the “decimation” of Portland, Oregon’s container business–is this LA’s future?

Last week I wrote about the Los Angeles-area container ports’ continuing problems between the shipping lines and port workers.  My view is that inability to resolve these conflicts is the motivating factor behind the shippers’ support for alternate routes to the east coast of the US, like the expansion of the Panama Canal now under way.  A corollary is that there’ll be a significant supply chain reshuffle for East Coast customers once the canal expansion is completed.

Shortly after that post, I found an article in the Journal of Commerce about the contraction of the container business in Portland, Oregon.  It seems to me to anticipate what is likely to occur in the LA area in coming years.

According to the JOC,  a jurisdictional dispute between the International Longshore and Warehouse Union (ILWU) and the International Brotherhood of Electrical Workers (IBEW) over who controls two electrician positions servicing refrigerated containers has resulted in continuing work stoppages and slowdowns in the Portland port over the past three years.  The jobs were originally IBEW positions.  In 2010, the ILWU demanded–and was given–control over the two slots.  After ILWU members were unable to do the work satisfactorily, the port returned control to the IBEW.  That triggered local work stoppages and slowdowns.  In addition to this, the Portland local of the ILWU participated in the recent four-month work slowdown that affected all West Coast ports.

A month ago, Korean shipper Hanjin, which represented about 2/3 of the port’s container business, ceased operations at Portland.  Last week, German shipper Hapag-Lloyd, which is virtually all of the rest, did so as well.

This leaves Portland with two problems:

–exporters to Asia of agricultural products from Oregon and Idaho, which had been using the return leg of trans-Pacific shipping routes to get their output to market no longer have that possibility.  Their (more expensive) choices:  truck goods to Tacoma, Seattle or LA.

–the ILWU contract calls for full-time workers to be paid $35.58/hour for 37.5 hours per week, whether there is work or not.  If the recently negotiated contract is ratified, those figures will rise to $36.68 and 40 hours.

 

The Oregonian estimates that the loss of Hanjin will eliminate work for 657 longshoremen, being paid $225,000 a day–and put 5,000 more jobs in the community at risk.  The earliest it sees possible replacement traffic is in two years.  By then, however, the Panama Canal expansion should be complete–or very close.

 

West Coast shipping and the Panama Canal

I first became aware of how important the ports around Los Angeles were for commerce in the US in 2002, when a 10-day work stoppage brought the flow of goods through them to a halt.    At that time, Los Angeles and Long Beach were the only deep-water ports on the West Coast equipped with machinery that could offload big container ships from Asia.  Just as important, all the major rail links across the country terminate at the big Southern California port complex.

The dispute was, of course, about wages and benefits.  But it was also about work rules–the desire of the shipping companies that own the ports to replace typewriters with computers and to record container numbers by scanning barcodes instead of writing them down with pencil and paper and typing them up.  That would ultimately mean layoffs of the typists–something the union was dead set against.  At one point, the shipping companies offered to ensure that all then-employed workers would receive a full salary for life (at the going rate of roughly triple the average American worker’s pay) in return for permission to make productivity improvements.  The union rejected the offer, reportedly because jobs that the workers’ children would otherwise “inherit” would be lost.

Ultimately Washington stepped in to end that strike.

We’ve had a relatively mild reprise of the 2002 job action during recently concluded contract negotiations between the shippers and the longshoremen, ended, again, with Washington’s help.

The 2002 strike, however, marked a crucial turning point in shippers’ attitudes toward what the LA Times has called “a crucial chokepoint in the global economy.”

After that strike, the shipping companies began to develop alternative routes to get merchandise to their American customers.  Measures included revival of East Coast ports and expansion of ports in the Pacific Northwest.

The keystone of the shippers’ plans, however, is the ongoing enlargement of the Panama Canal.  At present, Panamax container ships (that is, the “max” that can fit through the canal) can hold up to 5,000 containers.  When the expansion–mired in cost overruns and delays–is complete in 2017, that figure goes up to 13,000, thereby upping the canal throughput 1.6 times.  There’s already talk of another expansion when this one is done.  (There are also what appear to be hare-brained schemes to spend $50 billion to dig a canal through Nicaragua and  another to create a rail/canal route through northern South America.)

Why do I find this saga interesting?

In a narrow sense, the Panama Canal expansion suggests that future LA port disruptions won’t have the significant negative impact on the US economy that they’ve had in the past.

I also find it noteworthy that an aggressive bargaining stance by a relatively small number of people over a decade ago can continue to have important economic ripple effects fifteen or more years later.

It’s also funny that actions taken to preserve a position of power are ending up having the opposite effect.