California Dock Workers Strike Transcript
Phaedra Hise:
Hi everybody, and thanks for joining us today for the Preparing for Potential Strike webinar. We’re going to give folks a few more minutes to log on and we’ll get started shortly. Thank you.
Hello everybody. Thanks for joining us today for our webinar. Before we get started, I’d like to invite you to fasten your seatbelt and direct your eyes forward while I run through our pre-flight safety check. Everybody but our presenters are on mute, but please send in your questions anytime via the question toolbox in the upper right corner of the go to webinar window. I’m sure you already know to close any extra windows to prevent buffering delays. Just so you know, we are recording the webinar and we’ll email it to everyone within 24 hours after the webinar is over.
With that, let’s go ahead and get started. Let me introduce today’s speakers. Mirko Woitzik heads up our intelligence solutions team and he’ll be explaining a bit later how that team works. Anthony Yanchuk is an intelligence solutions analyst and he’s tracking the port worker situation closely and he contributed the data to today’s presentation. I’m going to rejoin you for the Q&A session at the end but, for now, I’m going to hand it off to Mirko to get us started.
Mirko Woitzik:
Thank you, Phaedra. We have a lot to cover today on the agenda. We want to first start out with a little bit about who we are, who Everstream is, and how we can help companies sort out their supply chain risks. We then want to dive into the main topic of today’s webinar and highlight different scenarios that we see regarding the upcoming dock worker negotiations on the US west coast and also talk about the likeliness of each of these scenarios as it stands today, March 23rd, as well as the key impacts under each scenario that we forecast. After that, we will share a few key points on how our customers are preparing for these scenarios to secure their supply chain and really ensure an uninterrupted flow of not only raw materials but also on the other side, finished goods. Finally, we will open this up, as Phaedra said, to the audience and hopefully have a really good Q&A session.
What exactly does Everstream analytics do to mitigate supply chain risks? We use data analytics to create insights specific to your global operations, spanning from your suppliers on a multi-tier level to, really, the final customer delivery. Before your item even ships, you will know where the potential problems are on the journey, whether that’s at the supply level or later on in transit, whether that’s air, ocean, rail or truck. And then, your team can go ahead and plan accordingly.
We combine multiple data sources including actual shipping tracking data as well as artificial intelligence and human boots on the ground reporting for any type of risk insights spanning across 150 different risk categories for our customers, really cut through the noise to make sure that they get the alerts that are relevant to their business operations and, in the end, are then hopefully able to take the right decision to minimize supply chain risks.
Just a word about how trustworthy our data is. You can see some of the brands that rely on our analytics to de-risk their global supply operations ranging from pharmaceutical to medical technology to the automotive industry and also food and beverage.
Let me share a little bit about the intelligence solutions team, which is largely responsible for the risk insights and the risk alerts that we send out to our customers on breaking supply chain disruptions. We have a team of analysts that is based across seven different time zones all around the world located in three different continents. They’re monitoring around eight million data sources every day for any type of supply chain disruption range, ranging from natural disasters, earthquakes or wildfires to factory fires to any type of strike action, whether that’s at a warehouse, at a manufacturing facility or in transportation at an airport or a port, but also including newer supply chain risks that have emerged over the last few years such as cyber attacks, including ransomware that are sometimes even more detrimental than very specific geo-located flooding incidents because cyber operations can span across the globe and shut down entire IT system and, therefore, operations. We also include trade restrictions in our risk outlook, in our risk coverage, that includes export control measures, but also any type of tariffs or other non tariff restrictions.
The team then validates both digital and human sources in more than 30 languages and really has, as a core mission, to identify the most relevant risks, whether that’s on a supply level or on a material level or at a specific location. We do an end-to-end risk analysis of your supply chain.
Now, with that introduction of the intelligence solutions team, I want to hand it over to Anthony Yanchuk, who is an analyst in our America’s team and has led the research effort on this specific topic of the labor negotiations on the US west coast and will run us through the potential scenarios that we see playing out in the coming month and what our customers are doing to prepare for it. Over to you, Tony.
Anthony Yanchuk:
Thanks Mirko, and thank you everyone for joining today’s webinar. My name is Anthony Yanchuk and I’m an analyst on Everstream’s intelligence solutions team. As part of our global incident monitoring coverage, our team has been tracking port delays and threat risks continuously. That’s what led our group to start investigating a potential strike at the International Longshore and Warehouse Union. The union group has around 20,000, pardon me, 29,000 members as of 2020, representing 29 ports in Washington, Oregon, California, that account for about 44% of US container traffic.
On the other side of the bargaining table is the Pacific Maritime Association, which typically negotiates a six year labor agreement with the ILWU on behalf of about 70 terminal operators. To be clear, work delays or employer lockouts have occurred in three of the last four negotiations. During the previous negotiating process in 2014, it took ocean freight about eight months to fully recover from these strikes and work slowdowns that happened as a result, and media, in quite a frenzy, reported 25 vessels outside of southern California ports. Now, compared to today, of course, that number is quite small, but the unprecedented backlog even back then was reported on widely. Several port disruptions were noted and delivery days happened as a result.
Now, moving forward to the current map of congestion. Next slide. It’s important to understand what the congestion situation is looking like overall to map the effect and leverage in this ILWU strike. I can tell you from today’s numbers, LA-Long Beach is up to 41 days wait, Port of Oakland 12 days, Seattle three days, Norfolk up to nine. Clearly, this is a national issue in terms of congestion that shows this long-term capacity issue within US ports, coming in together with this COVID recovery, creating this background congestion. Everything we’ll be talking about today is with the background of existing congestion. This increases the leverage of the labor groups involved as closing or stopping your work at America’s largest port facilities would have a devastating effect on cargo flows.
Potential scenarios for California dock worker strike
Next slide. In response, the intelligence solutions team has identified two buckets of potential scenarios that may occur if the ILWU and PMA can’t come to an agreement soon. This is the first scenario, the work to rule/unofficial strike scenario. We also have a second scenario which is a full formal strike. In the work to rule scenario, port staff would only work the contractually mandated amount of hours at labor rates that were agreed to in 2014. The resulting shortage of workers based on the 2014 agreement being applied to today’s congestion would severely impact capacity and really impacting the ability to deal with things like late schedule recoveries, which we’re seeing all of the major carriers doing across a lot of their port notes and also deal with the inability to take on extra surge capacity due to maritime accidents, container spillages, things of that nature.
Similarly, this unofficial strike option would be asymmetric in its impacts. We’re talking about unpredictable overtime bands, intermittent stops. These would all push overall congestion upward. Finally, this unofficial strikes asymmetric quality makes it hard to really predict what those impacts would be. Then, moving forward to the full strike scenario. Next slide.
The full formal strike scenario would be really disruptive as it would lead to a mass reduction of available workforces across all these west coast ports, and likely cause trickle down delays across other North American facilities, not only port, but also potentially rail. Massive rebookings to alternative ports in the US, Mexico are highly likely in the full strike scenario. Diversions will present new sets of risks from weather, theft, border delays and rail shortages that we’re going to look at in this next section. But regardless, in both cases of the partial strike, that’s work to rule, or unofficial strikes and the full strike scenario where work is stopped completely, the government is already being called in to intervene.
We’ve seen, in the past, that the government often intervenes ex post facto, that means after the disruption has already taken place. However, no administration has been under the kind of pressure to negotiate an agreement. We’ve seen both industry and labor groups pressing the current presidential administration to do so, but historical data points to the fact that the intervention usually happens after the delays have been felt. As part of our effort to understand these delays and how these shifting congestion numbers will transpire as we get closer to the strike, we’re watching the industry itself move to analyze and predict effective contingency measures in the case that that strike does take place. Next slide.
We’re looking at how are others preparing in this space and how is this going to impact future congestion numbers and alternatives as a result? We’re seeing interest in moving to alternative port facilities and maritime lanes throughout the east coast, Canada, Mexico, and the Gulf Coast, US, really looking at potential smaller port options, and then finally booking those shipments further out to make sure that that capacity is there when it’s needed.
Now, we’re going to take a look at the first scenario, the Canadian alternative. The next slide please. The problem a lot with the Canadian alternatives is the ongoing congestion that we see there, similar to the west coast, right? I mean, Port of Vancouver in that previous slide indicated 28 day waits, Prince Rupert up to around 14. Perhaps facilities will provide some kind of resiliency or buffer capacity in that partial or work to rule scenario. Both likely to reach high levels of congestion in a full strike given that rush to proximal alternatives.
Initially, it’s important to remember that both Port of Vancouver and Prince Rupert are 100% yard utilized. Actually moving things out of the yard is getting increasingly difficult. And then, finally, we have the labor aspect, Canadian Pacific Rail just basically came to an agreement through arbitration with its workers that are on strike, around 3000 workers, which would really strike a lot of the rail capacity in and out of those ports. But then also a problem.
Next slide. Oh, pardon me, they’re on the same slide. East coast port diversions. We’re looking at Port of Miami, New York, these large facilities that have high volume capacity typically are straightforward shift. However, there’s a unique set of downstream risks that come with the east coast port facility alternative. Primarily, we’re looking at rail capacity issues. We recently saw Kansas City Southern’s Wylie, Texas facility embargo new traffic from Norfolk’s facilities in Rutherford and Croxton, Pennsylvania.
There is clearly an ongoing stress on that link due to ongoing chassis shortages at the east coast rail nodes. We’re seeing definite data from Charleston, New York, St. Louis, Atlanta, a lot of those rail nodes have chassis shortages. In the previous slide, actually, you can see that it’s really a national issue so any shift to the east coast in terms of high volume cargo flows would likely lead to some kind of disruptions around the rail modality as well.
Alternatives to west coast ports during potential dock worker strike
Moving on to alternatives in Mexico, we’re talking about alternatives such as ports of Ensenada, Port Manzanillo, Port of Altamira, Veracruz. All of these facilities rely on the ground and rail network which faces adverse events regularly. Aside from potential issues that would come with a surge in new bookings on capacity, we also would likely see increased transit and potential congestion at the high volume crossings in San Ysidro to Mesa near San Diego, Juarez near El Paso and Laredo. All these crossings would likely have some congestion effect on them based off of a high volume shift to ports in Mexico.
An additional factor that’s important to remember with the shipments through Mexico as well is that there is the ongoing risk of cargo theft and the fragility of specific rail nodes. We saw, in August of 2021, a group of teachers block Kansas City’s Kansas City Southern’s rail node in Michoacan for about three months, costing companies hundreds of millions of dollars. Again, understand the ports alternative in Mexico, it does come with its unique set of risks that are very much regional.
And then, finally, moving on to Gulf Coast alternatives, they’re quite compelling given the proximity to rail infrastructure and seemingly lower rates of congestion compared to US west coast. The nodal exception here would be Port of Houston, which has wait times of up to 14 days, but that is certainly an exceptional case. We see smaller facilities such as Port Tampa, Port Mobile that may present good alternative routes, but then again would likely quickly fill up in terms of their capacity given that high volume shift to alternatives.
And then, finally, it’s important to remember that between June and November we have Atlantic hurricane season so that also presents in another potential delay or cargo loss risk that comes with shifting in a large rate of those alternatives.
Outlook and recommendations
Finally, knowing all of these typical alternative plans we’ve seen from customers, what kind of things are we recommending in the face of these potential delays? Of course, the first one would be monitoring strike news, asking the question do I receive the relevant latest developments on the ILWU and the port delays, and can those relevant teams receive alerting for certain risk thresholds or sector impacts? Of course, tracking vessel weights is an important constancy factor here. It’s really important to understand the backdrop of congestion that underlies any potential alternative shift. What is the congestion backdrop and what are these escalations/alternative strategies?
And then, finally, concerning the smart alternatives, will my alternative solution come with its own set of downstream risks? We’ve seen, in most cases before here, that most likely yes. And then, how fast is my response time from incident occurrence time to first possible action? And then finally, what kind of other modalities, can I use air freight for those high value time sensitive goods or what kind of shipment options are available to me given all of the data, given all of the kind of integrated picture that I have of the situation? Now, our incident monitoring, learning and overall tool set really lets companies answer these kinds of questions and it’s all part of Everstream’s mission to get in front of what’s ahead. Thank you all so much and, with that, over back to Phaedra for Q&A.
California dock worker strike Q&A
Phaedra Hise:
Great, thank you so much Anthony and Mirko for all those details. We’ve got some great questions coming in so we can go ahead and get started. I want to encourage you all to keep sending those in. You’ve got your experts right here and you can ask whatever questions you have. The first question that we have, is the ILWU resisting attempts to automate tasks at the west coast ports? I have heard that west coast ports are among the least automated in the developed world, is that true?
Mirko Woitzik:
I can take that one. For sure, I think, late last year, the Port Los Angeles actually for the first time only introduced operations among all stakeholders that would go from the 24/5, sometimes 24/6 to a 24/7 approach to really decrease the backlog that has been building at the Port of Los Angeles. Clearly, there if you compare to other parts of the world, whether that’s China, the Middle East, even some ports in Europe, the efficiency, the productivity rates, because of the limited working hours and not having round the clock operation, is definitely something that has contributed to the backlog and it’s definitely very different on the west coast side. And so, that’s definitely to keep in mind in these negotiations.
At the same time, it’s really like a sticking point in sort of the automation level. I think it’s about 30, 40% at the moment. You have eight terminals at the Port of Los Angeles and about three to four, I think there was the third one that was rolled out a year and a half ago, that was going fully automated. You have a couple of terminals that are in the port that are already very automated, but then you have the rest that is not yet. But clearly, it’s a contentious issue and it’s something that, if you think about this contract, the upcoming contract will probably run for another five years. There is talk about that this could be the last time, the last big push, to halt automation, but eventually that is probably coming in the next years even more. For sure, this is a very contentious issue and something that will be very difficult to solve for these negotiations.
Phaedra Hise:
Great, and I think this next question is going to be for Tony. What are carriers doing in terms of reducing services to west coast and increasing services to east coast in terms of alternative ports?
Anthony Yanchuk:
We’ve seen the shipping industry respond to potential customer demand for these alternative routes in the east coast. But given the, I guess, up in the air nature of the strike itself, we haven’t seen, I guess, a surge in additional offerings to the east coast from our end. But, again, we have seen customers move to these alternatives and at least expressing interest quite more than we have in the past.
Mirko Woitzik:
Maybe if I can add here a few points. What’s interesting if you compare to the 2014 situation, I think overall there was a decrease in throughput, container throughput, in the Port of Los Angeles at about 18% because of the nine month negotiation period and then work to rule strike. At the same time, there was an increase of about 10% of container throughput on the east coast. We are expecting something similar. Obviously, that will only show from July onwards. We can already see parts of it, that congestion has definitely been increasing on the east coast, as Tony has been mentioning.
If you just compare the numbers from early to mid-February at one of the biggest ports in the southeastern US, the Port of Charleston, we have currently about 25 container ships waiting. The average waiting times are, on average, about 10 to 16 days, so 13 days let’s say. This is up from 8.5 days in the middle of February and 7.5 days in early February. You already see that there is a big push. Customers have reacted to this six weeks ago and this is clearly being shown in the number of vessels arriving and kind of overwhelming the port already.
Phaedra Hise:
Great, thank you. We have several questions along the same topic, which is basically regarding the government stepping in to solve the issue. Is there any demonstrated interest from the government, and what are the government and labor’s position there on getting involved in that negotiation?
Anthony Yanchuk:
I can probably take part of this one. We’ve seen shipping and industry groups reaching out directly to the government to get in front of any potential congestion, and labor groups as well. But I think most of the reach out to the government has been done from industry groups. It’s unclear. There has been a willingness from the current administration to deal with supply chain challenges before they happen, but extrapolating that to this situation is a little bit more difficult.
We saw, in 2002, the Bush administration used an emergency injunction when there was actually already an employer lockout. Again, another case of after the fact response. Potentially, there’s an outcome where the government would start, I suppose, putting itself forward in the negotiation process itself. But there’s been no indications, in this specific scenario, of them intervening. I know that the parties, ILWU, are having internal caucuses to define exactly what their demands are going to be in July when the contract runs out, but there are no indications of the government’s willingness to really step in at this time specifically for this strike scenario.
Phaedra Hise:
Great, thank you. We talked about this a little bit, but now we have a specific question. I think this would be for you, Mirko. What impact will this have on the east coast ports?
Mirko Woitzik:
As I just mentioned about Charleston, that’s pretty clear already. But as Tony said, there are other ports where we don’t see a lot of increase in throughput or at least congestion. They’re pretty capable of handling whatever is coming in. But if we compare to a situation that actually occurred on the west coast about 12 month ago, 18, no actually 12 month ago, in 2021, when a lot of the shippers were diverting containers from the Port of LA-Long Beach to other ports in California, including the Port of Oakland, but then also later a little bit further north to the Port of Seattle, to just not be waiting for 20, 25 days for their cargo to come through.
And so, that has quickly actually overwhelmed the Port of Oakland. You could see that, I think it was at the height in the month of June, within weeks, a lot of carriers were diverting to the Port of Oakland as an alternative. The congestion, where before it was maybe 12 hours, 24 hours for a ship to wait, quickly spiked to over 20 days because the port was just simply overwhelmed and not ready. Also, with the labor shortages, obviously because of COVID, but then also they’re just not traditionally handling that volume and you could definitely make the case that that’s going to happen on the east coast or on the Gulf Coast as well.
There might be alternatives right now that don’t seem very congested, but if you look at smaller ports, we know customers have been looking at diverting to smaller ports like New Orleans, but even Port of Tampa. Others are looking at Port of Everglades, and so all of these ports might not be in a position where they can take a lot of these rerouted ships to handle. Maybe one or two, but then quickly, if there’s something arriving out of schedule, that would quickly overwhelm the port. It’s definitely something to keep in mind over the coming weeks how those congestion numbers will rise as more and more ships get diverted.
Phaedra Hise:
Great, thank you. I think this next question probably will be for Tony. It’s specific to Los Angeles. This person says that the dock workers are saying that the crane operators are working slowly already and control the speed of unload cargo containers. Are we at Everstream hearing anything about the crane operators intentionally slowing port operations down LA and/or Long Beach?
Anthony Yanchuk:
Yeah, great question. From our end, we see it in terms of data that states that labor utilization rates are lower, but there hasn’t been anything specific on the crane operators themselves from our end. But we have seen labor efficiency rates falling at Los Angeles just moving into this year and potential labor shortages at other places such as Port of Oakland, which has been ongoing, but nothing specifically on the crane operators themselves.
However, given the posturing of ILWU affiliated dock workers and groups, this is highly likely the case, just as they’re moving into what is going to be a really tenuous negotiation process and the ability to demonstrate the threats that are inherent in the strike are becoming more and more useful to striking workers. But nothing specifically on the crane operators themselves has come through again as that decreased labor efficiency rates.
Phaedra Hise:
Great, thank you. We still have a handful of great questions, so we’re going to go over time just by a minute or two. I just want to let everybody know that we will have someone from Everstream follow up with you if we have not been able to get to your question today. The next one that we have is, LA and Long Beach are considered more of a container port and Houston is considered more of a brake bulk port. Is Houston equipped to handle surge with rail truck and chassis capacity?
Mirko Woitzik:
That’s a great question. In terms of, I mean, they’re definitely not used to these amount of volumes. We already see, as Tony said, different congestion times depending on what the sort of ship type is, how large it is, and probably also to which container shipping line it belongs. On average about five, six days, so between two and 10, so that can vary much on the size and on the shipping company.
But the Port of Houston is very interesting because, obviously, it’s on the Gulf Coast, it’s right in the area is probably most prone along the Florida coast to be hit by a potential hurricane this summer. Already we see congestion there. There’s typically the issue of fog around this time so that the Houston ship channel gets closed. There’s a lot of factors actually that have contributed to already quite high numbers of congestion at the moment.
Definitely, in terms of if there were any substantial diversion of ships into Houston, definitely the rail truck and chassis capacity would quickly be overwhelmed and not hold up. That’s why a lot of our customers actually are looking at other ports, not the Port of Houston, given the current situation, but also in the risk with the upcoming hurricane season on the Atlantic Ocean, definitely not the first option here for a lot of our customers.
Phaedra Hise:
Great. I’m going to take one last question and, again, we’ll follow up with each of the attendees directly if we aren’t able to get your question today. What port currently has the least amount of congestion and is expected to have the most throughput? Which ports typically are impacted the most from impacts to the west coast ports?
Anthony Yanchuk:
I can take this one. I guess the first element would be the west coast element. Again, LA-Long Beach, Oakland, Seattle will be the most likely impacted by the strike. But I believe there are some good alternatives on the Gulf Coast, like we said, Port of Mobile and Port of New Orleans that are potential areas that we’ve seen that could handle that kind of volume.
Then the question also coming back with surge capacities, what facilities would be most impacted if there’s a massive rush bookings to that port node? But it’s hard to predict, again, like we said with these downstream risks, what the most optimal for throughput option would be. But, like I stated, there’s a number of ports that have shown pretty stable congestion figures. I know also Port of Miami recently dropped to 24 hour waits and that’s a fairly large facility. It could present itself as a good alternative. But it’s hard to predict the throughput just through all the modalities and thinking through that aspect. I think it’s more case by case.
But I think the larger facilities that have shown steady congestion numbers, things like Port of Miami and then maybe even up to Port of Baltimore, which has been 24 hours waits for a couple of weeks now actually. Those are pretty good bets in terms of handling future volumes but.
Phaedra Hise:
Great. Well, thank you very much everybody. I appreciate you joining us today and we will, again, be sending out the recording of the webinar within about 24 hours after this. Thanks everybody and thanks to our presenters. Have a great day.