Over several months beginning last November when the International Longshoremen's Association (ILA) first mentioned the possibility of a strike — an innocuous reference in an unrelated press release — a realization slowly dawned on shippers that a sea change was occurring on the US East and Gulf coasts.

If ports operated by ILA labor were for decades a dependable alternative to those reliant on the ILA's perpetually disruptive West Coast counterpart, the International Longshore and Warehouse Union (ILWU), that assumption no longer holds true.

The assumption of labor peace, demonstrated over the course of 13 peaceful contract negotiations since 1977 (the year of the last coastwide strike), was one of the key factors — along with demographic shifts and the 2016 expansion of the Panama Canal — that lead importers of goods from Asia to divert significant volumes from the West Coast to ports along the East and Gulf coasts.

As every West Coast contract negotiation since the late 1990s was met with disruption on the docks and delays to cargo, the consistently peaceful waterfront along the East and Gulf coasts served as a reminder to shippers that a viable alternative to the West Coast exists, and they took advantage.

The diversions were so predictable during the most recent disruptive West Coast negotiations that the Pacific Maritime Association (PMA) called it out in June 2023 in response to "coordinated and disruptive work actions" by the ILWU as the contract was being negotiated.

"The ILWU's repeated disruptive work actions at strategic ports along the West Coast are increasingly causing companies to divert cargo to more customer-friendly and reliable locations along the Gulf and East coasts," the PMA said.

The ground has shifted

The message of labor peace on the East and Gulf coasts wasn't just an impression; at industry conferences at Savannah, Charleston and other ports, ILA dockworkers took the mic when shippers were on stage, pledging support for their cargo and promising continued reliability. Such statements would never be heard on the West Coast.

Now, even though the strike was suspended after three days when employers increased their offer to a 62% wage increase over the term of a new six-year contract, shippers believe something more profound has changed.

Just prior to the strike, Jonathan Gold, the vice president of Supply Chain and Customs Policy at the National Retail Federation, said even the threat of a work stoppage "will have an impact on the confidence that retailers have in labor stability at those ports."

"Retailers have diversified their supply chains over the years, and we expect some to re-evaluate their use of certain ports moving forward, especially for discretionary cargo," Gold said.

It wasn't just the mounting concern about the possibility of a strike that left the impression of a changed labor landscape. The dispute over jurisdiction of crane driver and yard worker jobs at Southeast ports, which led the new Hugh K. Leatherman Terminal in Charleston to be all but shut down three years after it opened in 2021, sent tremors that labor stability was no longer guaranteed.

Contributing to the impression of shippers of an altered landscape on the East and Gulf coasts was how the contract negotiations played out this year, or more appropriately, didn't. The ILA walked out of negotiations with the United States Maritime Alliance (USMX) in June and never returned to the table; even the terms of the tentative deal that ended the strike last week were mediated entirely through Biden administration officials, not face-to-face with the USMX.

Permanent acrimony?

For 40-plus years, the ILA and USMX resolved their issues at the bargaining table, forging a shared commitment to stability that was understood by shippers watching the relationship from the sidelines and making supply chain decisions accordingly.

Thus, even for carrier executives with long experience in dealing with the ILA, the inability to return to the table despite repeated invitations — which ultimately led the USMX to file an unfair labor practice case with the National Labor Relations Board — was wholly unfamiliar. Carriers being repeatedly demonized by union officials as "greedy" — among other adjectives — was also unfamiliar, further reinforcing the notion that the landscape had changed.

Shippers are now wondering if the acrimony that has long characterized labor-management relations on the West Coast will become a permanent feature on the East and Gulf coasts as well. That possibility will be a contributing factor in internal corporate discussions over issues such as outsourcing.

Certainly, the next contract negotiation will be watched much more carefully than it was in the past and likely will prompt diversions that would never have been needed in prior years.

*This article was previously published by The Journal Of Commerce (JOC) in October 9, 2024

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.