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May16, 2016

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TRADING PLACES 62 THE JOURNAL OF COMMERCE www.joc.com Peter Tirschwell MAY 16.2016 LESSONS LEARNED THE REACTION OF shippers to West Coast longshore labor disruption is evolving in such a way that West Coast ports have reason for concern. In 2002, a 10-day shutdown of West Coast ports amid longshore labor contract talks came as a com- plete surprise to many shippers. Retailers and other types of shippers had little concept of the magnitude of risk to their supply chains from a potential port shutdown, and hardly any idea of how to mitigate such risk if and when a shutdown occurred. As a result, only minor quantities of cargo were diverted away from the West Coast before, during or after the episode. With imports from China in their heyday of growth, West Coast ports actually grew their U.S. con- tainer market share in the years that followed, from 56 to 57 percent between 2002 and 2007, according to PIERS, a sister product of The Jour- nal of Commerce within IHS. When the next round of contract talks took place in 2008, shippers began to wise up. The ILWU struck along the entire West Coast on May 1 of that year, and after a brief lull, subsequent disruption broke out in July and spread up and down the coast before a tentative agreement was reached in late July. For many shippers, that was all the informa- tion they needed, and the exodus began. The West Coast's share of U.S. containerized imports plunged from 55 percent in 2008 to 49.5 per- cent in 2015, according to PIERS. As the expiration of that six-year contract approached on July 1, 2014, many shippers were prepared, or at least they thought they were. Plenty of cargo was diverted to the East and Gulf coasts in the run-up to the contract expiration, but this time, all remained quiet on the Pacific Coast despite the expiration of the contract and lack of extension. Dockworkers and management pledged in press releases to keep cargo moving as the negotiations played out. But there was no quick resolution, and work slowdowns began in November, continuing non- stop for 3 ½ months until a tentative agreement was finally reached on Feb. 20, after even more cargo was diverted. But still, the damage was done. More than a week later, on the first day of the 2015 TPM Confer- ence, 24 container ships could be seen anchored off the ports of Los Angeles and Long Beach. During the period from July 2015, by which point the West Coast had more or less returned to normal, to March 2016, the latest month for which import data is available, one would have expected to see at least some of the diverted cargo shift back to the West Coast, that is, if those diversions were temporary. But that isn't what's happening. During that period, the East Coast saw imports from Asia grow at a significantly higher rate than the West Coast, showing the East Coast continuing to gain market share in the aftermath of the 2014-2015 labor disruptions. Consider this: During that nine- month period, overall imports from Asia to the U.S. in TEU terms grew 4.38 percent, according to PIERS. Imports through the East Coast grew nearly 7 percent. Imports through the Southeast grew even faster, at 9.5 percent. But imports through the West Coast grew just under 3 percent and imports through Los Angeles- Long Beach were up 2.5 percent. "We are this far into our fis- cal year, (beginning on July 1) and our import volumes are still up year-over-year," said Curtis Foltz, executive director of the Georgia Ports Authority. "This tells the mar- ket that we have retained a fairly high percentage of the imports that were diverted to Savannah, as well as customers that had heretofore decided to put their business or more of it through here." This suggests that risk avoid- ance in port selection involves decision-making much higher up the organization than it did previously. With support from a CEO, shippers are able to make faster and bigger decisions that affect the broader sup- ply chain, such as extending product lead times and all that involves to account for the extra week it takes to ship through the East Coast. After three go-rounds spanning more than a decade involving West Coast labor disruption tied to con- tract negotiations — and none on the East Coast — shippers have smart- ened up. Only one action (in my view) will positively alter their per- ception of the West Coast. That will be for the International Longshore and Warehouse Union to renounce disruption as a tool of negotiation. No more slowdowns by locals if they don't like what they hear coming out of the negotiations. Their counterparts on the East Coast have all but done this and are vocal in pointing out this fact to shippers. Until the ILWU takes this action, they will see a lot less busi- ness than they otherwise would. JOC Contact Peter Tirschwell at peter.tirschwell@ihs.com and follow him on Twitter: @petertirschwell. Dockworkers and management pledged in press releases to keep cargo moving as the negotiations played out.

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