Analysis: U.S. ports' drive to control costs leads to labor strife

When Charles Spencer became a crane operator at the Jacksonville Port Authority in Florida in 1971, it took at least a day for 200 dockworkers to unload 160-pound sacks of coffee from a cargo ship.

Now the same job takes 20 dockworkers, assisted by massive robots programmed to lift and stack containers, an hour.

One thing hasn't changed, however: American dockworkers are among the highest-paid blue-collar workers in the country. Spencer says he made about $32,000 a year when he started; today, the average dockworker makes more than $115,000 a year.

Now, shipping companies are pushing hard to control costs, including the cost of labor - and workers are pushing back. It all comes down to who gets the rewards from the investment the port operators have put into increasingly automated equipment: the companies and their shareholders or the unionized dockworkers.

Despite the automation, U.S. port productivity badly lags that of overseas rivals. Rotterdam and Shanghai ports use fewer than five dockworkers to do what it takes 20 to do in the U.S., according to Jim Kruse, director of Texas A&M University's Center for Ports and Waterways. The gap is jarring at a time when shippers, the primary customers and in some cases the owners of port operators, have seen profits shrink, in part because of a glut of new ships.

It is a major reason for a series of increasingly heated struggles between port workers and their employers on the East, West and Gulf coasts of the United States in recent months centering on pay, workplace efficiency and automation.

Tensions are likely to remain high for some time, particularly as competition between ports increases ahead of the completion of a widening of the Panama Canal in 2014, which means more containers move straight from Asia to the East and Gulf coasts.

"Everyone wants to reduce their cost and that means lower wages or fewer people," said a senior executive at a major West Coast container terminal operator who spoke on the condition of anonymity so as not to affect future negotiations with labor unions.

The spate of labor disputes on the waterfront has not been seen since the early 1970s, when West Coast dockworkers went on strike. Then-President Richard Nixon invoked the Taft-Hartley Act, which limits the power of labor unions, to force them back to work.

Office workers at ports in Los Angeles and Long Beach, California, struck for eight days in a dispute about the outsourcing of jobs before returning to work in early December. Dockworkers refused to cross their picket lines, effectively shutting down most of the nation's largest shipping complex for that period.

Dockworkers on the East and Gulf coasts and in Pacific Northwest grain ports almost followed suit last month.

With a strike looming, the International Longshoremen's Association (ILA), which represents 14,500 dockworkers on the East and Gulf coasts, and the U.S. Maritime Alliance (USMX) of shippers, terminal operators and port authorities, agreed to a temporary deal on December 28. A strike is still possible, though, if the talks don't lead to a final deal that is ratified by workers by February 6.

Labor strife was also narrowly avoided at ports in the Northwest as the International Longshore and Warehouse Union (ILWU) announced on December 26 that its members would stay on the job despite "substandard" contract terms imposed on them by grain shippers. That dispute could easily flare again in the coming months.

'A FAIR SHARE OF BENEFITS'

The ILA's national office and USMX declined to comment for this article. The ILWU said new productivity and technological goals should always keep employees in mind.

"Workers and the rest of society deserve to get a fair share of the benefits that can result when new technology is adopted," said ILWU spokesman Craig Merrilees.

One of the more contentious parts of East Coast negotiations was the amount of royalty payments to ILA workers based on the tons of container cargo that move through a port.

The payout was roughly $211 million in 2011, according to the USMX, or an average of $15,500 per worker. That was too much, port operators said. The union reached a tentative deal late last month with the port operators on the payment and is set to finalize it next month. It's unclear what the new royalty payments will be, though they were enough to avert a strike last month.

Shippers said higher fuel prices and weak economic growth cut into their profits in 2012. The Baltic Dry index, which tracks the cost to ship materials overseas, is down 55 percent in the past year, a 10-year low.

The shipping companies placed expensive orders for larger container ships in 2006 to ready themselves for the Panama Canal's widening. When the financial crisis and recession hit in 2007-2008, they found themselves with excess capacity and weak demand.

"It's been a perfect storm for the shipping industry," said Bill Johnson, director of PortMiami. "They have all cut staff and had to look at their supply lines. They can't sustain this."

The Panama expansion will allow the canal's capacity to triple; it will be able to handle ships that each carry 12,500 containers. That will increase competition for trade between not just the West Coast and East Coast ports but also among East Coast ports to supply the Midwest with goods.

Miami, New York and other large East Coast ports are dredging their harbors to depths of 50 feet - currently, they are no deeper than 47 feet - to be able to handle the larger ships.

"A great deal of the freight that arrives in the U.S. to serve the East Coast is today off-loaded in West Coast ports," said Allison Skipper of the South Carolina Ports Authority. "There are new opportunities for the same freight to travel directly, by all-water, to a location much closer to its final destination."

'IT LIMITS MY OPPORTUNITY'

But winning more trade from the West Coast is no slam-dunk for the East and Gulf Coast ports.

"The shipping lines can argue there's going to be growth that we can all benefit from, but East Coast ports need to be competitive with the West Coast and railroads," said Richard Wainio, former director of the Tampa Port Authority, who previously was head of planning at the Panama Canal. "If they are not competitive the ports will lose potential growth and that will hurt the interests of the longshoremen, too."

Improving productivity is key. "Compared to the best port internationally, a North American port would fail by a factor of more than 4 to 1," said John Vickerkman, president of Vickerman & Associates, a port consultant group.

When Mitsui O.S.K. Lines of Tokyo chose Jacksonville in 2005 for a new $330 million terminal, it expected to handle containers between North America and the Caribbean and Latin America. Like its large peers, Mitsui chose ILA labor for its terminals.

But the flood of containers hasn't happened, said General Manager Dennis Kelly, because the Mitsui terminal can't compete with cheaper peers in Jacksonville that employ non-unionized dockworkers.

Florida is a "right to work" state, meaning employees can't be forced to pay union dues. Terminals not bound by the ILA contract work rules can be more flexible about starting times, the number of workers and pay rates.

"It limits my opportunity to go out and compete for new business," Kelly said. "It's pretty much impossible because our labor agreement with the ILA makes us non-competitive."

Mitsui has a 30-year lease at the Jacksonville port, and customers like craft supplier Michaels Stores Inc rely on it to ship goods into the U.S. Despite that, Mitsui is under pressure to boost margins at the site.

Port operators, typically multinational shipping giants like COSCO and Danish group A.P. Moller-Maersk's APM Terminals, that lease space from quasi-public port owners, want flexibility in setting work hours in an attempt to reduce labor costs and to better compete with global peers.

"The U.S. lags behind others in the world in modernization of shipping terminals," said Texas A&M's Kruse. "They just have to become more efficient."

(Additional reporting by Susan Cooper Eastman in Jacksonville, Florida, Alwyn Scott and Sharon Begley in New York, David Adams and Kevin Gray in Miami, and Harriet McLeod in Charleston, South Carolina; Editing by Patricia Kranz and Douglas Royalty)