November 28, 2012 What You Need to Know About the ILA, USMX Negotiations Many of OL&T’s clients have asked for our thoughts on how the contract negotiations between the ILA and the USMX could affect shipping logistics from US East Coast and Gulf Ports should an agreement fail to be reached before the end of December this year. Additionally, they would like our thoughts on what they might do in preparation should the ILA strike put work slowdowns into practice. Giving our best judgment, OL&T strongly believes that an agreement will be reached and a strike, work-stoppage, slowdown, etc is not likely. Before getting into our answers and potential strategies, here is a brief background on the situation to date. Background The ILA represents ‘labor’ at US East and Gulf Coast marine terminals and container ports from Maine to Texas. The USMX represents employers of the East and Gulf Coast shipping industry, including 24 container carrier members, and every major marine terminal operator and port association on the US East Coast and Gulf. The master contract under which the two parties have been working for the past three years is scheduled to expire on December 29th and the ongoing negotiations have been highly publicized in the media with references to strikes by labor if a new agreement is not reached. In September of this year, with the assistance of a Federal Mediator, the parties agreed to extend the expiration of the current labor contract to December 29, 2012. The purpose of extending was, in large part, to avoid any labor disruptions prior to the 2012 national election. OL&T’s Guide to the ILA/USMX Labor Negotiations Here is our practical guide to the ILA/USMX labor negotiations. It includes possible outcomes and how they may affect you, according to OL&T Director of Global Marine, John Nikolich. What may happen if NO agreement in labor negotiations is reached? The ILA can strike at some or all of the ports along the US East Coast and Gulf. There may be “wildcat” strikes at one or two ports along the Coasts with the other ports continuing to work but expressing support for their brethren. There may be work slowdowns at ports and marine terminals that utilize ILA labor. Our take: If a strike or a slowdown of any kind does happen, it will not last for more than a few days. In the event of a labor stoppage, the Federal Government could invoke Taft-Hartley – a United States federal law that restricts the activities and power of labor unions. The presence of a Federal Mediator helped secure an extension in September, and we have a fairly strong belief that an agreement will be reached before the December deadline. At worst, there may be one or two isolated work slowdowns at ‘smaller ports’ but the chance of one happening at any of the major US East Coast/Gulf ports like NY/CHS/BALT/NORF/CHS/SAV/MIA/NOLA/HOU is slim to none. Will there be Ocean Carrier congestion surcharges in Q4 2012? It is recognized that a strike, lockout, work stoppage, work slowdown or other labor-related disruption to operations at any U.S. port (collectively, “labor unrest”) will cause congestion. In the event of labor unrest, most if not all carriers will attempt to implement a Congestion Surcharge effective some time in Q4 2012, or January 1, 2013. The standard levels of these surcharges are $800/20’ and $1000/40’ standard or HC. Once labor unrest has occurred, these charges shall continue to be assessed until such time as Carrier provides notice in this tariff that the impact of the labor unrest on its operations and those of any affected port(s) has ended. Our take: Congestion surcharges will apply on all cargoes – loading at or destined to – U.S. locations, regardless if they are loaded or discharged from ocean vessels at US, Mexican, or Canadian ports; however, if NO labor unrest occurs – these charges will NOT be applied. Can’t we just re-route cargo via non-ILA ports, Canada, or the US West Coast? Only one port on the East Coast does not utilize ILA labor – Chester, PA. Canadian ports may seem like a viable alternative to route cargo. US West Coast ports will quickly become saturated with cargo that is being re-routed. Our take: Many shippers are looking for non-ILA options – but there are really no viable alternatives. ICL is the only container line calling Chester, PA – and their service is strictly US to N. Europe. In Canada, ILA Local 1657 has 120 members which supply all checking related labor for all stevedoring operations in the Port of Montreal – and ILA local 1657 is responsible for all checking related work on cargo ships as well as all terminal work. Moreover, Canadian ports will give preference to cargoes that had previously moved through their facilities. Similarly, West Coast ports will also give preference to cargo that was previously routed their way and the ILWU already expressed support for their East Coast brethren in previous months – so they will not be extremely willing to expedite cargo that previously moved with the East and Gulf Coasts. What can US Importers and Exporters do to prepare? Our take: Besides staying informed on the matter and continuing to address any concerns with your OL&T CSR, shippers should consider building additional supply at US or overseas facilities that are dependent on shipping via US East and Gulf Coast ports. Also, we have found that typically, there is an end of quarter/end of year push to ship cargo. Consider starting that push two to three weeks earlier in 2013. Ironically, the slowdown of European imports from the US may help keep cargo that’s headed for other global destinations moving through East Coast ports.