The Turmoil Never Ceases

As the TPM Conference convenes in Long Beach this week, the trans-Pacific market’s ability to throw curveballs year after year continues to impress. In past years, these took the form of port congestion, West Coast labor unrest and biblical rail backups — all largely unanticipated and forcing the industry into crisis mode.

The issues this year are different but they contain no less a sense of unpredictability and, thus, risk. Labor, the mother of risk, unfortunately tops the list. A bastion of labor stability for a quarter century, the East Coast is now a source of unpredictability — regardless, I would suggest, of the final outcome of contract negotiations between dockworkers and management.

The fact is, everything on the labor front has now changed. The battle has been joined, on all three U.S. coasts, between carrier and terminal demands for higher productivity and their impatience with exorbitant  costs, and dockworkers’ growing feelings of insecurity over automation, jurisdiction and an anti-union wave sweeping through many U.S. states (which in reality doesn’t affect them in the least).

So, while shippers in years past could flee to the East Coast in the face of West Coast instability, or vice versa as many did last year, there may be no more safe havens — a fact that may help explain why Prince Rupert’s volumes grew nearly 40 percent last year while volume at U.S. West Coast ports increased 2 percent.

Complete coverage of trans-Pacific maritime trade.

Last year was a case in point. Who could blame shippers for feeling like a pinball when, in the midst of diverting containers from the East Coast, they ran straight into an action by office clerical workers in Southern California.

Although the International Longshore and Warehouse Union’s Office Clerical Unit in Los Angeles-Long Beach had been without a contract since July 2010, it was still somewhat of a surprise that the OCU blew up when it did, shutting 10 of 14 terminals at the nation’s largest port complex for eight days late last fall.

With OCU workers on Feb. 20 finally ratifying an agreement they initially rejected earlier in the month, some semblance of labor stability has returned to the West Coast. But it will be short-lived; West Coast dockworkers at some point in the next year will sit down to negotiate a new coastwise agreement before the current pact expires on July 1, 2014.

Negotiations on the West Coast have always been a launchpad for disruption. And in a potentially ominous sign, ILWU leadership declined to speak at TPM this year, a break with past TPM conferences when the union’s leadership was willing to address the conference in advance of contract negotiations.

ILWU President Bob McEllrath did not respond to a December letter from The Journal of Commerce with what we thought was a compelling invitation: to take the opportunity to present the West Coast as a viable, disruption-free port range — which, as we reminded him, it has largely been during the past decade — as shippers weigh increasingly viable alternatives in Canada, Mexico and via a soon-to-be-expanded Panama Canal.

It seemed the perfect opportunity: The ILWU would present itself as actually wanting the cargo that pays its members’ salaries, with the understanding that shippers increasingly have alternatives — a key difference from past years when there was no effective competition to West Coast ports. That is certainly the message U.S. West Coast ports concerned about their competitive position were hoping McEllrath would deliver, but it won’t come to pass, at least not this year.

And as in past years, ocean freight rates are a continuing source of uncertainty. As of Feb. 20, eastbound trans-Pacific rates were holding onto gains achieved early in the year. Carriers were able to implement about half of a $600-per-TEU general rate increase as of Jan. 15 but, unlike in the weaker Asia-Europe trade, did not give back early-year gains in subsequent weeks.

Several carrier executives I met with in Asia in January were surprisingly upbeat on the overall 2013 outlook, despite a projected 7.3 percent increase in global capacity that will weigh on rates in the east-west markets.

In the trans-Pacific, some early, privately expressed signs of outrage among shippers point to carriers at least attempting to drive a hard bargain in annual trans-Pacific contract negotiations in coming months. Carriers in the trans-Pacific are holding back capacity against the prospect of much faster growth in the market this year. Clarkson’s recently forecast eastbound trade growth at 4.5 percent for the year, versus growth of just 0.2 percent in 2012.

Labor and the freight rate market are just two of many curveballs we will discuss at TPM this year.

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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