Port Shutdown Averted as Dockworkers Reach Tentative Deal

Dec. 28 (Bloomberg) -- Sheila Dharmarajan reports on the averted port shutdown. She speaks on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

Dockworkers and their employers reached a tentative agreement on royalty payments, averting a strike that would have shut down U.S. ports from Maine to Texas for the first time in 35 years.

The International Longshoremen’s Association and the U.S. Maritime Alliance will continue negotiations beyond the Dec. 29 deadline, according to the Federal Mediation and Conciliation Service, which was working with the two groups. An original extension to Jan. 28 was stretched to Feb. 6 to accommodate the year-end holiday season, the employers said. A strike would have closed ports handling about 45 percent of U.S. commerce.

The deal relieves pressure on retailers and manufacturers bracing for interruptions of shipments from frozen foods to clothing and car parts. Talks between the dockworkers union and the Maritime Alliance, whose members include container carriers, collapsed last week amid a dispute over container royalty fees, or levies on shipments that supplement wages.

“The agreement on this important subject represents a major positive step toward achieving an overall collective bargaining agreement,” George Cohen, director of the mediation service, said in a statement. “While some significant issues remain in contention, I am cautiously optimistic that they can be resolved.”

The deal also allows President Barack Obama, who has faced pressure to block the strike, to avoid invoking a 1947 law that unions view as anti-labor. The Taft-Hartley Act empowers the president to intervene by seeking a court injunction for an 80- day “cooling-off” period in strikes that create national emergencies.

Royalty Cap

The union and employers began negotiations in late March and reached tentative agreements in July on issues involving new technology and union jurisdiction over work on chassis used for cargo.

Talks between the two sides broke down after the alliance sought to cap container royalty payouts it says totaled $211 million last year, or an average of $10 per man hour. The ILA called the fees “untouchable” and vowed to strike if a new deal wasn’t reached before its contract expired on Dec. 29.

Cohen declined to describe the payment agreement in more detail.

“This is not just another kick-the-can resolution,” David Ross, a Baltimore-based analyst at Stifel Financial Corp., wrote in a note today. “This news makes the strike much less likely than before.”

The maritime alliance declined to comment beyond the statement from federal mediators. Jim McNamara, an ILA spokesman, didn’t immediately return telephone messages seeking comment.

‘Huge Ramifications’

“Neither party really wants a strike and they realize the cost of a strike,” Gary Chaison, a professor of industrial relations at Clark University in Worcester, Massachusetts, said in a phone interview yesterday. “This is not a strike at a little manufacturing plant. This is a strike that has huge ramifications for the labor movement, for the economy, for everything.”

If a strike had occurred, workers wouldn’t have moved containerized cargo, including frozen foods and household goods, ILA President Harold J. Daggett told union members in a Dec. 19 letter. Passenger ships, military cargo, containerized mail, bulk items, finished autos and perishable items with a “limited shelf life” would still have been handled, he wrote.

‘A Disaster’

With more than half of the nation’s containerized shipments passing through East Coast and Gulf Coast ports, a strike would have affected imports and exports accounting for $454 billion of U.S. trade in 2011, according to data compiled by Jock O’Connell, international trade adviser for Los Angeles-based Beacon Economics LLC.

“This was going to be a disaster,” John C. Martin, an economist at Martin Associates in Lancaster, Pennsylvania, said today in a telephone interview. “I think all parties realized it was unacceptable. They knew this couldn’t happen” because it would hurt the economy too much.

The immediate cost to East Coast and Gulf Coast ports would have been $45 million to $50 million a day if the strike had occurred, Martin said. That estimate covers only the lost business from moving containers in and out of ports, not secondary costs such as railroad cars stacking up or re-routing shipments to other ports, he said.

‘Better Result’

“While a contract extension does not provide the level of certainty that retailers and other industries were looking for, it is a much better result” than a strike, Matthew Shay, president of the National Retail Federation, said in a statement. “A coast-wide port shutdown is not an option.”

The Longshoremen also would have been hurt, with a walkout costing its approximately 15,000 members almost $5 million in wages and benefits for each day of work stoppage, the employers’ group said in a Dec. 21 statement. It would have had “dire consequences” for more than 500,000 non-ILA members whose jobs depend on the ports, according to the management group.

Carl Chiofolo Jr., a union member and clerical worker at New Jersey’s Port Elizabeth, said in a phone interview that he was pleased with the development.

‘Hash Out’

“I would rather a 30-day extension than a strike or a lockout at this point,” Chiofolo said. “It’s better for the country. It’s better for the ILA. It’s better for the USMX and it shows that they still want to sit down and talk and hash it out.”

With port negotiations extended, Obama can focus on avoiding the so-called fiscal cliff of more than $600 billion in automatic tax increases and spending cuts set for next month.

“One cliff is enough right now,” said Chaison, the Clark University professor. “I don’t know what happens to people when they fall off of two cliffs.”

To contact the reporter on this story: Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story: James Langford at jlangford2@bloomberg.net

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