US Supply-Chain Threat Diminishes With West Coast Port Deal

Date: Thursday, June 15, 2023
Source: Bloomberg

Workers and employers announced a tentative agreement on a new six-year contract that will cover employees at all 29 West Coast ports, a major step toward averting fresh supply-chain troubles for the US economy.

The talks dragged on for more than a year to replace the previous pact that expired July 1. Both parties must now ratify the agreement.

The deal was announced in a joint statement by the Pacific Maritime Association — which represents employers — and the International Longshore and Warehouse Union on Wednesday, and comes as the world’s largest economy struggles with inflation and rising interest rates, problems that would be exacerbated by port shutdowns.

While import volumes are down across the US, West Coast ports have been losing market share as shippers diverted their goods to East and Gulf Coast maritime hubs, in part to avoid potential disruptions.

President Joe Biden, in a statement on Wednesday night, hailed the tentative agreement as proof that “collective bargaining works” and said it delivered for port workers who “will finally get the pay, benefits, and quality of life they deserve” after working through the Covid-19 pandemic.

“We are pleased to have reached an agreement that recognizes the heroic efforts and personal sacrifices of the ILWU workforce in keeping our ports operating,” PMA President James McKenna and ILWU President Willie Adams said in the statement. “We are also pleased to turn our full attention back to the operation of the West Coast ports.”

The parties did not release details of the agreement, which was reached with assistance from Acting US Secretary of Labor Julie Su.

“The tentative agreement delivers important stability for workers, for employers and for our country’s supply chain,” she said in a statement.

Biden praised Su for using her “deep experience and judgment” to help the sides “reach an agreement after a long and sometimes acrimonious negotiation.” Su faces a tough confirmation battle in the US Senate to lead the Labor Department on a permanent basis.

The timing of the deal was surprising, given that several observers had cautioned that the tone had recently soured and finger-pointing was intensifying at this stage in the impasse.

S&P Global Market Intelligence said on Tuesday that the two sides were still “far apart,” with dockworkers wanting 70% wage increases and the employers were offering about 30%.

Both sides are feeling financial pressures. Shipping companies, which brought in record profits through the pandemic, are struggling this year amid a plunge in container rates and softer demand. Meanwhile, workers argue they’re feeling the sting of inflation, which is still about double the Federal Reserve’s target even though it’s eased in recent months.

The White House had faced heightened calls from industry to intervene over the last two weeks as labor-related disruptions spread up and down West Coast ports. The administration preferred a resolution without its direct involvement, but was also keen not to have new supply chain disruptions arise as Biden begins his reelection campaign.

The US Chamber of Commerce estimated that a work stoppage at ports from Seattle to Los Angeles could have cost the economy $1 billion a day.

US retailers and importers who diverted goods to East and Gulf Coast ports during the year-long contract negotiations have said they won’t bring cargo back to the West Coast ports until a deal is ratified, which could take several weeks.

Nonetheless, the National Retail Federation and Retail Industry Leaders Association were relieved and encouraged by the tentative deal, with both organizations urging quick ratification of the agreement.

“It is essential to begin the negotiation process early for the next labor contract and avoid a future lapse in continuity,” the NRF said.


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