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Strikes and Slow Downs Have Long Tails

According to Breitbart, “Despite the February 21 settlement of a bitter labor dispute at West Coast ports between employers and members of the International Longshore and Warehouse Union (ILWU), whose members command average wages and benefits of about $1,200 a day, the continuing bottleneck is still causing job and revenue losses across many US industries.” The contract negotiations lasted over 9 months between the ILWU and the Pacific Maritime Association (PMA).

Unions are notorious for using slow downs, work stoppages, strikes and picket lines as a negotiating ploy to force "management” to sit down at the negotiating table to either listen to workers' complaints and/or to respond to a demand for higher wages and “better and safer” working conditions for the workers in that particular union.

Recently, we have seen a couple of negotiations that have been settled after long slowdowns or strike actions, but folks don’t always pay attention to or talk much about the “long tail of economic damage” caused by those extended actions. No argument that the unions have the right to strike, but a full disclosure might be helpful to understand the “long tail.”

This nine-month-long west coast port slow down is a perfect example. The negotiations extended for over nine months and resulted in work slow downs, ship back ups, several owner-called work stoppages (usually on weekends) and lockouts. Those activities impacted 29 west coast ports and had impacts at home and abroad. Ships backed up at the ports waiting to be unloaded and fresh fruit destined for your local grocery store was stuck on ships, in some cases until it spoiled. Ships were stalled in US ports waiting to unload, losing income for their owners all across Asia.

One example of an issue is that a number of high-rise buildings under construction in the LA area have been unable to get the glass products that were being supplied from Chinese glass factories. The interior finish out could not proceed because the buildings were not glazed. Construction schedules have been delayed several times, and the ripple effects of those port delays haven’t been clearly understood yet.

On the other end of the scale, one report stated that McDonald’s in Japan had to put fries on ration because they could not get the supplies they needed from the US. So, the impact is broad and damaging to the GDP of the US and those of our trading partners.

The National Association of Manufacturers (NAM) issued a report in June before the negotiations even began between the ILWU and the PMA called ”National Impact of a West Coast Port Stoppage" that detailed the economic impact of a stoppage based on the 2009 action.

As we have discovered, agreement to the negotiated terms is not valid until all of the union members vote to accept the terms and return to work. Then the work off of the long tail of the backlog of containers full of goods begins in earnest.

Also, as said earlier, even after the negotiations are complete, some unions still have to negotiate local issues before the work starts and the “long tail” of the action can be worked off and plants or ports can return to regular production and normal activity. That “long tail” can last as long as 6 months or a year depending on the issues.

I wonder what impact the completion of the expansion to the Panama Canal will have on those west coast actions. Sure it will take 3 additional days for container ships to use the canal and Gulf Coast ports instead of using west coast ports, but 3 days versus weeks of slow downs on the west coast will quickly make economic sense to the owners of those shipping lines, the producers of the products in Asia and the distributors and retailers in the US. That could be great news for Gulf Coast Ports.

The United Auto Workers’ contracts at GM, Ford and Chrysler expire in September of 2015. I wonder how long the tail on those negotiations will be?

One more thing, is it my imagination or do these negotiations seem to take place during the primary season for the presidential elections? Surely that is just a coincidence?

What do you think?