Industry stakeholders examine impact of stalled-out ILA-USMX negotiations

Following the suspension of labor talks earlier this month between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX), there has been no shortage of opinions regarding where things stand—and where things may go from here.

The ILA is the largest union of maritime workers in North America, representing workers at 36 ports from Maine to Texas. And the USMX is an alliance of container carriers, direct employers, and port associations serving United States-based East and Gulf Coasts.

The current six-year labor deal between the parties was completed in September 2018 and covers roughly 14,500 U.S. East and Gulf Coast port workers. ILA said at the time of the deal’s completion that this six-year contract extension will bring generous pay increases, landmark protections against job-killing fully automated ports, and labor peace and stability through September 30, 2024.

ILA officials explained on June 10 that the organization cancelled Master Contract talks with the USMX upon learning that APM Terminals and Maersk Line are using an Auto Gate system that autonomously processes trucks without ILA labor, adding that this system, which was initially identified at the Port of Mobile, Alabama, is also being used at other ports, too.

An ILA spokesman called this another example of USMX members unilaterally circumventing the coast-wide Master Contract, calling it a “clear violation” of the agreement.

The following day, on June, 11 USMX issued a statement, saying that it met with the ILA for Local Contract negotiations over the previous two weeks.

“As is typical in our discussions, some issues will require further conversation between the local parties,” he said. “USMX looks forward to re-engaging with the ILA’s bargaining committee to jointly move local and Master Contract negotiations forward for the betterment of the USMX membership and the ILA rank-and-file.”

With a little more than four months remaining until the expiration of the current contract, this situation is replete with uncertainty, as the calendar moves forward, in terms of next steps.  

Andrei Quinn-Barabanov, Supply Chain Industry Practice Lead at Moody's, explained that the union [ILA] has substantial bargaining power at this critical moment for supply chains.

“Shippers are already under pressure from high container rates and the lucrative (for both port operators and container ship owners) Christmas delivery window is coming up,” he said. “Given the wage-increase precedent set by West Coast ports, we can expect ports and shipping companies to be motivated to make a deal with the union in the very near future. Market uncertainty often leads to higher prices, and in the absence of an agreement, industry costs and prices would likely rise significantly in the next three months.”

From a planning perspective, Christina Boni, Moody's Ratings SVP of Corporate Finance, said she expects that many U.S.-based retailers will either pivot cargo away from the East Coast to the West Coast or bring in product earlier to avoid risk stemming from contract negotiations this fall.

“Many U.S. companies successfully moved cargo during COVID in the opposite direction, from West Coast ports to the East and the Gulf, when the risk of a strike loomed at West Coast ports in 2022 without pushing costs much higher,” said Boni. “Demand is below peak levels with retailers curtailing their inventory purchases, which supports their flexibility in the short term. Nonetheless, a sustained work slowdown or strike would be more difficult to navigate.”

Jared Bernstein, Chair of the United States Council of Economic Advisers, said on a Port of Los Angeles-hosted media call last week that this situation is certainly something that the White House is watching carefully because of its impact potential impact on the economy, while adding it is the policy of the administration to encourage collective bargaining because it works.

“The President knows it works as the first President to actually walk the picket line and always supports a collective bargaining agreement,” said Bernstein. “But he also supports giving the parties the space they need, when they're at this stage of negotiation. And we've consistently made a point of staying out of their way. We encourage them to negotiate in good faith.”

The ultimate impact of these negotiations will depend on what the final outcome is, according to Nathan Strang,” Director of Ocean Trade Lane Management, for San Francisco-based freight forwarding and customs brokerage services provider Flexport.

“If you look at what happened with the West Coast, there was no major coastwide strike,” he said. “There were a couple labor actions by terminals, in terms of soft lockouts or something like that, but there wasn't a major disruption on the West Coast during those negotiations. I think it caused a lot of anxiety. And it caused a lot of people to re-examine their supply chains, but we didn't see a major coastwide shutdown. A strike just blows up the market. There's nothing you can do. There's no additional capacity. What happens to rates? I think they explode because, it becomes an auction then to get cargo on their ships.”