A tentative settlement in the West Coast ports disaster

In one of the most bizarre and troubling labor situations ever to attack the supply chain of America, the secretary of Labor, Tom Perez, spent several days seated directly between two larger than life “Big Macs” — Jim McKenna, chairman and CEO of the Pacific Maritime Association (PMA) and Robert McEllrath, President of the International Longshore and Warehouse Union (ILWU). These two titans of the supply chain industry (as leaders of the groups they represent) had managed to drag American commerce to the brink of financial disaster. It is, in fact, the PMA and the ILWU who held our West Coast ports hostage. At this point in time, we can only assume that Perez possessed the recipe for the golden arch “secret sauce” and was able to make this situation more palatable to the negotiating parties. We hope and believe that he was able to convert this onerous example of non-collective bargaining into something that is now workable. A potential agreement seems to be at hand.

{mosads}Make no mistake: This was and is an extremely serious situation, and much is still at risk for the American economy, the American business community and for the political resume of President Obama. On one side was a serious threat to the recovering U.S. economy and it was pitted directly against a president who desperately wanted to have his legacy devoid of any Taft-Hartley injunction. As in any hostage situations, something needed to be done and soon.

It will remain difficult to determine the financial impact of this enduring drama, simply because there was much obscurity as we tried to separate reality from fiction. What is perfectly true is that there remains a flotilla of container ships lined up along the Western seaboard, unable to discharge and reload their cargo in a timely manner. It’s also true that companies are getting socked with late-delivery penalties for their sea shipments and are being forced to use premium air to move their products. Factories are shutting down due to non-delivery of component parts; citrus growers, nut exporters and beef exporters are getting slaughtered on the export side; and truckers are wasting endless hours as they await permission to retrieve cargo. Business enterprises are quoting losses in the millions (perhaps billions), but all this is really fuzzy math, as no one has an exact number. The bottom line is that the longer this port slowdown continued, the closer we got to a downward spiral of a declining gross domestic product (GDP). As a nation, we all suffer in terms of real financial loss and also in terms of international credibility. How can we pretend to negotiate a game-changing Trans Pacific Partnership agreement when our own port gateways are not under our control?

What has made this conflict so unique is the immense power of the few that was pitted again the commercial well-being of the many. Keep in mind that the cost to resolve this dispute will never be borne by the negotiating parties themselves, no matter how they finally settled. The negotiators will cover their cost by raising their rates, and the people who utilize the ports will get stuck with the bill. Who is going to pay Americans back for the fruit that spoiled, the beef that went bad or the workers who were laid off in the factories that shuttered because component parts for manufacturing were not received? In America this is often tolerated, but for how long? This labor dispute has been smoldering for months and the gatekeepers had been blocking the door with little interference from government.

It is only recently that politicians began raising the rhetoric, as they witnessed severe financial injuries to their own constituents. Everyone warmly welcomed the recent intervention from Perez and also from Commerce Secretary Penny Pritzker. Likely it was this action that helped the parties reach consensus.

But the agreement still has to be ratified and beware the Ides of March: Nobody likes to live in the past and history will recall the mail strike and the air traffic controllers slowdown that occurred in March 1970. Both actions were deemed critically important to the well-being of America, and decisive government intervention was used to solve the problem. While Taft-Hartley is always a last-ditch resort, what other choices were potentially available? Perez had threatened to move the negotiations to Washington, D.C. (but, for the record, it’s hard to imagine something getting quickly resolved in Washington). This fiasco had 29 West Coast ports affected, involving 20,000 American workers, locked in a dispute with the PMA (which is managed by 72 mostly non-American shipping companies), thus affecting the commerce and GDP of 319 million Americans.

No matter what it finally cost to settle the slowdown, the price will be far less that what it will cost the loyal folks who currently use the ports. Nobody likes to be under a microscope, and the more we learn and look at what has been going at the West Coast ports, the more the supply-chain wizards will salivate for alternate routes. We have all recently learned that berth productivity rates at the West Coast ports are far less than many of the ports in Asia and Europe. We have learned that the Panama Canal will soon widen to accommodate mega-vessels that are more than twice the size of what can currently fit through the narrow canal. We have learned that the East Coast ports of America are, often times, equally viable to shippers from Asia, and certainly closer to destination East Coast warehouses and cities. Risk diversification has already clicked in for supply-chain managers, who now will determine what percentage of their total cargo will be allowed to enter the West Coast gateway, and what must now head south and east. No longer will the ports of Long Beach, Calif. or Los Angeles be the “gateways” to America, and no matter how this finally ended, they are about to lose their “lock” on the business.

Everybody likes a good fight, but sometimes you have to take a big picture view of exactly what you are fighting for. Both sides in this dispute may have won their battle, and they may also have lost their war.

And, with regard to digging deeper into a subject, just for the record — a Big Mac has 530 calories and seven known ingredients (bun, beef patty, lettuce, secret sauce, cheese, pickle and onion). It’s interesting, as we delve into it further, that analysis (by foodies) possibly indicates that a Big Mac could contain as many as 72 different ingredients. Extended discovery just makes us wonder if scrutiny can eventually reveal something that you didn’t know, didn’t need to know, or didn’t want to know. 

Good luck to the Big Macs, and good luck to the rest of us.

Helfenbein is chairman of the board of the American Apparel and Footwear Association. He is a strong advocate for a robust U.S. trade agenda and lectures frequently on the subjects of supply chain and international trade. Follow him on Twitter @rhelfen.