list – how do I protect my supply chain from possible labor interruptions?”
   He said his firm had not yet heard from any customers, but added “I believe that everybody will start a more active chatter in a few months… Shipping early could be one option, and yes it will carry the cost of carrying higher inventory. For some shippers using USWC ports may be an option. All options will come with a higher price tag though.”
   Peter Gatti, executive vice president of the National Industrial Transportation League, said “this is on the radar screen for a lot of our members who will continue to watch it as the negotiations unfold.
   “Anybody with any degree of concern about being prepared in the event of a disruption has got to be looking at contingencies. Now, will they actually put those into effect at this point? I think it’s a little early for most people. But again prudent professionals are going to be looking at the potential for alternatives, because this is something that has not occurred in nearly a generation in terms of the type of impact we are looking at because we are talking about impacts on both the Atlantic and Gulf Coast,” he said.
   The NIT League has invited Capo to speak at its policy forum in Washington on May 7-9, and “hopefully we can get an update on where things are a little bit further into the process,” Gatti said.
   Shippers from Europe or South America might be particularly hard hit, since they would have fewer options. While some cargo might be routed through Canada, ILA members in Halifax might be reluctant to lift cargo from ships, particularly if it was obvious that the cargo was being diverted from the U.S. But ILA members in Canada have separate contracts and are not a part of the current negotiations.
   A 2002 lockout of members of the International Longshore and Warehouse Union by the Pacific Maritime Association was ended by a Taft Hartley Act injunction issued by President George Bush after only 10 days.
   Gold said if there is a strike this fall, it would be his hope that the government would step in quickly. He noted last fall both President Obama and Congress took action to push labor unions and railroads toward reaching new contracts, and said that “could give an indication that for a larger port-wide strike, coastwise, our hope is that they would be willing to step in as well.”
   However, the fact that the contract expires just weeks before the presidential election could make any use of Taft Hartley a politically dicey thing to do because of potential labor backlash.
   Edward Wytkind, executive director of the AFL-CIO Transportation Trades, sent a letter to Congress after President Bush intervened in the 2002 lockout saying “labor is outraged” and that the decision strengthened the hand of management.
   “I think there are an awful lot of plays that still have to come into motion before we even start talking or speculating about what a White House might do or how they might be likely to respond,” Gatti said. “I think it’s a balance between the hit that the economy takes versus getting the two sides to continue talking.”
   But he agreed there might be “quite a bit of pressure if there is not an agreement in place by that point to certainly pressure the two sides to continue discussions and to not resort to ‘self-help’ (the term labor unions sometimes use to describe strikes) immediately.”
   Daggett indicated the ILA will insist on keeping jurisdiction over repair work on chassis and containers, even as some shipping companies are beginning to reduce their involvement in the chassis business.
   “Who the hell gives them the right to say they are getting out of the chassis business when we had it from the inception. In our contract we have the right to follow our work,” Daggett said.
   “We are not going to let chassis pools take our work from our terminals that we have had from the beginning and think they can pick up any time they want and leave,” he said.
   Pointing to the recent announcement by Maersk that it was selling its Direct ChassisLink to the investment firm Littlejohn & Co., Daggett said he wants Littlejohn to be a signatory to the USMX contract or hire an ILA contractor.
   Capo said he expected negotiations to examine “industry cost structures, including restrictive and redundant work rules, manning practices and other cost impediments—some of which go back to breakbulk days—that hurt our comparative cost.”
   Management sources say ILA labor costs are increasing sharply because of an agreement in 2009 to both eliminate tiered wages for longshoremen and to end a cap on the container royalties that carriers pay on each ton of containerized freight that moves through ILA-staffed terminals.
   In 2009, the contract between the ILA and employers that was to run from Oct. 1, 2004 to Sept. 30, 2010 was extended until Sept. 30, 2012.
   The industry was going through the worst downturn in its history that year, and the union agreed to forgo a $40 million payment. In exchange, management agreed to eliminate a tiered wage system in which newer workers made considerably less than those who had worked longer, and to eliminate a cap on container royalty payments.
   The two sides agreed in 2009 to a schedule that would eliminate the tiered wages for most longshoremen, so that 90 percent would see their salaries rise to $32 per hour by July 1 of this year. Many are getting big increases on both April 1 and July 1.
   One management source said those two changes have raised costs $300 million during the contract extension–$125 million because of the elimination of tiered wages and $175 million due to the end of container royalty caps. He said the container royalty has grown from $227 million in 2004 to $564 today and could reach $771 million by 2020.
   Top wage earners who made $30 on Sept. 30, 2009 are seeing increases of 6.6 percent under the current contract to $32.
   Those at the bottom of the ILA wage scale could see bigger increases, as much as 56 percent, a management source said. For example, an employee making $20.50 an hour before the contract extension could see his wages jump a whopping $11.50 per hour when it reaches $32 this July.
   The elimination of tiered wages will be particularly significant in ports with younger workforces, including New York and New Jersey where a management source said salaries average $118,000 today and fringe benefits total $108,000 per employee.
   The cost of ILA labor is also climbing because of the decision in 2009 to lift a cap on container royalty payments that are made by liner carriers and used for bonuses and to support ILA health care plans and other benefits.
   Carriers pay $4.65 per ton in fees to various ILA funds for containerized cargo handled by the union. Prior to 2009, however, the fees were capped, paid on a maximum of 72 million tons. Now that the cap has been lifted and the fee is being paid on about 100 million to 105 million tons. Those payments are expected to grow as volumes increase.
   “It is running amok,” one source told American Shipper.
   But Jim McNamara, a spokesman for the ILA, said those figures tell only half the story, pointing out the union made big concessions both when it agreed to tiered wages to begin back in 1986 and agreed to caps on the container royalties in 1996.
   The ILA has about 40,000 members, including all affiliates, but McNamara said the master contract covers only about 15,000 workers involved in the handling of containerized cargo
   The higher container royalties and wages could have the potential to raise tensions between carriers and terminal operators, especially in the current depressed shipping market. Carriers are faced with higher costs because they are funding the container royalty directly, but stevedores are looking for more money because they have to pay ILA workers higher wages.
   “There are a lot of issues coming to the forefront because of these dramatic changes in economics,” said one observer. But he said “as of now management is presenting a united front.”
   The distribution of container royalties varies widely from port to port. They are given to members as a bonus at the end of the year, and royalties that are collected in a port stay in that port. So, longshoremen who work in a port with lots of container traffic benefit much more than those who work in ports with less container traffic.
   One source estimated that a longshoreman might expect to receive a $16,000 to $17,000 bonus if he worked in the port of New York and New Jersey, but just $4,000 if he worked in Boston.
   Workers in the South Atlantic make much more, an average of $28,000 per person, he said. That’s because the royalty bonuses are divvied up only among ILA workers. So in ports like Savannah and Charleston, where some work is done by state workers, the container royalty bonus dollars are spread among a smaller group of ILA workers.
   Stevedores and carriers are under pressure to change work practices in ports such as New York and New Jersey.
   Patrick Foye, the executive director of the Port Authority of New York and New Jersey, told American Shipper that he is unhappy with the level of minority hiring in the port and “low-show” jobs at shipping terminals in the region.
   “The port authority has invested billions in the transportation infrastructure in the region, including billions in the region’s ports, and is being asked to invest billions more. We are interested in doing that because of the job retention and job creation possibilities. But before the industry can come and make that request both the minority hiring issues in the ports as well as the low-show jobs where certain selected members are paid 24-7 for a few hours of work have to be addressed,” he said.
   However, McNamara of the ILA said the port authority has nothing to do with the negotiations between the ILA and USMX nationally and the New York Shipping Association locally.
   The Waterfront Commission of the Port of New York and New Jersey has been pressing for more minority members to be hired in the port and in 2010 held hearings to examine “no-show” and “no-work” jobs and said there are practices “robbing the port of its competiveness.” The commission said some of the workers receiving high salaries have “troubling familial connections” to members of organized crime or the ILA.
   Walter Arsenault, executive director of the Waterfront Commission of New York and New Jersey, said there are 285 longshoremen who make more than $300,000 a year and several that make more than $400,000.
   “The general feeling amongst the carriers is that they’ve been more than generous during the last negotiations with little appreciation in return from the union,” said one source. 
   ILA members also have what is considered to be a “Cadillac” health care plan, and what one source said costs $400 million to $500 million a year to fund.
   If the ILA has an Achilles heel, it may be its weakened financial condition and a pending $7 million lawsuit against the union in federal court by the New York Shipping Association over a 2010 wildcat strike that shut down terminals in New York and Philadelphia. ILA members refused to cross picket lines put up by fellow workers after Del Monte Fruit pulled out of a Camden terminal and went to non-ILA facility.
   Daggett said that lawsuit is casting “dark clouds” over the negotiations.
   “Can the ILA be forgiven for believing this economic strangle-hold is a calculated strategy by our management counterparts to handicap negotiations in their favor?” he said.
   A management source said the union was already financially weakened because it has “chewed up all their reserves fighting RICO charges.” In 2007, U.S. District Court Judge I. Leo Glasser dismissed a civil racketeering suit against the union, yet two months later in 2007 the government filed a second amended civil racketeering complaint against the union.
   The ILA said the case “is based on outdated stereotypes of the ILA and is an insult to ILA members” and that “substantial structural reforms initiated by the union clearly demonstrate the ILA’s commitment to strengthening union members’ rights and to running a clean union.”
   Daggett indicated limited sympathy to carriers over the financial condition of the industry, saying carrier losses last year were “not due to excessive labor costs at U.S. terminals,” but from overcapacity and “devastating price competition” among carriers “to increase individual market share resulting in unprofitable freight rates.”
   He said the union plans to come to negotiations well-armed with its own economic studies, and said he believes “2012 is going to be better than 2011. And, I think, the next four years are going to be a lot better.”
   Another area to watch in the coming ILA contract negotiations is the issue of overweight containers.
   Daggett said an ILA study found vessel manifest weights are underreported by an average of 26 percent versus the actual import container weight.
   He wants technology installed on cranes so that inbound containers can be weighed as they are lifted off ships.
   Overweight containers are a potential safety hazard, and one that is a concern of carriers and ports as well. The International Maritime Organization’s Sub-Committee on Dangerous Goods, Solid Cargoes and Containers began considering overweight containers at a September 2011 meeting. The World Shipping Council, International Chamber of Shipping, BIMCO, and International Association of Ports and Harbors support modifying the International Convention for the Safety of Life At Sea (SOLAS) to require verification of containers’ actual weights before stowing them on board ships.
   If container weights are as underreported as the ILA study revealed, payments to the container royalty fund will have to increase, and carriers may find it necessary to increase freight rates to fund those contributions.

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