Erik H. Shirreffs
Professor Harris IHR 380
17 March 2015
Effect of West Coast Port Gridlock From May 12, 2014 until February 20, 2015, the Pacific Maritime Association was in negotiations with the International Longshore and Warehouse Union in an attempt to come to an agreement on a new contract, which will keep the west coast port facilities in operation. The Pacific Maritime Association represents 72 cargo carriers, terminal operators and stevedores that operate 29 major U.S. ports spanning the west coast from Washington to Southern California (Pacific). The International Longshore and Warehouse Union represents approximately 42,000 members, which includes the 20,000 West Coast dockworkers that process over 340 million tons of cargo per year. This cargo represents over 12.5 percent of the nation’s Gross Domestic Product. The contract in dispute between the Pacific Maritime Association and the International Longshore and Warehouse Union expired on July 1, 2014. Since that time, the port facilities had continued to operate without a contract, but as time passed, pressure from both sides increased in order to reach an agreement. The Pacific Maritime Association claimed that the International Longshore and Warehouse Union had been engaged in a work slow-down that had increased the congestion at west coast port facilities. Although other factors such as increased holiday shipping demands and a shortage of trucks and trailers contributed to the congestion, according to Steve Getzug, a spokesman for the Pacific Maritime Association, "This slowdown comes at a very bad time. The union didn't create congestion, but this action makes it much, much worse" (qtd. in Khouri). The congestion resulted in an excessive waiting period for ships to be brought into berth and unloaded. In fact, according to a February 23, 2015 article in the San Diego Union Tribune, there were presently 24 container ships anchored outside Southern California ports, and other backups at ports in San Francisco and Washington (Pritchard). In addition to increased congestion, the Pacific Maritime Association also claims that the slow-down has increased the necessity to pay premium rates in order to get cargo unloaded. “According to numbers published each week on the PMA website, terminal operators are paying 15 to 20 percent more man-hours than they did in the same weeks last year, but cargo volumes are up only about 1 to 3 percent, depending upon the port range” (Mongelluzzo).
In response to the perceived work slow-down, the Pacific Maritime Association temporarily closed several port facilities. "Last week, PMA made a comprehensive contract offer designed to bring these talks to conclusion," said spokesman Wade Gates. "The ILWU responded with demands they knew we could not meet, and continued slowdowns that will soon bring West Coast ports to gridlock. What they're doing amounts to a strike with pay, and we will reduce the extent to which we pay premium rates for such a strike" (qtd. in Welch). The four day shutdown was predicted to reduce the U.S. Gross Domestic Product by nearly two billion dollars a day, which significantly increased pressure on both groups to reach an agreement, and has drawn the concern of both large and small business within the United States.
Large businesses have been much more resilient to the backlog of goods caused by the labor dispute. Since many large businesses have dedicated staff that is responsible for their supply chains, they are much more likely to be able to anticipate these types of challenges and then respond by redirecting shipments to other port facilities. Although these measures can cause some increases in shipping costs, as well as some delays in their supply chain, they are able to absorb these effects much more easily than smaller businesses.
Smaller businesses, however, have been significantly impacted by the labor dispute. Unlike their larger competitors, small businesses are not nearly as capable of responding to unusual interruptions in their supply chain. They do not possess the large networks or the flexibility necessary to be able to divert shipping to other ports of entry or other methods of shipment, nor do they have the dedicated staff available to focus on anticipating potential problems in their supply chain. As a result, some small businesses, which are already operating within very narrow profit margins, are unable to continue to meet customer needs or maintain an acceptable profit margin. For example, PSI Bands nausea relief wristbands changed their import method to air delivery, which increased the shipping cost of their product from the manufacturer by 1,700 percent. Other companies, such as SVS Speakers, whose products are not feasible to be shipped by air, rerouted their shipping to other ports. However, those ports began experiencing a backlog as well due to the increased workload imposed by ships being diverted from Southern California. (Morris). U.S. Agriculture has been particularly hard hit to the tune of hundreds of millions of dollars in lost revenue. Since the products from the agriculture market are perishable, delays in shipping to overseas markets can have immediate, as well as long term, effects. According to Peter Friedmann, “It will take months to clear congestion at ports and restore shipments to normal, and there will be the long-term loss of overseas customers” (qtd. in Wheat). Some of the long-term effects could be particularly evident in emerging markets, where a loss of confidence could result in the permanent loss of business. For example, the beef and pork industry recently secured a large trade deal with South Korea only to lose it as a result of the slow down. Other countries have begun to search for other markets to meet their needs for agricultural products. According to Friedmann, “The Japan agricultural ministry told us they can’t get forage for their cattle and horses so they’re going to New Zealand, Argentina and Australia,” Friedmann said. “They’re finding alternative sources and to us that’s the great shame of this whole thing. It’s forcing our best customers to find someone else” (qtd. in Wheat). If the loss of customers results in a loss of market share, then long lasting effects will be felt by the U.S. economy as a whole.
Since over 12.5 percent of the United States’ Gross Domestic Product is shipped through the West Coast port facilities, the slow-down, congestion, and work stoppages that were experienced during the contract dispute negatively affected both domestic and foreign economic interests. According to Deutsche Bank's Joe LaVorgna, fourth quarter, 2014 exports from the United States dropped by 18.3 percent, which was largely attributed to the labor dispute between the Pacific Maritime Association and the International Longshore and Warehouse Union (Oyedele). This decline in exports could potentially influence a widening United States trade deficit. In fact, exports have been more heavily impacted by the labor dispute than imports have, which could mean that the labor slow-down and lockouts are quite possibly the primary causes of the increase in the trade deficit.
Cargo movement in West Coast port facilities is not the only thing that slowed down during the fourth quarter of 2014; the U.S. economy slowed as well. During the third quarter of 2014, the U.S. economy grew by five percent, and was projected to grow by three percent during the fourth quarter. However, with the impact being felt by the backlogs at West Coast port facilities, economic growth slowed to 2.6 percent. Slowed economic growth and widening trade deficits could lead to an overall decline in the U.S. Gross Domestic Product. “The West Coast port slowdown could reduce fourth quarter GDP by 1%, according to Deutsche Bank's Joe LaVorgna” (qtd. in Oyedele). With the obvious economic impact of a continued backup at West Coast port facilities, the White House was compelled to intervene. White House spokesman Eric Schultz said in a statement. "Out of concern for the economic consequences of further delay, the President has directed his Secretary of Labor Tom Perez travel to California to meet with the parties to urge them to resolve their dispute quickly at the bargaining table" (qtd. in Eilperin). After 9 months of negotiations between the International Longshore and Warehouse Union and the Pacific Maritime Association, and with the involvement of Secretary Perez, a tentative agreement was reached on 20 February, 2015. Although a tentative agreement has been reached, the impact of measures taken by both sides to force an agreement may have some long lasting effects. Even with the port facilities operating at full capacity, it may take months to clear the backlog. Clearing the backlog is not the only thing that will be necessary to repair the economic damage created. Rebuilding confidence with foreign markets, reinvigorating small businesses, and strengthening weaknesses in the port facility logistical processes are all measures that are necessary to ensure long-term health of the U. S. economy.

Works Cited
Eilperin, Juliet. “White House to Intervene in West Coast Ports Strike.” washingtonpost.com. Washington Post, 14 Feb. 2015. Web. 17 Mar. 2015.
Khouri, Andrew. “West Coast Port Slowdown Raises Fears of Dockworker Strike or Lockout.” latimes.com. Los Angeles Times, 10 Nov. 2014. Web. 17 Mar. 2015.
Mongelluzzo, Bill. “ILWU, PMA Trade Painful Blows as Talks Reach Eight-Month Mark.” joc.com. Journal of Commerce, 13 Jan. 2015. Web. 17 Mar. 2015.
Morris, David. “With U.S. port slowdown, small businesses take a beating.” fortune.com. Fortune, 5 Mar. 2015. Web. 17 Mar. 2015.
Oyedele, Akin. “The West Coast Port Strike Could Shave 1% off US GDP.” businessinsider.com. Business Insider, 19 Feb. 2015. Web. 17 Mar 2015.
Pacific Maritime Association. Overview. PMA, 2014. Web. 17 Mar. 2014.
Pritchard, Justin. “How did West Coast ports get so jammed? And what comes next?” utsandiego.com. San Diego Union Tribune, 23 Feb. 2015. Web. 17 Mar. 2015.
Welch, William. “West Coast Ports Halt Weekend Work; Labor Dispute Heats Up.” usatoday.com. USA Today, 11 Feb. 2015. Web. 17 Mar. 2015.
Wheat, Dan. “Port Slowdown has Damaged Western Ag’s Export Markets.” capitalpress.com. Capital Press, 5 Feb. 2015. Web. 17 Mar. 2015.