imports into the U.S. 60% of containerized cargo originating from the Far East in 2021 were handled by the two ports. Combined, they account for 74% of the West Coast’s market share.
Contract talks started on May 10th between the Pacific Maritime Association (PMA) and International Longshore and Warehouse Union (ILWU), the two parties who represent many of the companies and workers that keep U.S. West Coast ports running.
WHO ARE the ILWU?
Labor Union representing port workers on the U.S. West Coast.
Members:
More than 22,000 workers employed at 29 ports along the West Coast of the United States which include California, Oregon, and Washington.
WHO ARE THE PMA?
The Employers’ Association on the U.S. West Coast.
Members::
Approximately 70 companies comprised of shipping lines and terminal operators at 29 West Coast ports.
The timing of the current contract negotiations is notable, Christine Solorzano, executive vice president of the Americas region at Shipco points out. “The current ILWU contract has remained unchanged for nearly eight years. Now is the time they will try to negotiate increases with the ports being already highly congested and a backlog of vessels. If they do strike, we do not foresee these ports being able to recover before 2023.”
According to Sea-Intelligence, the terminal congestion index in North America remains at an elevated leveldespite a gradual improvement in February and March (see Figure 1).
The congested market and record profits reported by carriers have given the union additional leverage over container lines and terminal operators. “There is no doubt that the union has a strong hand when it comes to negotiations this year,” Casper Alexandersen, general manager for Shipco’s Los Angeles office notes.
Shippers are hedging against the risk of West Coast labor disruptions by shifting cargo volumes to U.S. East and Gulf Coast ports. The West Coast’s share of U.S. imports from Asia has fallen to 58.2% percent, from 60% in 2021. East Coast ports gained a 1.1% share to reach 34.7% and Gulf Coast ports grew their share by 0.7% to 6.8% (see Figure 2).
According to the April 2022 issue of The McCown Report, April marks the 11th consecutive month where the y/y percent change in inbound volumes at East and Gulf Coast ports outperformed West Coast ports. Data further shows the combined laden import throughput at East Coast ports is 18.7% higher than a year ago. In contrast, import volumes at West Coast ports slid -3.4% y/y (see Figure 3).
Carriers have also deployed more services to the U.S. East Coast, data by maritime intelligence service eeSea shows. 30 Asia to East Coast services per month have been planned for May with capacity projected to reach 889,000 TEUs in the month of June, increasing by 40% over the 2021 full-year average.
Carriers have also deployed more services to the U.S. East Coast, data by maritime intelligence service eeSea shows. 30 Asia to East Coast services per month have been planned for May with capacity projected to reach 889,000 TEUs in the month of June, increasing by 40% over the 2021 full-year average.
Trans-Pacific carrier on-time performance to both U.S. coasts improved in March/April 2022 despite the vessel backlogs. Data by Sea-intelligence shows reliability at 21% on the Asia-North America West Coast trade and at 21.7% for the East Coast trade.
Average vessel delays on Asia-U.S. West Coast in March/April improved to 11.28 days but is still the highest recorded figure for the month and is higher by 0.44 days than a year ago. On the Asia-U.S. East Coast trade lane, average vessel delays decreased to 10.45 days but is the highest recorded figure for the month. On a y/y level, the delay measured 3.75 days higher than in 2021 (see Figures 4 & 5).
“The late vessels have been a big challenge by eliminating the normal pre-planning and operational efficiencies we rely on. We’ve come to put a high value on adaptability and flexibility given the current environment,” states Matthew Spartz, vice president, LCL USA at Shipco.
Border and infrastructure hurdles eliminate ports in Canada and Mexico as alternatives for many shippers. And while transporting cargo by air is an option, a surge in cargo volumes would overwhelm airport cargo facilities. Global air cargo capacity despite increasing 1% y/y in April, remains at -13% below 2019 levels according to CLIVE Data Services.
Overall, China’s total container volumes have only seen a marginal contraction of 2.5% in April despite pandemic-related lockdowns in Shanghai. Even though Shanghai port recorded a-25% drop in containers handled in April, much of that volume was redirected with seven of the ten largest container ports located in China, The McCown Report assessed.
Cargo volumes are unlikely to slow down anytime soon, says Mario Cordero, executive director of the Port of Long Beach, adding that the port is bracing for the peak season. “We are preparing for a likely summertime surge as China recovers from an extended shutdown due to COVID-19.” The port’s forward-looking Weekly Advance Volume Estimate (WAVE) report released on May 31st shows an upsurge of cargo container volumes and vessel calls through July 3rd (see Figure 6).
Mr. Spartz says even though operations at the port of Shanghai have been able to continue, transport into and out of the terminals has been badly affected. “Consolidated cargo in Shanghai has been impacted greatly. While ports have been operating and drayage operators have been somewhat active in the region, the trucks delivering to warehouses were for a time severely curtailed, resulting in a buildup of LCL cargo.”
Maritime consultancy Drewry says an estimated 260,000 TEU was not shipped from Shanghai in the month of April. Mr. Spartz anticipates the backlog of unshipped cargo will coincide with the summer peak season. “The LCL cargo will likely start arriving in West Coast ports around the July 1 timeframe,” he predicts.
A potential shut down of West Coast ports right before the traditional peak shipping season would upend the supply chain. “If we look at the import side, especially the Trans-Pacific East bound, it would likely be a more extreme version of what we see now, where everyone is trying to avoid Los Angeles, causing massive congestion of vessel build-up elsewhere. Obtaining the increased allocation to the East Coast and Gulf region will be the main challenge,” says Mr. Alexandersen.
As for exports, Ms. Solorzano says all major gateways are struggling to handle record volumes and inland supply chains are operating at maximum capacity. “The previous slowdown in 2015 was much different as we were able to shift volumes to the Gulf and East Coasts. Today, these ports are already facing much congestion, equipment imbalance, chassis shortage, vessel backlogs and omissions leaving the entire shipping industry in the U.S. with limited options.”
Mr. Alexandersen agrees, adding, “We are already seeing a supply chain in the Midwest and the East Coast that is very fragile and operating at capacity. A huge influx of cargo coming from the U.S. West Coast could have a devastating impact, that would be very difficult to solve.”
Despite this, Shipco is well prepared to surmount the challenges with alternative solutions in place for customers. Ms. Solorzano says, “In anticipation of a potential slow down or strike, we have been expanding our direct service portfolio offering more direct services out of Houston and East Coast ports. We have also changed routings from mid-West via East Coast to avoid further delays or congestion.”
Additionally, rail capacity out of California has been tight over the past year. It would not be easy to accommodate large volumes going East, Ms. Solorzano warns. “Any slowdown or strike will only add additional congestion to the rails which we experienced many embargoes in 2021, forcing us to shift to other ports and using trucking as another option due to our warehouses reaching capacity.”
Shipco is focused on keeping the cargo flow moving. Ms. Solorzano emphasizes, “We are doing everything we possibly can and we will continue to find alternatives to assist our customers.”
In the previous four negotiations, negotiations went past the July 1st deadline and in three of those negotiations, work slowdowns or an employer lockout resulted, noted Jim McKenna, PMA’s CEO. The last round of negotiations that took place in 2014 lasted for nine months. It took the industry another eight to nine months to return to normal operations.
Before talks commenced, the PMA released a report on May 2nd in strong support of automated cargo handling, calling it “key to long-term survival and long-term competitiveness”. On May 6th, speaking at a monthly briefing hosted by the Port of Los Angeles, Mr. McKenna again stood by the push for automation and acknowledged wages, hours, and working conditions were always “challenging issues” but were central to negotiations.
The ILWU reacted strongly to the PMA’s sponsored report as it views automation as a threat to the livelihoods of their members. In a written response on May 6th, Mr. Adams cited the need for a deal that protects both workers and the economy but criticized efforts to automate marine terminals. "To strengthen America's economy, it's not enough for ports to hold the best economic cards; they have to play them in ways that help the American workers who make, grow, and move the things we need for our lives," Mr. Adams wrote.
Officials at the PMA and ILWU have said the close collaboration forged during the pandemic helped create a healthy relationship between the parties. “I don’t think either of us walks in and says were going to have a problem. We both committed to getting to the table, getting a contract and doing so without any disruption to the supply chain…,” says Mr. McKenna. He has anticipated labor talks to extend beyond the deadline of July 1st because “they always do”, he points out. The ILWU confirmed similar expectations in an email.
Meanwhile, the joint statement released by the two parties on May 9th, vowing talks would continue "on a daily basis in San Francisco until an agreement is reached", is at odds with the latest turn of events. The ILWU has asked for negotiations to be put on hold from May 20th until June 1st reports the Journal of Commerce.
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