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156 THE JOURNAL OF COMMERCE www.joc.com JANUARY 12.2015 THE LAST WORD 2015 ANNUAL REVIEW & OUTLOOK Shutting Out the Shippers I f there is one observation that stands out from 2014, it's the absence of concern for the shipper in U.S. long- shore negotiations. It's fundamentally anachronistic that those who ultimately pay the bills and whose business creates not only all the longshore jobs but also mil- lions more in the larger economy, should suffer the neglect and business disruption shippers do in the U.S. when con- fronted with labor-management issues on the waterfront. Last fall's problems on the West Coast weren't solely longshore-related, because chassis shortages and mega- ships played a role in the worst delays in years, especially at the Southern California ports. But longshore slowdowns tied to the lack of a contract eight months into negotiations must share the blame. As the Pacific Maritime Association said on Dec. 17, "Union slowdowns continue to disrupt the movement of cargo through the ports." This isn't a diatribe against the International Long- shore and Warehouse Union or unions in general. They aren't causing these problems. No, the problems are sys- temic, and part of that system — labor- management relations — is broken. That inward-focused relationship cares only about the two sides' issues, with their customers having no seat at the table and their interests only indirectly addressed in often-contentious, disruptive and pro- tracted negotiations. Uncertainty in business planning is a given. Weather, natural disasters, eco- nomic and geopolitical risk are a normal part of business. But risk from artificial and avoidable causes such as a breakdown in longshore talks should have no place in the modern world. Yet it does, as 2014 vividly showed. When CEOs start talking about port delays to explain missed revenue targets, you know this isn't an idle issue. As FedEx founder Fred Smith said during a Dec. 17 earn- ings call: "The slowdown in the West Coast ports has been a much bigger deal than people think, and a tremendous amount of inventory was simply not put through the ports in the timeframe that the retailers had expected." Evidence of what Smith was talking about abounded in Seeking Alpha earnings transcripts this past fall: l Athletic apparel retailer Lululemon Athletica told investors on Dec. 10 that it had to maneuver around the West Coast congestion. "With the slowdown at the West Coast port and units still under water, we are actively implementing a number of strategies to mitigate the deliv- ery issues," CEO Laurent Potdevin said. l Specialty women's fashion retailer New York & Co. said it incurred an extra $2 million in freight costs associated with switching to air freight and divert- ing cargo to U.S. East Coast ports. Shippers' need to turn to air contributed to some of the strongest volumes in years at the Hong Kong and Shanghai airports. Among the many companies expressing concern over delays were Ann Taylor, Lane Bryant, DSW, Williams- Sonoma, Home Depot, Kohl's, Best Buy and Lowe's. The situation grew almost comic when shippers who diverted goods to the East Coast expecting disruption on the West Coast in the spring — which ended up quiet — returned shipments to the West Coast in the fall, only to slam head-on into ILWU slowdowns. It's not just shippers who believe their interests aren't being taken seriously enough in longshore discussions. Citing how the process creates undue uncertainty for shippers, David Adam, the chief negotiator for U.S. East and Gulf Coast waterfront management, told the JOC Port Performance Conference-North America in December that employers and the International Longshoremen's Association need to change the bargaining process before their next contract expires in 2018. "One of the things we need to do as an industry is to give security to the ship- pers," he said. "The process, to me, is not working. It's old, it's decrepit, and it really needs to be reviewed." The comments brought a swift retort from ILA Presi- dent Harold Daggett: "The answer is no," Daggett told Senior Editor Joseph Bonney. "We're going to continue to negotiate the way we negotiate now." But Adam isn't the only one imagining a different kind of future for U.S. ports. In a December Wall Street Jour- nal editorial, economist and former Congressional Budget Office Director Douglas Holtz-Eakin said longshore nego- tiations should fall under the same law that governs railway and airline workers. If applied to longshore labor, that law, the Railway Labor Act, would greatly reduce the threat of labor slowdowns and lockouts at the nation's ports, and would go a long way to reduce the uncertainty. The National Labor Relations Act, which oversees labor tied to U.S. ports, doesn't have any protections to "ensure a timely and orderly settlement of disputes as a means to avoid interruptions of commerce," he wrote. As 2014 showed, the disconnect between the clubby, insular world of longshore labor relations and the real world of the U.S. economy is growing. Something needs to change, and the sooner the better. JOC Contact Peter Tirschwell at ptirschwell@joc.com and follow him on Twitter: @petertirschwell. B Y P E T E R T I R S C H W E L L