Red Sky in the Morning

Here we are again, at the end of another year, and I’m worried that, collectively, we’re going insane — you know, the type of insanity defined by doing the same thing over and over again and expecting a different result. Rhetoric such as Maersk Line’s comment that “we must learn to live with overcapacities” may sound slightly different, but the essence is the same: same process, same result, same unprofitable rates, same chasing market share, same rates of demand growth running slower than increases in capacity, same high levels of volatility across most major trade lanes.

Markets that just aren’t recovering fast enough or robustly enough to fill existing capacity also won’t be able to fill the increases in capacity expected during the next three years, at least through 2015. Back in the “old days,” defined here as anything before 2007, we were looking for a “full” economic recovery by 2010 or 2011. Well, it didn’t happen then, and hasn’t happened yet, and may never happen in any way our experts predict, because many of the underlying assumptions are changing right before our eyes.

Interestingly, the possibility that many of our previously closely held predictions will end up in the rubbish, may mean the pattern of repetition — and thus maybe the insanity — may be broken by a new set of circumstances.

HSBC, the large Asia-based bank, for example, recently predicted that Mexico by 2018 would be the largest source of U.S. imports, passing China and Canada. Assuming, of course, this is correct (we know all too well to be skeptical of forecasts), the combination of labor rates and logistics costs will tilt the playing field and change the trade and logistics world as we know it.

Based on this HSBC projection, there likely will be much less need for planned major new port developments on the East and Gulf coasts; the Panama Canal expansion will be best served by car carriers, oil tankers, dry bulk vessels and other non-containerized shipping modes; and transit times will have to be recalculated dramatically.

In addition, the waterfront labor requirements at all U.S. ports regardless of location may decline significantly. Presumably, the main benefactors of this prediction would be the rail and trucking sectors and logistics managers.

At first glance, HSBC’s shattering prediction seems highly unlikely, yet it’s possible: Mexico is already the world’s largest exporter of flat-screen TVs; it’s the second-largest Latin American economy, with a growth rate that exceeded No. 1 Brazil’s in 2011 and will be double that of Brazil this year. If it comes to fruition, all sectors of our business will feel the impact, including the one sector that seems most reluctant to change with the times: waterfront labor.

2012 started with one major waterfront issue in our sights, the International Longshoremen’s Association contract on the East and Gulf coasts. The hope was that the pattern of the past 30 years or so would repeat and an agreement for a new contract would be signed by the end of September.

So much for our predictive skills on the labor front: As the end of the year approaches, the likelihood of a strike or lockout grows with each day. But wait, there’s more. For the first time in my memory, we have simultaneous waterfront labor issues on the West Coast, and this time from Southern California to Puget Sound, and not just with container terminal workers, but also with office clericals and grain handlers.

Based on the unprecedentedly high level of local news coverage of the waterfront labor issues in Portland, I get the sense the general public — still unhappy with high unemployment rates, negligible or absent pay increases and rising medical coverage contributions — isn’t particularly supportive of a union whose members are believed to have better-than-average wages and far better than average benefits and who are threatening to shut our ports and thus shut down America’s foreign trade at a time when that trade is an increasingly important part of our economy.

If the Mexico prediction comes to pass and America’s international waterborne trade declines significantly as a result, the relationship between U.S. waterfront labor and this industry will change dramatically. We won’t know the answer for a few years, but if serious labor disruptions occur now, the effects will resonate and almost certainly add momentum to a new logistics paradigm for America’s international trade. 

Barry Horowitz is the principal of CMS Consulting Services. Contact him at 503-208-2232 or at barryh@cms-cs.com  

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