Two and a half years ago, the International Longshoremen’s Association was digging in for a strike that could have crippled shipping along the Atlantic and Gulf Coasts. The strike didn’t happen. Yet the union power that led to the impasse remains. The Manhattan Institute has some ideas about how to avert future such showdowns. Last month it published a paper, “Held Hostage: U.S. Ports, Labor Unrest, and the Threat to National Commerce,” arguing that strikes and slowdowns, or the threat of them, impose high costs. Written by Institute Senior Fellow Diana Furchtgott-Roth, the report cites federal labor law as the main culprit, concluding Congress should shift responsibility for collective bargaining oversight from the National Labor Relations Board to the National Mediation Board.
The importance of the maritime industry to the U.S. economy hardly can be underestimated. Seaports and other shipping transfer points accounted for $1.75 trillion worth of U.S. business in 2013, a figure almost as high as trade that year conducted by plane, train, truck and pipeline put together, and almost twice the shipping figure for 2004. Maritime employers directly employ about 470,000 workers at 180 commercial ports. A sizable portion of that labor force belongs to one of two unions: 1) the 65,000-member International Longshoremen’s Association (ILA), which represents dockworkers and ancillary employees (e.g., clerks, warehouse workers) at ports along the Atlantic Ocean, the Gulf of Mexico, the Great Lakes and elsewhere; and 2) the 60,000-member International Longshore and Warehouse Union (ILWU), which is the West Coast equivalent. The ILA negotiates with the U.S. Maritime Alliance (USMX), a group of employers at 14 ports. The ILWU negotiates with the Pacific Maritime Association (PMA), a consortium of employers at 29 ports. Each is an international union, as various affiliates are Canadian.
As the author notes, these unions can exert enormous leverage come contract negotiation time. Even a brief strike or slowdown can cost the American economy billions of dollars in revenues. In response to such possibilities, foreign exporters may choose to transport goods via far more expensive alternatives, especially if grain and other perishable items are involved. The trucking and rail industries, which transport goods from port terminals to inland locations (and vice versa), also suffer. If foreign clients decide to replace U.S. exporters with foreign-based substitutes rather than risk a strike, such decisions are difficult to reverse. Unionized port operators, anticipating such consequences, may be more apt to submit to union interests than to pursue their own. And the ripple effects, nationally and locally, can be enormous. New York City ports, for example, employ only 3,250 longshoremen. Yet an additional 200,000 jobs are dependent on the operation of those ports. An International Longshoremen’s Association strike would do more than prevent members from going to work; it would jeopardize the entire supply chain for any number of industries, imposing potentially prohibitive costs on importers and exporters alike.
This came close to happening in the latter months of 2012. The ILA, facing the expiration of its contract with the U.S. Maritime Alliance that September 30, announced it would rather go on strike than sacrifice member jobs to technology advances or give up their cargo container royalties. ILA President Harold Daggett made clear that the USMX proposal to scrap container royalties, an annual giveaway to about 14,500 workers worth $15,500 per worker, especially was off the table. A walkout could have devastated domestic retailers during Christmas shopping season. Under the auspices of the Federal Mediation and Conciliation Service (FMCS), the ILA and USMX agreed to resume negotiations for another 90 days. Finally, on December 27, the parties reached an agreement on the container royalty issue – and the union prevailed. This paved the way for a final contract in April 2013 that made only partial headway in reforming archaic work rules that for years (often with help from organized crime) have enabled ILA members to collect incomes well out of proportion to work done.
Labor disputes at Pacific Coast ports also have been costly. On September 26, 2002, the ILWU, unable to agree to a new contract with the Pacific Maritime Association, began a coordinated slowdown. This triggered a 60 percent drop in production. In response, the PMA the next day locked out union workers. The resulting shutdown paralyzed much of America’s transportation infrastructure. While President Bush on October 8 issued a back-to-work order, as authorized by the Taft-Hartley Act, real damage was done. About 10 percent of the daily value of U.S. imports was lost during the 11-day lockout, a sum representing $15.6 billion. A decade later, ILWU clerical workers at the Port of Los Angeles-Long Beach, which handles around 40 percent of the nation’s containerized cargo, went on strike in December 2012. Other ILWU workers quickly acted in solidarity with the strikers, and refused to cross picket lines. The eight-day walkout cost the U.S. economy an estimated $8 billion and created a weeks-long shipping backlog. And an ILWU slowdown beginning in July 2014 following contract expiration, and lasting until a tentative agreement this February, also was costly. Trans-Pacific carriers on average were late to their destination by 2.4 days; about 65 percent of exporters vowed to avoid the West Coast altogether. Port of Oakland, a major agricultural export center, saw productivity drop by up to 40 percent.
True enough, there are ways around using ports vulnerable to strikes and work slowdowns. But as Furchtgott-Roth points out, each alternative carries a downside. Changing suppliers requires five to six months’ advance commitment. Stockpiling inventory requires advance planning, a single large capital investment and additional warehouse space. Changing routes can mean taking extra days and even weeks to ship goods to their destination. And sending freight by air costs about 10 to 15 times more than sending it by ocean. All this serves to raise the cost of finished goods, imposing a hidden tax on consumers.
For all their intransigence, union members are well-compensated. International Longshoremen’s Association members currently make an average annual wage and benefit package worth $124,000. Back in the fall of 2012, with a possible strike looming, almost three dozen ILA members at the Port of New York and New Jersey were revealed to be making at least $368,000 a year in combined wages and benefits. One in three workers made at least $208,000. Compensation also has been lucrative on the West Coast. Prior to the tentative ILWU-PMA five-year agreement this February, for example, dockworkers made on average $147,000 in annual base pay, a figure that did not include health benefits worth about $35,000 and pensions worth up to $80,000. The new contract, approved by the ILWU executive board and set for a ratification vote by rank and file on May 22, would raise annual wages/salaries by 3 percent and pensions to as high as $88,800.
That labor costs are imposing an increasing and potentially unsustainable burden on U.S.-based exporters and importers is difficult to dispute. Union demands drive the collective bargaining process. Yet given the present framework of labor law, there is little that can be done. Furchtgott-Roth has a way to facilitate an overhaul. Congress, she argues, should pass legislation to shift supervision over labor relations at the nation’s ports from the National Labor Relations Board (NLRB) to the National Mediation Board (NMB). The latter entity, a three-member body, long has had sole jurisdiction over labor relations in the railroad and airline industries, whereas the five-member NLRB has jurisdiction over the rest of private industry.
The National Labor Relations Board, created in 1935 by the National Labor Relations Act (NLRA), investigates and rules on allegations of unfair labor practices, but lacks the authority to intervene in disputes over expiration or renegotiation of contracts. By contrast, the NMB, created in 1934 under the Railway Labor Act, does have that authority. And that makes all the difference. Under Railway Labor Act, labor contracts cannot expire as they do under the NLRA. Instead, they become “amendable,” remaining in force until a new agreement is reached. If negotiations fail to yield a settlement, federal mediation is required before unions or employers can engage in “self-help” actions such as strikes, slowdowns and lockouts. If initial mediation does not lead to a settlement, then all parties must agree to a month-long cooling-off period. If the President of the United States views the dispute as threatening the nation’s transportation networks, he may create a Presidential Emergency Board (PEB) to make recommendations. President Obama, however reluctantly, took this step back in the fall of 2011 to break an impasse in a contract dispute involving 11 separate unions representing 90,000 employees.
The author argues that this model has worked well for railroads and airlines, and there is no reason why it cannot work well for U.S. ports. Port disruptions, though a useful union negotiating tool under the National Labor Relations Act, would be illegal under the Railway Labor Act. Furchtgott-Roth notes that 97 percent of all NMB cases in the board’s history have been resolved without any interruption to workplace operations. That figure has been a remarkable 99 percent since 1980. The Federal Mediation and Conciliation Service, which handles NLRB cases, has reduced work stoppages but only by about a third. And given its overwhelming caseload, it cannot mediate more than a fraction of all cases.
“The public,” declared President Calvin Coolidge in 1924, “has the right to the uninterrupted service of transportation, and therefore a right to be heard when there is danger that the nation may suffer a great injury through the interruption of operations because of labor disputes.” Those words are as true today as they were then. And shipping is as crucial to the functioning of our economy as railroads and airlines. Diana Furchtgott-Roth and the Manhattan Institute deserve credit for pointing public policy in the right direction.