Dockworkers Deal Gives Retailers No Guarantee on Strike

Retailers and manufacturers avoided the worst when dockworkers agreed yesterday to continue contract talks and keep major U.S. ports open. The next five weeks will determine whether a strike can be ruled out completely.

The International Longshoremen’s Association and the U.S. Maritime Alliance, representing container carriers, struck a tentative agreement on a royalty payment for workers that had been a sticking point in negotiations, federal mediators said yesterday. The two sides will push back a deadline for reaching an overall contract from midnight tonight until Feb. 6.

While the extension averts a strike that would have halted the flow of goods through ports responsible for about 45 percent of U.S. commerce, it didn’t guarantee supply-chain stability. Retailers including Home Depot Inc. (HD) and Lowe’s Cos. (LOW) rely on the ports, stretching from Maine to Texas, to deliver supplies for the lucrative home and garden season starting in April.

“Only until we have a final contract will retailers and others have the certainty they need,” Matthew Shay, president of the National Retail Federation, said in a statement yesterday. “A coast-wide port shutdown is not an option. It would have severe economic ramifications for the local, national and even global economies and wreak havoc on the supply chain.”

After reaching the tentative agreement on container royalties, used to supplement wages, the next step is for dockworkers and their employers to reach a binding contract that includes the deal. The two sides should have a smoother path now, said Mike Asensio, a labor lawyer at Baker Hostetler LLP in Columbus, Ohio.

‘Critical Issue’

“In every negotiation, there is always a critical issue or set of issues, and from what’s been available publicly, it’s been apparent that this container royalty issue has been the primary obstacle to a deal,” he said in a phone interview. “With the most contentious one out of the way, I would say the prospects look good for resolving the remainder.”

Contract negotiations had broken down with the alliance seeking to cap royalty payouts it says totaled $211 million last year, or an average of $10 per hour, while the Longshoremen called the fees “untouchable.”

George Cohen, director of the federal mediation agency, declined to give more details on the royalty fee agreement, as did Beth Monica, a spokeswoman for the Maritime Alliance. Jim McNamara, a union spokesman, didn’t return phone messages seeking comment.

‘Long-Term Cost’

Both sides have been outspoken in the past about their unyielding stances on royalty fee demands, signaling the dispute may not be fully resolved, said Ed Sands, a logistics specialist at procurement management firm Procurian in King of Prussia, Pennsylvania.

The USMX isn’t “going to give up an opportunity to reduce the long-term cost structure,” while Longshoremen President Harold J. Daggett probably “didn’t hand over the keys to the kingdom,” Sands said in a phone interview. “I think it’s going to be a battle for another 30 days.”

The lack of a definitive solution forces retailers who rushed to prepare contingency plans in advance of this month’s looming strike to grapple with ongoing uncertainty, according to the retail federation.

“We continue to urge both parties to remain at the negotiating table until a long-term contract agreement is finalized,” Shay said.

More Damaging

A strike may prove more damaging to the industry if it occurs in February, according to Jock O’Connell, international trade adviser for Los Angeles-based Beacon Economics LLC. January is typically a slower month for shipping, while cargo should increase heading into spring, particularly if the U.S. averts the so-called fiscal cliff of more than $600 billion in automatic spending cuts and tax increases set for next month, he said.

“The good news is that they didn’t go on a strike this month,” O’Connell said in a phone interview. “The bad news is that they might go on strike at a time when the economic impact is likely to be greater.”

While most retailers have their biggest quarter around the year-end holidays, Home Depot may generate 28 percent of its annual revenue in the quarter ending in July as consumers stock up for home and garden projects, according to analysts surveyed by Bloomberg. Lowe’s may get 29 percent of its revenue in the period, analysts estimate.

Contingency Plans

Home Depot has contingency plans in the event of a strike, Stephen Holmes, a spokesman for the Atlanta-based company, said this week by e-mail, while declining to discuss those preparations. Lowe’s, based in Mooresville, North Carolina, is monitoring the situation and will make changes to its shipping and transportation if needed, Maureen Wallace, a spokeswoman, said in an e-mail.

Dockworkers and their employers may have extended negotiations to avoid competition with the fiscal cliff for federal attention, said K.C. Conway, executive managing director at consultant Colliers International in Atlanta. Calls by the retailers group and Florida Governor Rick Scott for President Barack Obama to intervene and pre-empt a strike earlier this week went unheeded.

“The strategy just kicks the strike down the dock,” Conway wrote in an e-mail. “We just wait another 30 days and put retailers at risk for uncertainty about inbound spring/summer merchandise imports. Now manufacturers and retailers have to decide as to whether they should accelerate imports and absorb warehousing costs to avoid the uncertainty.”

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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