Businesses across the globe were relieved to learn of the tentative agreement reached between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) late last week. Though still subject to ratification by both parties, the agreement on a new contract was enough to revive operations at West Coast ports on Saturday, February 21st, which continued up to near “full production” as of Monday, February 23rd, according to the Journal of Commerce (JOC) and the PMA.
According to the AP, the union’s members could vote on the contract in April, though the timing is not set. The PMA has not said when it expects its members to vote. Clearly, though, operations are expected to proceed without further issue and US Labor Secretary, Thomas Perez, said he is confident that the union will ratify and make official a five-year contract with the PMA.
Clearing the backlog: Odyssey anticipates it will take between 5 and 7 weeks to:
- Clear out the congestion at West Coast ports
- Reduce backlog of containers across the North American network
- Restore regularly scheduled liner services that call West Coast ports
After effects: Long term, migration out of West Coast ports remains an issue. According to a Journal of Commerce article issued 2/23/15, “The Panama Canal Authority is setting its sights on retaining the increase in container volumes from Asia to the U.S. East and Gulf Coast ports it gained in recent months, thanks to shippers diverting cargo from congested West Coast ports.” The article also quoted Doug Hayes, vice president of equity research, freight transport, at Morgan Stanley in London as saying “I think that any changes to the carrier networks would probably stay for now.”
According to a PMA survey, as a result of an eleven day lockout by West Coast terminal operators in 2002, West Coast ports experienced a 10% market share loss to East Coast ports that did not return. Coupled with the opening of a third set of locks on the Panama Canal in early 2016, the effects of this latest West Coast issue may result in a similar or more pronounced migration. The trans-Pacific trade split between West Coast Ports and East Coast Ports now stands at 65%/35% (although 70% of U.S. population is still east of the Mississippi river).
Odyssey will continue to monitor all developments and advise you of any actions we recommend for your business. In the meantime, if you have any questions or concerns, please feel free to call.