Uncertainty caused by almost eight months without a labor contract on the U.S. West Coast is resulting in investment decisions that could alter supply chains and end up costing the ocean carriers customers, according to a shipper lobbyist.
“We’re seeing some investments being made at East and Gulf Coast ports due to one factor — the uncertainty of what’s going to happen” with [West Coast labor],” said Peter Friedmann, executive director of the Agriculture Transportation Coalition (AgTC).
Speaking at FreightWaves’ Global Supply Chain Week, Friedmann said a strike by the International Longshore and Warehouse Union or a lockout by the employers is always a possibility given that provisions preventing those events do not exist without a contract in place.
“We’re pleased there has not been disruption, and I don’t expect a major disruption on the West Coast,” he said. “But bit by bit this uncertainty continues. Investment decisions have to be made, capital is being raised, and it is going to be deployed where there’s less uncertainty.
Watch: AgTC’s Friedmann on West Coast labor uncertainty
“That means if [an investor] is putting a multimillion-dollar transload or cold storage facility in a port on the East Coast, that’s where the cargo is going to go. It takes years to get through the permitting and financing, so once those investments are made, that locks in a trade route or distribution network to that location.”
Transportation analyst Loren Smith, president of Skyline Policy Risk Group, is also assessing the potential fallout the longer negotiations drag on and dockworkers continue to work without a long-term agreement.
“My concern level is rising a little bit — it’s higher than it was three or four months ago,” Smith said during the summit.
“We’re without an obvious upcoming leverage point — we’re past the midterm elections and the peak holiday shipping season,” Smith said. “So a situation is created where any sort of external shock affecting the ports — an energy price spike or a potential surge in ocean shipping as China emerges from their COVID policies, for example — can create a situation that crystallizes during the labor negotiations.
“Over the past 25 years it’s been more common than not to see some sort of work slowdowns or stoppages that have held up shipping for maybe only a couple of days. But even a three-day stoppage would take weeks to unwind and cost companies a significant amount of money.”
Watch: Smith on waterfront disruption risks
Ports stand to lose as well
Friedmann pointed out during the discussion that the largest market for U.S. exporters is by far the Asia-Pacific region, including China, Korea, Japan and Vietnam.
“Our exports are soybeans, hay, almonds, meat — it’s low value compared to what we import. That means exports originating from the U.S. Midwest or West Coast need to move in the most direct and cost-efficient way to those markets,” he said, such as through Oakland, California, or Seattle.
“But if they can’t go that way because carriers are shifting vessel capacity to accommodate imports that now want to go to the East Coast — now we have a problem. You can’t drive a truckload of hay from Washington state to Savannah or Charleston or Norfolk, which is why we need to keep West Coast ports fully utilized by the ocean carriers providing those services.”
Legislation could help offset labor effects
A bill reintroduced in Congress last week by three California Democrats aimed at protecting U.S. exporters and their markets could serve as a potential antidote to the negative effects of shifting supply chains.
The American Port Access Privileges Act, first introduced in June last year just before the current labor agreement expired, establishes a “secondary berthing preference” for container ships that serve multiple U.S. ports or that have “significant” cargo bookings of U.S. exports.
“This new preferential berthing will reward ocean carriers that serve both importers and American exporters by moving those vessels to the front of the queue for unloading and loading,” according to the bill’s sponsors.
It would also incentivize ocean carriers to make second-leg voyages to ports that are critical for agriculture exporters, such as the Port of Oakland.
“Our legislation would put American exports at the front of the line at our ports to support American businesses and workers,” stated John Garamendi, D-Calif., a bill sponsor. “Congress must restore fairness at our ports for American exporters to help reduce the United States’ long-standing trade imbalance with countries like China.”
- Rail and port labor issues adding to supply chain misery, expert says
- Unionized workers refuse to cross truckers’ AB5 protest line at Port of Oakland
- Lawmakers plead for deal ahead of dockworker contract deadline
Click for more FreightWaves articles by John Gallagher.
The post Concern rising over US West Coast labor pact appeared first on FreightWaves.