Longshoremen's Strike At Port Of NY And NJ Could Devastate US Economy; But Can Labor And The ILA Finally Win One?

It’s easy to see how someone could get the impression that U.S. labor unions are dead.

After all, just a few days ago, the Bureau of Labor Statistics said union membership fell to 11.3 percent of U.S. workers in 2012, or 14.4 million people, the lowest level since before World War II. Nearly 25 percent of American union members are older than 55, up from about 15 percent 10 years ago.

On top of that, a court of appeals last week upheld all of Wisconsin Gov. Scott Walker’s public-sector union reform legislation, a draconian group of measures that would strip most state government workers, with the exception of firefighters and police, of their collective bargaining rights.

And in the last few months, Indiana and then Michigan -- birthplace of the United Auto Workers -- passed right-to-work laws, permitting people to take jobs in union shops without joining the union or paying its dues. That raised the number of states with right-to-work laws to 24, with six additional states considering similar legislation.

Because of these significant setbacks, the labor movement is in disarray. Some unions have ignored their weakened position and taken an aggressive stance. For example, last year, Hostess Brands Inc., the maker of the iconic Twinkies snack cake, told its unionized bakers that without concessions the company would go out of business. Holding firm, the labor group’s leaders rejected any givebacks, putting the jobs of 18,000 people on the line. Within days, Hostess was bankrupt, and the union is now fighting in court to squeeze some money out of the new owner of some of Hostess’ brands to cover pensions and other retirement costs.

Other unions, like the UAW, have given in, agreeing to cuts in wages, benefits, jobs and pensions. In so doing, they are holding on to their ebbing influence and leverage in the auto industry but barely so. UAW membership now below 400,000, down from 1.5 million three decades ago -- and none of the foreign transplants, among the most successful carmakers in the U.S., are unionized.

“One dilemma for labor is that the aggressive actions that are required in some of these instances are rendered more difficult by the decline in labor's membership numbers,” said Philip Dine, author of the book “State of the Unions.” Labor is spread somewhat thin because it is under assault in so many areas.”

Still, despite this litany of problems, every once in a while a potential job action arises to prove that the labor movement is not quite extinguished yet. One of these will occur on Feb. 6 in the ports of New York and New Jersey.

That’s the deadline for negotiators of the International Longshoremen’s Association (ILA), the AFL-CIO, and a group of ocean carriers and terminal operators to agree on a new six-year contract. If not, the ILA plans to strike -- and in this case, the union threat is not easy to ignore.

New York/New Jersey is the busiest waterfront in the East and Gulf Coasts, the first stop for goods that ultimately reach 35 percent of the U.S. population. About 3,250 longshoremen load and unload boats on these ports, and port activity directly supports nearly 200,000 jobs in the New York area. A one-week dockworkers strike would cost the region an estimated $110 million in economic output and $136 million in personal income. Even without sympathy strikes by dockworkers in other ports, a New York job action could cost the U.S. $1 billion to $2 billion per day in economic activity. Moreover, a strike would be a serious hit to the nation’s fragile economic recovery because consumers, who constitute about 70 percent of the U.S. gross domestic product, would have to absorb the extra cost of goods as a result of higher transportation charges.

The obstacles to a new contract are few but formidable.

One contentious matter is container royalties, payments to dockworkers to protect them from losses due to “containerization.” For much of the 20^th century, longshoremen loaded and unloaded cargo manually. In the 1960s shippers started putting freight in large metal containers that could be loaded on tractor-trailers and railroad cars and then placed on ocean-going vessels. As a result, fewer longshoremen were needed. And the industry agreed to pay furloughed or downsized workers a royalty based on the tonnage of goods shipped.

Most of today’s ILA members, many of whom make over $100,000 per year, began working after containerization, meaning automation didn’t impact their jobs or wages. Still, container royalties have remained in place and, since 2009, when a cap on royalty payments was scrapped, those payments skyrocketed. In 1996 they averaged $6,028 per worker; in 2011 they averaged $36,000 per worker, according to the Wall Street Journal.

The ILA argues that these payments are now an essential part of worker compensation.

“Container Royalty (payments) supplements the members’ income and keeps his benefits package financial strong,” says a statement on the ILA website. “Container Royalty eligibility must be earned by an ILA member reaching a certain amount of hours worked each year. ILA work isn’t like other professions: no ships mean no work, but employers depend on a strong and skilled workforce when ships need to be worked. Container Royalty helps keep an ILA workforce available.”

Work rules are another central issue in the labor dispute. The terminal operators and ocean carriers point to a number of egregious activities that were unearthed during public hearings in 2010 held by the Waterfront Commission of New York Harbor. These hearings featured testimony about such waterfront abuses linked to the longshoremen as crane operators who work eight hours but are paid for 24 hours of work; dockworkers who earn overtime pay despite not even being at the port; “no-show” jobs, which, in one case, paid $73,531 in 2009; shop stewards who earn more than $400,000 per year; timekeepers who earn more than $400,000 per year and are paid for 27 hours of work per day; and the outsized influence of the Genovese crime family on the New York-area docks.

Port management is demanding that these activities are finally eliminated, and it’s insisting that in the next few years, the longshoremen and the companies that ship on the waterfront focus on improving productivity substantially.

So far, there has been some progress in resolving the container royalty dispute, according to the union.

“I am pleased to announce that the ILA made major gains on the Container Royalty issue that will protect our ILA members,” Harold J. Daggett, ILA’s president, said on Dec. 28.

Still, that is no guarantee that a deal will be reached before Feb. 6. Indeed, both sides have reasons to dig in their heels.

Ocean carriers and terminal operators are under pressure to stick to their positions in two ways. One is the usual desire to protect or expand profit margins. The other is the increased ownership stake of hedge funds and pensions in their businesses.

Case in point: The Ontario Teachers' Pension Plan last week paid $467 million to buy a 100-percent stake in container leasing firm SeaCube. It was the second major acquisition the pension fund, one of Canada’s largest, has made in the container shipping industry. In 2006, the fund acquired several assets from OOCL Terminals in a $2.4 billion deal, which gave the fund control of two container terminals each in the Port of New York and New Jersey and Vancouver, Canada.

Another example: APM Terminals of the Netherlands, Denmark’s A.P. Moeller-Maersk A/S, the world’s largest shipping company, and JPMorgan Chase & Co. (NYSE:JPM) are looking at buying terminals from state agencies.

“These new owners are much more profit-oriented,” said Ed Sands, global logistics lead at Procurian, a leading procurement specialist. “And a big part of becoming profitable is dealing with labor costs and productivity.”

The union is equally motivated not to give in. President Obama is unlikely to invoke the Taft-Hartley Act, which empowers him to order the strikers back to work. That’s something President George W. Bush did in 2002 to end a 10-day, 29-port lockout on the West Coast.

“I think it's unlikely that President Obama would order strikers back to work for a mandatory cooling-off period under the Taft-Hartley Act; rather, he would probably prefer to see the parties resolve it for themselves,” said Chris Rhomberg, associate professor of sociology at Fordham University in New York City. “The President did not intervene in the eight-day strike of workers at the Ports of Los Angeles and Long Beach late last year, and I think all sides would hope that if a strike occurred here it would not last long.”

In addition, the longshoremen know that come next week there will be a surge in the number of containers that need to be unloaded in the Port of New York and New Jersey. That’s because factories in China have been ramping up production ahead of their seven-day New Year’s celebrations that begin on Feb. 9. Consequently, container ships will be unusually full, and the port operators will want them to be unloaded.

“Freighter volume is going to be unchanged, but the number of containers on those ships is going to be higher,” Sands said. “The vessels are about 80 to 85 percent full now, but they are going to be 95 to 100 percent full for the next three to four weeks.”

The prospect of that surge in products sitting idle on the ports has been enough to get the National Retail Federation and more than 120 business groups to write a letter in January appealing to the parties to settle their differences immediately.

That may not compel a faster agreement, but it has certainly given the union reason for optimism that by holding out a bit, they may actually come out a winner in the negotiations.

Indeed, the betting at this point among many experts is that “some kind of disruption is likely,” as Sands put it.

And for the reeling labor movement in the U.S., a strike only punctuates the need for concrete gains for the longshoremen in this dispute; the unions can’t afford many more losses.