The $7 Billion Slowdown

The ongoing logjam at ports on the West Coast could cost American retailers around $7 billion this year, according to the consultancy Kurt Salmon. That’s a lot of money, and huge disruption to the nation’s economy. Of course, it’s impossible to prevent disruptions, including large ones, from ever happening. The problem is that this one was not only easily foreseen, but preventable.

The recent shutdown, and continuing backlog, has followed a similar pattern as past West Coast port shutdowns. That’s because labor at the ports functions as a cartel that can disrupt commercial shipping easily.

Shippers must negotiate with the union as a group, through a trade group called the Pacific Maritime Association (PMA). The union, International Longshore and Warehouse Union (ILWU), represents dockworkers at ports all down the West Coast. (Unionized port workers on the East and Gulf coasts are represented by the International Longshoremen’s Association.)

Like railroads and airlines, maritime shipping is a network industry vital to commerce. However, while labor relations at railroads and airlines are covered under the Railway Labor Act (RLA), which was designed to avoid major disruptions to commerce, ports are covered by the National Labor Relations Act (NLRA), which enables disruptions that the RLA doesn’t allow.

“Railroad crews cannot decide to stop working on the tracks, and airline crews cannot withhold fuel from planes,” explains Diana Furchtgott-Roth of the Manhattan Institute. “But [port] workers can simply not show up for shifts in Los Angeles and Oakland in order to hold out for higher wages.”

A clear solution would be for Congress to shift jurisdiction of ports from the NLRA to the RLA, much as it extended the RLA’s jurisdiction to airlines in 1936, 10 years after the original Act’s 1926 passage.

American Action Forum President Douglas Holtz-Eakin explains:

A cornerstone of the RLA is that its purpose, as stated in the statute, is to “avoid any interruption of commerce” while providing for “the prompt and orderly settlement of all disputes” that arise in labor matters. Labor contracts under the RLA do not expire. Instead, they become “amendable” and remain in force until a new agreement is reached.

If negotiations are not productive, then federal mediation is required before either unions or employers can engage in “self help” like slowdowns, strikes or lockouts. The National Mediation Board, which oversees the process, says that 99% of all of its mediation cases since 1980 have been handled without interruption.

The need for reform is especially grave, considering the need for modernization of ports, which will require adoption of new technologies, including greater automation. As the trade publication Apparel notes, “The ports are simply not structured to manage the combination of large ships and high volume. Retailers need to investigate new supply chain options – fast.”

As long as ports remain under the NLRA, any introduction of new technology will continue to threaten further disruptions, as unions seek to prevent job losses and exert control over any new jobs that new technologies might create.

We’ve seen this movie before. Introduction of new technology was an issue during contract negotiations in 2002 that involved a shutdown and subsequent lockout in response, which I described in Labor Watch at the time. 

Should the ILWU decide to shut down the ports at some future time—or force the PMA to do so—it can act at will. The union may relax some work rules now and allow the ports to introduce new technologies. But its coast-wide monopoly means any future industry attempt to increase productivity and remain competitive in the arena of international trade will be exposed to the same kind of tortuous labor negotiations and union maneuverings as have already occurred.

And so, we go around again.

The full two-part article is available here and here