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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 cross picket lines.

Another labor impasse with dockworkers in the Pacific Northwest threatens to disrupt grain shipments, although workers represented by the International Longshore & Warehouse Workers Union (ILWU) have vowed to remain on the job “for now.” The ILWU is not affiliated with the West Coast dockworkers’ union.

The National Retail Federation (NRF) and other business groups have warned that a dockworkers’ strike could slam the economy. “The retail industry, once again, calls on President Obama to engage directly in the negotiations,” Jonathan Gold, NRF’s vice president of supply chain and customs policy said in a recent statement. “The President should utilize all available tools, including Taft-Hartley, to eliminate even the threat of a strike or lockout.”

In 2002, President George W. Bush successfully used emergency powers under the Taft-Hartley Act to end an 11-day employers’ lockout that had shuttered 29 West Coast ports. Under the act, a president can ask the courts to grant an injunction for up to 80 days prohibiting a strike or lockout.

But Democrats, who count on union support, are less likely to intervene aggressively in labor disputes. And the Obama administration’s record in that regard has been staunchly pro-union. In April 2011, Obama’s National Labor Relations Board charged Boeing (NYSE:BA) with illegal retaliation for machinists’ union strikes after the manufacturer opened a new assembly plant in South Carolina. The NLRB dropped the suit after Boeing agreed to manufacture more planes in its union plants.

Bottom Line: Barring swift and aggressive intervention by the White House or a rapprochement between the parties in the next 72 hours, East Coast ports will close, and a wide swath of companies dependent on intermodal transport will take a hit.

Supply disruptions in areas affected by Superstorm Sandy also are likely to be exacerbated, and construction and housing stocks could feel the pinch in the short term. From the standpoint of the broader economy, a strike like the one that closed ports for two months in 1977 could be devastating.

The best hope is that cooler heads prevail — but that’s a dicey proposition given how poorly lawmakers are doing in regard to the fiscal cliff.

Article printed from InvestorPlace Media,

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