Commentary: Strike Force

With a single sentence — “It looks like we’re going to have a strike” — International Longshoremen’s Association President Harold Daggett in late August elevated the likelihood of a shutdown at East and Gulf Coast ports this month from improbable to all-too-possible. If dockworkers engage in illegal slowdowns prior to the Sept. 30 expiration of their current contract, management may lock out the union like West Coast employers did a decade ago. If the contract expires without an agreement, the union may go on strike.

Either way, the conduits for nearly half of all U.S. containerized cargoes would be blocked, and the economic impact would be felt within a few days or less. Twenty-three weekly services connect the U.S. East Coast with Asia and another 20 connect it to Europe, according to industry analyst Alphaliner. What would happen if all that cargo came to a halt?

Summing up the situation well, a Washington insider told The Journal of Commerce last week, “I don’t see how the president can stand there with the economy being so bad and do nothing. I think he is going to have to act.”

This makes sense for several reasons. Any work stoppage would occur within a month of the presidential election. With the state of the economy being President Obama’s chief vulnerability in the campaign, it’s difficult to see him allowing the economy to take a fresh hit as factories shut down, goods fail to arrive on retail shelves and U.S. exports grind to a halt.

“Obama is not going to be sitting there with Mitt Romney screaming at him in the heat of a presidential campaign,” said the Washington source, who requested anonymity.

The downside for Obama in using his powers under the Taft-Hartley Act to force ports to reopen would be the potential for negative reaction from organized labor, a core constituency that he will need on Election Day. But given the lack of support by the umbrella AFL-CIO for West Coast dockworkers in jurisdictional disputes this year, it’s doubtful dockworkers being forced back to work would be perceived as an attack on all organized labor.

So it’s difficult to see any pressure from organized labor coming close to outweighing the pressure to restore trade at the ports. And that reflects a fundamental change: Almost 10 years ago, Joe Miniace, then-president of the Pacific Maritime Association, visited Washington repeatedly to educate policymakers about the potential impact of a work stoppage and the economic consequences. Back then, and earlier, ports’ economic impact was not understood well, in part because trade and logistics were less important to the economy.

Between the late 1940s and the early 1970s, the ILA went on strike upon the expiration of every contract, sometimes shutting the ports for months. It’s much different today. The impact of ports and international trade is much greater, and much more understood than it was even a decade ago. Ports are covered regularly in the general media and are seen as a consistent bright spot in an otherwise weak economy. Any work stoppage would be huge news, and the pressure to resolve it would be enormous.

“If there is a work stoppage, the pressure at all levels of government to reopen the ports would be unprecedented,” said Ashley Craig, a Washington lawyer with Venable LLC. The pressure would come from East Coast ports and their governmental allies who would wish to avoid shippers’ perceiving the ports as risky. That’s what happened after the 10-day West Coast shutdown in 2002, leading to permanent diversions to East Coast ports. Any reverse diversion would arguably undermine the billions of dollars East Coast ports have invested to prepare for the 2015 Panama Canal expansion.

For shippers contemplating the impact of a shutdown, the scenario should bring a measure of relief, especially because diversions to avoid the East and Gulf coasts have been relatively minimal, even with the threat of a strike being known after Daggett mentioned the possibility at the JOC’s TPM conference in early March.

Several sources interviewed last week said they believe any shutdown would be short-lived. “I can’t see the administration allowing any kind of port action to go on for any length of time,” said Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation.

A senior executive with a major container line said, “My own view is that even if there is a strike, it will be a 12- to 14-hour shutdown and not much more than that, and then will be stopped via government mandate.”

Dunavant Logistics Group reinforced this view, saying in an e-mail, “There is widespread belief that the Obama administration will step in and intervene to prevent any long-term work stoppage.”

Given the circumstances, that’s a pretty good bet.

Peter Tirschwell is senior vice president of strategy at UBM Global Trade. Contact him at ptirschwell@joc.com, and follow him at twitter.com/PeterTirschwell.
 

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