Creditor challenges bankruptcy plan of ILWU dockworkers union

Terminal operator ICTSI has not given up its quest for tens of millions in damages from the West Coast longshore union.

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One of the world’s largest and highest-profile dockworker unions, the International Longshore and Warehouse Union (ILWU), filed for Chapter 11 bankruptcy protection on Sept. 30, seeking to shield itself from a crippling damage award owed to Philippines-based International Container Terminal Services Inc. (ICTSI).

But the bankruptcy filing is not the end of the saga. The legal battle continues.

Under the proposed reorganization plan, the ILWU would give $6.1 million to terminal operator ICTSI, which is substantially all of its remaining cash, then “rebuild” over the coming years, finally closing the book on a courtroom fight with ICTSI that began in 2013.

The hearing to confirm the reorganization plan will not take place until February at the earliest. In the meantime, ICTSI is crying foul — and telegraphing arguments it will make to oppose the plan’s confirmation.

ICTSI has argued that ILWU’s bankruptcy filing is “what appears to be forum shopping” and expressed concerns that “the full nature and extent of the debtor’s assets have not been fully disclosed.”

ILWU — a small business?

The ILWU filed its case under bankruptcy law’s Subchapter 5, a streamlined process that applies to small businesses with debts of $7.5 million or less. (That ceiling was previously $2.7 million, but was raised in March 2020 as part of COVID relief legislation.)

A jury in Oregon decided in November 2019 that the ILWU owed ICTSI $93.6 million in damages for unlawful labor practices starting in 2013 at ICTSI’s terminal in Portland, Oregon.

A judge ruled in March 2020 that the award was too generous and set maximum damages at $19.06 million — if both sides agreed. 

ICTSI didn’t agree, so a new trial on damages was set to begin in February 2024, with ICTSI seeking $48 million-$142 million this time around. 

Because the damage amount had yet to be confirmed when the ILWU filed for bankruptcy, it didn’t count against the $7.5 million debt limit, and the ILWU, which has no bank debt, qualified under Subchapter 5.

Debt is deemed “liquidated” when the amount is legally certain. “This debt has not been liquidated,” said Judge Hannah Blumenstiel of the ICTSI damages during the initial Chapter 11 hearing in October.

“Eligibility [for Subchapter 5] is determined as of the petition date. And I don’t think there’s any argument to be made that this debt was liquidated as of the petition date.”

This month, a hearing before Blumenstiel on the ILWU case was preceded by a bankruptcy hearing for a pancake restaurant called Stacks. How can a union with 40,000 members serving ports from Los Angeles to the Pacific Northwest — whose president, Willie Adams, speaks with President Joe Biden — fall in the same category as Stacks?

The answer is that the ILWU bankruptcy case only applies to the union management division that lobbies and educates, which has four officers and 21 support staff. “The locals and affiliate unions are separate legal autonomous entities and are not debtors or otherwise involved in this Chapter 11 case,” said Adams in his affidavit.

ICTSI’s main focus now is to shed light on how separate these entities are for the purposes of the bankruptcy case, with the goal of derailing confirmation of the proposed plan.

Its implied argument is that the ILWU could have a lot more assets than it lists and shouldn’t be allowed to hide from the decade-long Oregon litigation using a bankruptcy shield for one portion of its structure.

Alleged ‘entanglement’ with Longshore Division

ICTSI specifically highlighted the ILWU’s Coast Longshore Division (CLD). According to the ILWU’s website, “The core of the union, historically, has been the Longshore Division.”

The terminal operator said in a filing on Nov. 9, “Discerning the true nature and extent of the relationship between the debtor and the CLD has predictably been a primary focus of ICTSI in the discovery process.

“The various overlaps in management, operations and potentially assets between the debtor and the CLD, and the absence of any mention of the CLD in the debtor’s schedules of assets and liabilities or statement of financial affairs, other than three transfers made within 90 days prepetition, are anticipated to arise in connection with plan confirmation.”

ICTSI said that the ILWU’s general counsel, Lindsay Nicholas, provided testimony at creditor meetings on Oct. 24 and Nov. 6 on the debtor’s connections to and interactions with the CLD.

According to ICTSI, Nicholas testified that the CLD is currenting paying ILWU legal fees on 11 of its 12 litigation cases — the ICTSI litigation being the sole exception.

“Nicholas testified that, for more than a decade, the CLD also paid the ILWU’s legal and defense fees incurred in connection with the ICTSI litigation. However, on the eve of the debtor’s bankruptcy filing, the CLD stopped such payments and that obligation moved to the debtor.”

ICTSI also pointed to annual financial reports called LM-2 forms that unions file with the Department of Labor. 

“Nicholas testified that the CLD historically listed the contingent liability associated with the ICTSI litigation on its own LM-2 forms,” but this was “transferred to the ILWU mere months before the debtor’s bankruptcy filing.”

“ICTSI is coming to appreciate the extent of the entanglement between the debtor and the CLD. ICTSI is further concerned that this type of entanglement and overlap could extend to other divisions and entities under the broader ILWU organizational umbrella.”

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Crippling port strike could hit 1 month before presidential election

The union representing East and Gulf Coast dockworkers warned members to prepare for a possible strike starting Oct. 1, 2024.

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Organized labor is having a moment. Unions representing port workers, parcel deliverers, auto workers, writers, actors, teachers and others are securing or seeking to secure hefty salary increases by striking or threatening to strike.

Container shipping flows to the U.S. have been affected by labor negotiations this year — and could be even more affected by union action in 2024.

In June, the International Longshore and Warehouse Union (ILWU), which represents over 40,000 West Coast dockworkers, secured a new contract with a 32% pay raise over six years and a one-time bonus for work during the pandemic.

The next labor battlefield: ports along the East and Gulf coasts.

‘Prepare for the possibility of a coastwide strike’

“Members should prepare for the possibility of a coastwide strike in October 2024,” the International Longshoremen’s Association (ILA) — the union representing 45,000 East and Gulf Coast dockworkers — warned in a press release on Saturday.

The current six-year agreement expires on Sept. 30, 2024. “The union will hold firm on its pledge not to extend the contract beyond its expiration date,” said the ILA.

The timing, coincidentally, will have significant political implications. President Joe Biden has courted the union vote amid recent labor disputes. If the ILA were to go on strike on Oct. 1, port chaos would coincide with the final month of Biden’s reelection bid.

ILA President Harold Daggett will provide an update to members on contract negotiations at a union meeting on Tuesday, building upon his remarks at an ILA convention in July.

“If it goes to the wire, I will guarantee there will be no extensions and we will be out on the street,” said Daggett at the July convention. “Don’t come back and say we cannot afford that kind of raise. You definitely can afford it — and you know it.”

The United States Marine Alliance (USMX) represents dockworker employers at East and Gulf Coast ports and shipping lines serving those facilities. The ILA is seeking a new contract from USMX that includes “a landmark compensation package,” prohibitions against terminal automation and tightened language ensuring all work at new terminals goes to ILA members.

Supreme Court ruling sought on port dispute

The issue of labor positions at new terminals has already boiled over, well before the contract deadline.

The Port of Charleston, South Carolina, opened the Leatherman Terminal in April 2021, the first greenfield U.S. terminal to open since 2009. Leatherman uses a hybrid labor model, with state employees as lift-equipment operators and ILA members in other positions.

The ILA sued USMX and two ocean carriers, Hapag-Lloyd and OOCL, for $300 million (since raised to $500 million), alleging this violated the master contract and that new jobs should go to ILA members. The National Labor Relations Board (NLRB) ruled last December that the ILA had the right to sue. The U.S. 4th Circuit Court of Appeals confirmed the NLRB decision in July.

The case is now up for consideration before the U.S. Supreme Court.

Two and a half years after the 700,000-twenty-foot-equivalent-unit Leatherman Terminal opened for business, “it sits largely idle, and the state’s investment in the port and regional economy is wasting,” said the state of South Carolina in its Supreme Court brief.

Changes to coastal flows, import timing

Meanwhile, five months after the West Coast labor agreement was reached, container shipping flows continue to be affected.

Some importers shifted their supply chains this year in preparation for a possible West Coast strike, switching to services calling at East and Gulf Coast ports. Those changes are “sticky” — while some cargo may have returned to Los Angeles and Long Beach, California, much has not.

The rhetoric alone on a possible strike at East and Gulf Coast ports could affect importers’ supply chain plans next year.

Importers shipping goods from Asia could bring more cargo back to West Coast ports, particularly given growing and concurrent concerns about Panama Canal water levels. Importers could also bring peak-season volume forward to avert the risk of cargoes caught in a strike next October.

If so, that would extend an import timing trend seen this year.

“We’ve seen the calendar evolve and change and inventory pulled forward sooner in the calendar year than was historically the case,” said Matthew Shay, president of the National Retail Federation (NRF), during a Port of Los Angeles press conference on Oct. 23.

“A lot of that is because consumers are shopping differently. We see various retail sales events occurring in the month of July, and we see promotions earlier than ever in the season. So, consumers have changed their behavior and retailers have adapted to that.”

More diverse import sources than West Coast

If dockworkers went on strike at East and Gulf Coast ports next October, the theoretical impact on U.S. import flows could be even more severe than if there had been a West Coast strike.

According to statistics from independent analyst John McCown, the top East and Gulf Coast ports handled 51% of U.S. containerized imports in July-September, the top West Coast ports 49%. The volume is similar.

But the West Coast ports primarily handle imports from Asia, while imports to East and Gulf Coast ports are much more diverse. In addition to Asian cargo arriving via the Panama and Suez canals, these ports handle substantial volumes from Europe and South America.

U.S. Census Bureau data shows that around 20% of all U.S. containerized imports are from Europe, with almost all of those cargoes handled by East and Gulf Coast ports.

In the case of an ILA strike, cargo from China that would have gone to Charleston or Savannah, Georgia, could be rerouted to Los Angeles or Long Beach and shipped overland by rail, a well-established logistics option. Rerouting options would be much more extreme for cargo from Europe that was blocked from unloading on the U.S. side of the Atlantic.

Click for more articles by Greg Miller 

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West Coast container ports hit as labor talks take ominous turn

The dockworkers’ union and terminal employers are still sparring over wages and benefits more than a year after contract talks began.

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Will West Coast port labor negotiations devolve into a major, extended disruption to U.S. supply chains, akin to the labor fallout in 2014-2015? If there was a way to place a “prop” bet on this, how have the odds changed since the last port labor contract expired on July 1, 2022?

The longer the talks drag on, the higher the chance of a worst-case scenario. Talks on the new contract began in May 2022. The one-year anniversary has now come and gone.  

There have been glimmers of hope along the way, at times nudging the betting line toward a less dramatic climax. The International Longshore and Warehouse Union (ILWU) said on April 20 that agreements were reached “on certain key issues,” reportedly including automation.

Yet some handicappers would have noticed the timing. That announcement came the very day the Biden administration’s pick to lead the Department of Labor, Julie Su, had her Senate nomination hearing. The progress announcement allowed her to tell lawmakers she had obtained positive results after engaging the parties.

Oddsmakers who placed little weight on the April 20 announcement look like they’re right. The betting line just shifted in favor of the large-scale disruption scenario.

West Coast disruptions flare up again

On Friday, the ILWU staged “concerted and disruptive work actions that effectively shut down operations at some marine terminals at the ports of Los Angeles and Long Beach,” said the Pacific Maritime Association (PMA), the group representing the terminals in the labor negotiations.

The ILWU staged “similar work actions that have shut down or severely impacted operations at the ports of Oakland, Tacoma, Seattle and Hueneme,” said the PMA.

According to Jessica Dankert, vice president of supply chain at the Retail Industry Leaders Association (RILA), “Retailers are alarmed to learn of the work stoppage underway at several West Coast ports. If this work stoppage drags on and contract negotiations continue to falter, the Biden-Harris administration must step in and broker a deal.”

Negotiations between the union and employers “deteriorated” over wages, with workers not showing up at some terminals beginning Thursday night and extending into Friday, reported the Wall Street Journal.

“Any reports that negotiations have broken down are false,” said ILWU President Willie Adams. He highlighted the health risks and lives lost of ILWU members during COVID and the “astronomical revenues” of ocean carriers during that period, and argued that ILWU members deserve “an economic package” that accounts for their role in the shipping industry’s windfall — in other words, they want a piece of the pandemic profit pie. Adams specifically pointed to the falling percentage of ILWU wages and benefits in comparison to PMA profits.

ILWU Local 13 said, “Ocean carriers and terminal operators have thumbed their noses at the work force’s basic requests, insinuating that the health risks and the loss of lives … during the pandemic did not matter to them and they were expendable in the name of profit.”

In reference to union members not showing up for work on Friday, ILWU Local 13 said “the rank-and-file membership of the Southern California ILWU has taken it upon themselves to voice their displeasure with the ocean carriers’ and terminal operator’s position.”

Second major disruption this year

The latest work slowdown is the second major incident this year, although there also have been multiple smaller and more subtle disruptions, according to the PMA and Agriculture Transportation Coalition.

Work previously stopped in the ports of Los Angeles and Long Beach for 24 hours between the night shift on March 30 and day shift on March 31. Terminals were shuttered.

As with the late-March slowdown, U.S. exporters were caught in the middle in Friday’s incident. Export goods turned away from terminals due to labor action need to be stored elsewhere until cargoes can be received, with added storage costs cutting into exporter profit margins. Storage costs for refrigerated food cargoes are even higher.

On the import front, U.S. shippers have already shifted supply chains toward East and Gulf Coast ports in preparation for potential disruptions on the West Coast.

But the U.S. supply chain’s exposure to labor unrest remains acute. The top West Coast ports handled 812,000 twenty-foot equivalent units of containerized import in April, accounting for 48% of the country’s total, according to The McCown Report.

Backup protocols from COVID era still in place

On a positive note, the U.S. supply chain has very recent and in-depth experience dealing with vastly greater congestion than occurred when labor disruptions backed up traffic in 2015.

According to data from the Marine Exchange of Southern California, the prior labor contract disruption caused a maximum of 27 ships to wait off Los Angeles/Long Beach amid a backup lasting three months. In the COVID era, the Los Angeles/Long Beach backup peaked at 109 ships and spanned two years.

(Chart: FreightWaves based on data from Marine Exchange of Southern California)

A system is already in place to deal with labor-related backups courtesy of lessons learned during the COVID-era backup.

“Vessel traffic is still moving per schedules and no schedules have slipped yet, so no backup,” said Kip Louttit, executive director of the Marine Exchange of Southern California, in a report to media on Friday.

“Thankfully, the new queuing system … has remained in effect for the past six months [since the COVID backup ended] even though it was not needed because there was ample labor. If the current labor actions do result in a container vessel backup and berthing dates are slipped back, because partners kept the system going, each vessel has a calculated time of arrival [CTA].

“With CTA in hand and published on the Master Queuing List, if a backup develops, ocean carriers are requested to return to backup protocols … as we did during the 2021-2022 backup,” said Louttit.

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Port of LA boss: Good Friday work stoppage was ‘a call to action’

“Simply put, there’s no bigger priority right now than this contract agreement,” says Gene Seroka of the Port of Los Angeles.

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Cargo volumes at the Port of Los Angeles are rebounding just as fears of port labor disruptions are escalating.

On Wednesday, Port of Los Angeles Executive Director Gene Seroka announced a rise in imports in March versus February, with even higher volumes expected in the months ahead. At the same time, he said “there has been widespread concern over the ongoing West Coast labor contract negotiations and those concerns intensified last week.”  

The previous labor contract between the ILWU port workers’ union and the Pacific Maritime Association, representing terminals, expired on July 1, 2022. “This contract negotiation has been going on as long as it ever has. Folks want to put this thing to rest,” Seroka said during a news conference attended by a record number of journalists.

Bad news on Good Friday

Cargo operations at terminals of the ports of Los Angeles and Long Beach were halted during the Thursday night shift, coinciding with a monthly meeting of ILWU Local 13, as well as during the day shift on Good Friday.

“What we saw last week was a call to action for everyone to hunker down and get this deal done as quickly as possible,” said Seroka.

“Good Friday typically sees a lower volume of activity during the morning shift, so the impact to operations was relatively minor. However, this situation captured the nation’s attention — and rightly so.”

He said “there are no contingency plans” for a more extended shutdown, should it ever happen. He maintained that it wouldn’t.

“I don’t see a widespread labor disruption at any time in the future. But again, all eyes are focused on us. We’ve been through 11 months of negotiations. It’s time to cut through all of these very challenging discussions and get to an agreement.

“Simply put, there’s no bigger priority right now than this contract agreement. This contract is the biggest thing on our industry’s collective plate.”

Asked by FreightWaves whether he had been in contact with the Biden administration after the events of last week, he replied, “Communication has been daily, hourly, by the minute. Acting Labor Secretary Julie Su has been on the phone with us morning, noon and night.”

March imports up 28% vs. February

The port’s volumes were negatively impacted by fallout from the Lunar New Year holiday in February and rebounded in March.

Total March throughput came in at 623,233 twenty-foot equivalent units, with exports at 98,276 TEUs and empty containers at 204,995 TEUs.

Los Angeles handled 319,962 TEUs of imports last month. That was down 35% year on year, however, March 2022 was the best March in the port’s history as a result of the COVID consumer boom. This March’s imports rose 28% versus February and were 8% higher than imports in March 2019, pre-COVID.

(Chart: FreightWaves based on data from Port of Los Angeles)

“The number of canceled sailings declined from 30 in February to 18 in March,” said Seroka.

“Despite the current headwinds, we’re forecasting gradual volume growth from one month to the next,” he continued. Total April throughput is expected to come in close to 700,000 TEUs, up around 12% from last month.

Given the tough comps to the boom era in 2022, “the second quarter will look relatively light on face value,” said Seroka. “But from then on, we’re expecting a more traditional peak shipping season with a moderate volume uptick in the third quarter. I still continue to believe there are bright skies ahead.”

Click for more articles by Greg Miller 

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Fingers crossed as West Coast port labor talks head into overtime

Giant ship cranes extend over containers stacked on a ship with a FedEx truck on a bridge in the background.West Coast port employers and labor won’t extend their contract during bargaining, as business groups would like them to do.

Giant ship cranes extend over containers stacked on a ship with a FedEx truck on a bridge in the background.

The employers who operate West Coast port terminals and the union representing dockworkers on Friday rejected calls to extend their contract that was set to expire at 5 p.m. PST, but they promised to keep cargo moving without interruption until an agreement is reached.

“Both sides understand the strategic importance of the ports to the local, regional and U.S. economies and are mindful of the need to finalize a new coast-wide contract as soon as possible to ensure continuing confidence in the West Coast” as a competitive trade route, the Pacific Maritime Association and the International Longshore and Warehouse Union (ILWU) said in a joint statement Friday afternoon.

The fact that the sides are communicating with a single voice rather than issuing separate press releases in an effort to gain public support is considered a good sign by those familiar with the history of labor relations at the ports. The master contract covers 22,000 dockworkers at 29 U.S. West Coast ports, accounting for about 44% of U.S. container freight traffic. The main container gateway is at the twin ports of Los Angeles and Long Beach, Calif. 

More than 150 business groups earlier in the day urged the White House to push management and labor at West Coast ports on temporarily extending their contract to assure businesses, workers and consumers of supply chain continuity as the economy faces growing headwinds. 

Talks on a new five-year labor deal between the ILWU and West Coast employers, which began in mid-May, are taking place against a backdrop of recovery from the supply chain dislocations caused by COVID, record cargo volumes and congested container terminals, inland distribution challenges, product shortages and rising concerns about a potential recession. 

“Extending the current contract would provide additional certainty to all of the supply chain stakeholders that rely on the U.S. West Coast ports. This is even more important as we continue to experience supply chain disruptions and congestion for a variety of reasons,” the trade associations said in a letter to President Joe Biden. 

The lack of an official contract opens the door to pressure tactics, but both sides they are not preparing for a strike or lockout.

The leadership of the Pacific Maritime Association (PMA) and the ILWU met with President Biden at the White House on June 10 and committed to reaching a labor deal without any cargo disruption. The comments were viewed by many as a positive sign after three of the past four contract talks have resulted in disruptions, including work slow downs. The economic impact resulting from slowdowns during negotiations in 2014-2015 took about eight months to overcome. 

But fears of shipment delays remain as container volumes increase ahead of the traditional busy season for Asian imports. Many shippers have already rerouted cargo to ports on the East and Gulf coasts as a hedge against possible labor-related delays along the West Coast. Several of those ports, including the Port of New York/New Jersey, are now experiencing heightened congestion and vessel backlogs. 

Meanwhile, schedule reliability for container lines between Asia and the U.S. West Coast ports has plummeted to between 10% and 20%, according to Sea-Intelligence, a maritime data provider. And backlogs could increase as exports from China pick after the lifting of lockdowns in Shanghai and other cities last month. Although some retailers say they have too much inventory now the overstock appears to be category specific and many products are still in demand, including for the upcoming the Back-to-School season.

Los Angeles Port Director Gene Seroka said on Bloomberg TV that he expected the port will report its best June ever for container throughput.

The ILWU essentially has monopolistic power because West Coast ports must use its members to handle ocean shipments. 

“As we enter the all-important peak shipping season, we continue to expect cargo flows to remain at all-time highs, putting further stress on the supply chain and increasing inflation. Many expect these challenges to continue through the rest of the year. Even with the recent joint statement, supply chain stakeholders remain concerned about the potential for disruption, especially without a contract or an extension in place,” the letter said.

Signatories include the National Retail Federation, the National Association of Manufacturers, and the Toy Association. 

On Thursday, nearly two dozen Democratic lawmakers wrote the PMA and ILWU to stress the importance of working in good faith towards finalizing a new contract and ensuring the ports continue to function without interruption. 

Both sides are facing heavy political pressure to reach a resolution. Even though a large number of ILWU members make in excess of $100,000 per year, the union is framing the talks as being between mainstream American workers and foreign shipping lines that are earning record profits. At the same time, the pro-union Biden administration is struggling to gain control over record inflation that is battering the president’s approval ratings. A work slowdown or stoppage would exacerbate existing shipping delays, raising prices for many goods in addition to transportation costs. 

A former shipping line executive who has participated in previous ILWU negotiations, but didn’t want to be identified, recently said the promise to the president significantly tilts the scales to there being no work stoppage during contract talks. 

Clash over automation

The key issue on the table is automation, as well as pay and benefits. Shipping lines and their affiliated terminals view automation as the only way to handle compound annual growth of 3% to 4% when most ports have run out of physical space to expand. The union worries about job losses, but many experts say they will gain jobs in the long run as container volumes increase and that more jobs will be needed to operate and maintain the technology.

Nearly all ports in Northern Europe have automated truck gates and yards, as do many terminals in Asia. The Los Angeles/Long Beach complex has two semi-automated terminals, with another one under development. A study from the University of California at Berkeley, sponsored by the PMA, in early May showed that not only do automated terminals have as much as a 44% productivity edge over nonautomated ones, but that they also tallied more work hours for dockworkers. 

A study released Thursday by the Economic Roundtable, and funded by an ILWU grant, countered that automation at the Long Beach Container Terminal and the TraPac terminal in Los Angeles has eliminated 572 full-time jobs and $41.8 million in wages per year for longshoremen. 

The nonprofit urban research organization recommended that the cities of Long Beach and Los Angeles enact a displaced worker impact fee on any new automated equipment to offset public costs resulting from job loss caused by automation. It also said the state of California should enact a tax on automated terminal equipment equivalent to the revenue from income and payroll taxes when containers are moved by dockworkers without automated equipment. The San Pedro Bay ports shouldn’t approve plans to automate terminals unless it can be demonstrated that the automation will produce net benefits for California workers, the report added.

The shipping industry executive predicted the PMA will make a significant, one-time lump payment to the dockworkers to buy the right to automate in perpetuity. 

Click here for more FreightWaves/American Shipper stories by Eric Kulisch. 

Lawmakers plead for deal ahead of dockworker contract deadline