West Coast Contract Update 2015-5-26

From JOC.com

The West Coast contract agreement that was ratified Friday by the membership of the International Longshore and Warehouse Union, while applauded by cargo interests, carriers, ports and truckers, and rightfully so, will have a limited impact on West Coast port productivity and labor relations.

However, if the tortuous events of the past year result in a change in how future negotiations between the ILWU and Pacific Maritime Association are conducted, this could be a milestone in the history of labor relations on the West Coast.

On the other hand, if one or both entrenched cultures refuse to change, a repeat of the ILWU work slowdowns and retaliation by employers is likely when a new contract is negotiated in the summer of 2019. The PMA and ILWU have indicated that change is possible, even necessary, but they said the same things following the equally disastrous 2002 negotiations and nothing changed then.

What is so disconcerting about the 2014-15 negotiations, compared to those of 2002 and 2008, is that those contracts brought significant change to West Coast ports. The 2002 contract opened the door for unlimited use of computerization and information technology at marine terminals. ILWU marine clerks fought those changes because they knew that loss of jobs would result. Employers were equally adamant that productivity could not advance without the use of computers and a free flow of information.

The 2008 contract was potentially the most revolutionary of the last three contracts. It gave individual terminals the unrestricted right to introduce automation —computer-controlled ship-to-shore cranes, unmanned horizontal ground transportation and automated stacking cranes in the yard — that could eliminate 40 to 50 percent of the ILWU general longshore jobs. The 2008 contract negotiations were relatively peaceful.

The contract that was ratified Friday is unremarkable in most every aspect. Going into the negotiations, the main point of controversy was supposed to revolve around who would pick up the tab for the estimated $150 million a year in additional medical costs associated with the so-called Cadillac tax in the Affordable Health-Care Act. In retrospect, the PMA had always paid 100 percent of the dockworkers’ healthcare costs, so why should the ObamaCare provision be any different? The PMA agreed to pay it.

Wage increases in the new contract will total $6.50 an hour by the fifth year of the contract, bringing the base wage up to $42.18. That’s generous by blue-collar standards, but not exorbitant. Furthermore, veteran longshoremen make most of their money through overtime and skill differential pay that can elevate the approximately $80,000 annual base salary well into six figures. According to the PMA, the average annual wage of full-time longshoremen who work 2,000 hours a year is $147,000. Wages were not a sticking point in these negotiations.

Jurisdiction was a major issue, and is likely to be so for years to come as terminals modernize and automate their facilities, and as the evolution of the maritime industry affects asset ownership. Therefore, in the 2014-15 negotiations, jurisdiction over chassis maintenance and repair was front and center.

Carriers in the U.S. had, since the beginning of containerization more than 50 years ago, owned the chassis that were provided to cargo interests and truckers with the delivery of the containers. The ILWU (and the International Longshoremen’s Association on the East Coast) maintained jurisdiction over M&R work, which was perfectly legal, because their employers owned the assets.

After incurring literally tens of millions of dollars in annual costs, per carrier, to purchase, maintain, repair and reposition chassis for more than 50 years, carriers sold their assets to chassis-leasing companies and are for all intents and purposes out of the chassis business. Employers look at this as a wise business decision. The ILWU is convinced carriers wanted to cut them out of M&R work. The ILWU pressed for, and was granted, continued jurisdiction over chassis inspections, maintenance and repair.

Truckers and cargo interests say that since PMA members no longer own the assets, it is illegal for the employers to grant jurisdiction to the ILWU that is not theirs to give. The PMA and ILWU know they are treading on dangerous ground here because the contract specifically excludes trucker-owned chassis from ILWU inspection and M&R.

However, the contract is silent on trucker-leased chassis. Trucking companies in recent months have acquired a number of chassis to supplement those that are provided under the “pool of pools” that was established in Southern California on March 1. Many of the chassis were acquired under lease, and it appears that the ILWU will attempt to maintain its jurisdiction over leased chassis. Truckers have indicated that the roadworthiness of the chassis they are leasing has been certified by the intermodal equipment provider. Truckers have indicated lawsuits could result if the ILWU seeks to exert jurisdiction over their equipment .

The PMA and ILWU, in a letter of understanding in the contract, stated the Federal Maritime Commission will be asked to offer its views on the legality of the chassis inspection and M&R provisions, and if the FMC indicates a portion of it is illegal, the PMA and ILWU will work to correct the illegality.

One of the surprising developments in the negotiations was the adamant position the ILWU took on the local arbitrators in Oakland and Southern California who rule on day-to-day disputes on the waterfront. According to the PMA, the ILWU wanted those arbitrators removed because their rulings at times went against the union.

The way this dispute was resolved could have a lasting effect on how local arbitrations are handled on the docks. The area arbitrators in Southern California and Seattle-Tacoma are nominated by the ILWU and approved by the PMA. The local arbitrators in Oakland and Portland are nominated by the PMA and approved by the ILWU. It is assumed that the arbitrators nominated by the ILWU will rule mostly in favor of the union and the arbitrators nominated by the PMA will favor employers. However, that was not always the case as David Miller, the ILWU-nominated arbitrator in Southern California, at times ruled against the union, and the ILWU wanted him fired.

In a way, the ILWU got its way because under the new contract the arbitrators in Oakland and Southern California must vacate their positions within 14 days of the ratification of the agreement. The Northern California arbitrator has already resigned.

But in an important development, the new contract established a new area arbitration panel with one member nominated by the ILWU, one by the PMA and a third person, who is to be a professional arbitrator, with no previous ties to the industry. This is expected to provide balance to the arbitration process.

Since there is nothing in the new contract that threatens the earnings, benefits or job security of West Coast longshoremen, and no provision that is anywhere nearly as explosive as unfettered introduction of computerization and automation, it is disconcerting that the negotiation process dragged on for so long, and that the work slowdowns and employer retaliation efforts resulted in virtual gridlock at the ports for four months beginning in early November.

Measuring cargo diversion is an imprecise endeavor. Industry analysts speculate that 10 percent of the cargo diversion from the West Coast that took place after the 2002 contract negotiations never came back. Current speculation is that the reputation of the ports was damaged so severely, and that completion of the Panama Canal expansion project in April 2016 will make all-water services to the East Coast more competitive, so that 20 percent of the cargo diversions that have taken place the past year could be permanently lost.

Regardless of the number, both the PMA and the ILWU have at least acknowledged the fact that the negotiation process must change. PMA President Jim McKenna told JOC.com at an event in New York last week the current process of negotiating contracts “is not sustainable.”

In an address to a Toy Industry Association meeting in Long Beach on Thursday, Bobby Olvera, president of ILWU Local 13 in Southern California, said he is a firm believer in action. When disputes arise on the waterfront, both parties should address them immediately rather than letting them fester until the next round of negotiations five years later.

Chad Lindsay, PMA’s vice president of labor relations in Southern California, took heart from the announcement earlier this year by the International Longshoremen’s Association and USMX, which represents East Coast employers, that they intend to begin contract discussions this year even though their contract does not expire until 2018.

“This contract is mature. It has been around for 85 years,” Lindsay said in reference to the ILWU contract that dates back to the legendary ILWU founder Harry Bridges. There is no reason why issues that pop up from time to time can’t be addressed immediately, he said. “Absolutely, we should address issues as they arise,” Lindsay said.

If the PMA and ILWU are serious about restoring confidence in West Coast ports, they may have no choice but to follow the lead of the ILA and USMX on the East Coast and open up early negotiations. Furthermore, maverick work slowdowns and stoppages by individual locals up and down the coast must cease or at least diminish significantly.

Cynics say this will never happen. They point to the Port of Portland, where hard-timing by the ILWU local against terminal operator ICTSI since June 2012 resulted in Hanjin Shipping Co. and Hapag-Lloyd discontinuing their services last month. The departure of those carriers wiped out 99 percent of Portland’s container business, and has many industry experts saying the ILWU will never change its militant culture.

Two possible solutions to the West Coast labor issues could occur. Congress is considering the possibility of placing the ILWU and ILA under the Railway Labor Act, which could prevent the ILWU from using work slowdowns as leverage during contract negotiations. Some West Coast employers say that scenario is politically explosive and would be difficult to pull off in Washington under any circumstances. Others say the unions could always find a way around legal prohibitions.

Another possibility is that the pain of the past year was so severe, and costly, that terminal operators that are on the fence about automation may now decide to move forward with the costly introduction of automated machines that require little if any human intervention. The TraPac terminal in Los Angeles has completed the first phase of its automation project and the Middle Harbor Terminal in Long Beach is scheduled to open the first phase of its automated terminal next spring.

A report last year by the Port of Los Angeles stated that a fully-automated TraPac terminal will eliminate 40 to 50 percent of the ILWU jobs, while creating new jobs that require highly-trained individuals to program, maintain and repair the sophisticated automated cargo-handling equipment. One residual of automation is that it eliminates some of the jobs that give the ILWU so much leverage over employers, such as the yard cranes that deliver containers to truckers. That function is handled by automated stacking cranes that can operate 24 hours a day.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihs.com and follow him on Twitter: @billmongelluzzo

 

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