An East Coast Port Strike: Uh-Oh

If it happens, the impact would be widespread -- and severe

   

As if there weren’t enough uncertainty in the air as 2012 fades away, federal mediators are now scrambling to avert a strike that could put yet another crimp in the U.S. economy, no matter what happens in Washington’s “negotiations” over the fiscal cliff. Union dockworkers are threatening to close East Coast and Gulf Coast ports this weekend for the first time in 35 years, potentially hammering the economy and the fortunes of transport companies that handle containerized cargo.

Contract talks between the International Longshoremen’s Assn. (ILA), which represents East Coast dockworkers, and the U.S. Maritime Alliance (USMX), which represents shipping companies and port operators, broke down on Dec. 18. If the two sides fail to reach a labor deal by 12:01 a.m. on Sunday, some 14,500 union members at 15 ports from Massachusetts to Texas could walk off the job. That would leave billions of dollars worth of containerized cargo sitting on ships.

The economic impact would be vast, stranding everything from auto parts to consumer goods at coastal ports and snarling manufacturers’ supply chains. Bulk cargo and military shipments would not be affected.

Although broader contract issues have yet to be resolved, the standoff hinges on so-called container royalties — a weight-based payment that dockworkers receive above their regular wages for handling intermodal containers (those that can be carried by ship, rail or truck). Shipping firms and port operators, which contend that the payments now amount to a bonus of more than $15,000 a year, want to cap those royalties at last year’s rates for current workers and eliminate them for future employees.

The ILA contends that the royalties are a necessary supplemental wage, not a bonus — and that their total compensation is not nearly as rich as the USMX says it is. The shipping alliance says dockworkers’ wages and benefits average $124,000 a year, including the royalties; the union places that figure around $75,000.

The pain to transport companies wouldn’t be limited to major containerized cargo shipping lines like A.P. Maersk and China COSCO Holdings. Intermodal cargo is a fastest growing freight sector.

If intermodal freight can’t be unloaded from ships, it can’t be moved — a potentially disastrous scenario for railroads like CSX (NYSE:CSX), Norfolk Southern (NYSE:NSC), which have a large East Coast presence and count on intermodal to offset declining coal volumes.

Trucking companies like J.B. Hunt (NASDAQ:JBHT), Old Dominion Freight Line (NASDAQ:ODFL), Landstar (NASDAQ:LSTR) and others could also take a hit if East Coast intermodal volume stalls.

Shipping companies got a small taste of the looming maelstrom late last month, when a few hundred clerical employees represented by a different dockworkers’ union went on strike out West. The eight-day strike, which has since been settled, crippled the ports of Los Angeles and Long Beach as most longshoremen refused to