Opinions mixed on potential for disruption as ILA contract deadline inches closer

As dockworkers along the US East and Gulf coasts negotiate local port agreements ahead of a mid-May deadline set by their union president, management sources are divided on the risk of disruption as the Sept. 30 expiration of the current contract approaches. Opinions range from believing a deal will get done with no disruption to a view that a bona fide threat of a strike exists.

International Longshoremen's Association (ILA) President Harold Daggett last November announced that union rank and file would not work beyond the contract expiration if a deal were not in place, threatening what would be the first strike along the East and Gulf coasts since 1977.

The risk of that happening stems from the union believing it is entitled to a fair share of ocean carriers' pandemic windfall of over $400 billion in total industry profits, as estimated by analyst John McCown. Daggett said he aims to achieve "the greatest master contract in our union's history," and that he expects carriers to "deliver a landmark compensation package."

But carriers see a vastly changed market since the pandemic. Their profits plunged an estimated 88% industry-wide last year and were in loss-making territory by the fourth quarter of last year, McCown said. Carriers' fortunes have improved slightly since late last year when 6% to 7% of global capacity was absorbed due to vessel diversions following the attacks on shipping in the Red Sea, while import volumes have steadily recovered since last fall.

Beneficial cargo owners (BCOs) can take comfort in the view of some management sources contacted recently by the Journal of Commerce who believe there is sincere interest on both sides to reach a deal ahead of the contract expiration, and that a deal will likely get done without disruption. Carriers who are rarely assertive at the bargaining table with longshore labor over many years are likely to cut a lucrative deal for labor and call it a day, others believe. Some carriers say they are seeing some diversions to the West Coast ahead of potential labor disruption, but not a lot.

"We feel labor will get a new contract and a [wage] increase but not do anything to give a reason to shippers to consider diverting cargo," said the head of logistics for a household goods retailer. "We have always felt that East Coast labor is more commercially minded."

But the sanguine view is not unanimous. Some management sources remain in wait-and-see mode, withholding opinion until the union reveals its latest wage increase demands upon resumption of "big table" — or coastwide — discussions that will occur once local agreements are either wrapped up in the coming weeks or unresolved issues are kicked up to the big table. Some of those local contracts are already concluded, while others are still being negotiated or encountering difficulties, sources say.

Some observers see warning signs. Specifically, they relate to wage increase demands by the union that might be too high for ocean carriers who dominate the United States Maritime Alliance (USMX) management group to accept.

ILA reaction to ILWU deal a warning sign?

A hint as to how things may unfold can be seen in the ILA's negative reaction to the conclusion of the International Longshore and Warehouse Union (ILWU) negotiations last year. Several management sources over the past few years said the ILA in its negotiations with the USMX would benchmark its wage increase demands against what the ILWU achieved in its own new contract. In the six-year deal ratified last August and retroactive to 2022, the ILWU secured a 32% increase over the life of the contract, which expires on July 1, 2028.

But Daggett expressed dissatisfaction with that result, which he sees as having been forced on the ILWU by the Biden administration in its attempt to avert further disruption and economic and political problems.

"When the ILWU was going through talks, you'd think he would have picked on the foreign companies out there that are setting up automation and getting rid of American jobs, but he didn't do that," Daggett told a meeting of ILA locals in Nashville in November, as reported by the Journal of Commerce. "He went after the ILWU, telling them to get this contract signed."

The implication is clear: Whereas the ILWU allowed Biden's representative, acting Labor Secretary Julie Su, to facilitate a deal and quash further disruption at West Coast ports, Daggett will be less receptive to pressure from Washington, and according to sources, has said as much privately.

The ILA endorsed Biden in 2020 but has yet to make an endorsement in the current presidential race.

Presidential politics in the mix

The election will surely be in the mix. With the contract expiration coming during a tight presidential race, Biden will wish to avoid a strike and its damaging economic consequences — and that gives the ILA leverage. Last year, Daggett was reelected to a fourth term as ILA president, a term lasting through 2027, meaning the next contract could be his last. With automation a non-issue, sources say, it all will come down to the contract he brings home to his rank-and-file.

So far, little of that has rattled the BCOs. The fact that only periodic, short-lived walkouts at individual ports have occurred over the past nearly half century has given them the confidence to re-route large volumes of cargo away from the US West Coast, where labor disruption has accompanied every contract negotiation since the late 1990s, including the last round that was ratified last August.

Some large BCOs tell the Journal of Commerce that based on the lengthy East Coast track record of labor peace, they have faith a deal will get done without disruption, eliminating the need to divert cargo as a precautionary measure.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.