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Mar. 17, 2014

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INTERNATIONAL MARITIME 34 THE JOURNAL OF COMMERCE www.joc.com MARCH 17.2014 By Peter T. Leach AN ESTIMATED $150 million annual Obamacare tax on the generous health care plans enjoyed by West Coast dockworkers may lead to only a three-year contract rather than a six-year contract to replace the existing collective bargaining agreement that expires on June 30. "It could be three years or six years; it's hard to tell right now," Pacific Maritime Association President James McKenna told the JOC's TPM Conference. The tax on so-called Cadillac plans doesn't take effect until 2018, meaning the PMA and International Longshore and Warehouse Union could sign a three-year contract covering the period from mid-2014 to mid-2017 that effectively defers resolution of the contentious issue of who will foot the $150 million bill. McKenna hinted at how controversial the issue is, noting, "I'm not going to sit here and negotiate on the health care issue, a specific issue that is causing some employers a tremendous amount of heartburn." Having to pay the tax "is not acceptable to us, and we are going to have to address that issue in the negotiations," he added. Under the terms of the Affordable Care Act, health insurance plans valued at more than $10,200 for individuals or $27,500 for families face a 40 percent excise tax beginning in 2018. The idea is that overconsumption of health care services by Americans who have little incen- tive not to consume because of low co-pays and deductibles are contributing to the nation's rapidly escalating health care costs. Under their plans, ILWU members pay no premium and a $1 co-pay on prescriptions. Contracts between the PMA and the ILWU were historically three years in duration until the landmark 2002 negotiations, when a six-year contract was signed after West Coast container ports were shut down for 10 days in a lockout. Another six-year contract was signed in 2008. West Coast port users would perceive a three-year contract negatively, because it would raise the possibility of port disruption, which always accompanies longshore negotiations, within just a few years of the next contract being signed. Indeed, the periods of the two recent six-year contracts were marked by labor peace on the West Coast. "I believe my members and most shippers would like to see as long of a contract as can be negotiated," said Jonathan Gold, vice presi- dent for supply chain and customs policy at the National Retail Federation. "The preference would be a six-year contract, which will provide shippers with the needed stability and reliability at West Coast ports." Uncertainty regarding labor peace would come as the West Coast is facing a loss of mar- ket share as Asia cargo increasingly is moved via Canadian west coast ports and the North American east coast. The market share of the U.S. West Coast, which traditionally hovered between 49 and 51 percent, dipped to 48 percent in 2012 and 45 percent in 2013, McKenna said. "Competition for discretionary cargo continues to escalate," he said. JOC Contact Peter Tirschwell at ptirschwell@joc.com and follow him on Twitter: @PeterTirschwell. MADE IN ...WHERE? Superior infrastructure makes China the premier sourcing location, but rising wages and risk prompt manufacturers to spread their wings TH E U. S . I S becoming a n increasingly attractive place to source manufacturing production, putting it on a par with Mexico as the preferred near-sourcing location, according to AlixPartners' latest Manu- facturing Sourcing Outlook. The annual survey AlixPartners has been conducting for the last four years showed 37 percent of respondents said their preferred near-shoring location would be the U.S., the same percentage as Mexico. The survey also indicated the U.S. appears to be on track to achieve cost parity with China by 2015, Foster Finley, Alix- Partners' managing director and co-head of global supply chain practice, told the JOC's TPM Conference this month. But other speakers on the panel, "If Not China, Where?" said there won't be a wholesale shift of production away from China anytime soon, even though produc- tion of footwear, textiles, apparel and toys is growing more rapidly in Vietnam, Indo- nesia, India and Pakistan. The chief reasons more companies view near-shoring to the U.S. as attractive are lower freight costs, faster speed to market, improved customer service and fewer sup- ply chain disruptions, Finley said. The predominant factors affecting sourcing decisions, however, remain wage rates, the availability of raw materials, and low manufacturing overhead such as taxes. For these reasons, China is likely to main- tain its position as the largest source of By Peter Tirschwell THE OBAMACARE EFFECT A 2018 tax on 'Cadillac' health care plans could shorten the next ILWU contract to three years James McKenna

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