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A Cautionary Tale of Reckless Negotiating

So while I complain as much as the next person about the inflated salaries for longshoremen, I feel it's important that we take a step back and understand how we got to this point. To understand how we arrived at the current average salary of $147k for a general longshoremen, we have to go back to a time when the salaries paid to these folks didn't raise any eyebrows.

In 1990, the average salary for a Class A Longshoreman in the ILWU was $63,373 per year. This salary definitely seems manageable and quite honestly is probably deficient given the real estate in southern California. Now we need to consider the carriers and import volumes at this time. Carriers were recording consistent profits and container volumes were increasing steadily into the West coast.  Container volumes were increasing so much in fact, the carriers were desperate to employ more labor to handle the increased volumes.

By 1996 the salary had increased to $90,545 per year, a 4.25% YoY increase. Most companies were paying a 2-4% annual increase during this time, so the increase isn't exhorbitant by any means; however, the annual salary increased 7% from 1996 to 1997 at almost $97k. So now the average annual salary had increased almost $35k/year in 7 years for the same job. Container volumes were still increasing dramatically as companies continued to shift manufacturing to Asia and elsewhere.

Now comes the interesting part of this story. Carriers now had become complacent that profits were just assumed to continue at the current rates. There was blatant disregard for normal financial processes and a blatant disregard for understanding financial standards, such as calculating your break-even point. Although this could and should lead to financial disaster, the market itself was so good these companies continued to realize profits. 

Over the next several years, the ILWU continued with their normal annual increase until the labor negotiation in 2002. After a 10 day lockout of the ILWU, the parties agreed on a new contract. The annual salary increase enjoyed by longshoremen that year was less than 1%, but that was only because it was a contract year. The contract they actually put in place increased salaries by 7% annually. By 2005 this same Longshoreman was earning close to $124,000 per year. At the same time, steamship lines were reporting record profits. 

Carriers now began negotiating extremely aggressively with importers without caution. They eventually became so overly competitive in trying to gain marketshare, they unknowingly began pricing lanes to shippers below their break-even point. Without realizing it, the carriers were now losing money on every container that was shipped on certain lanes.  

How does this happen you might ask? It's simple. The same haphazard tactics used in negotiating contracts with the union were being used in their contracts with their customers. The over-arching arrogance displayed by the carriers became their own demise and they suffered for nearly the next decade until now due to their own ignorance. 

This reckless operation led to very challenging financial times for steamship lines and now has also created the $147,000 Longshoreman. As much as I like to complain about unions, the ILWU leadership simply understood their opportunity and used whatever leverage they had to increase compensation for their membership, which is exactly what they are supposed to do. We can't fault the union for having better negotiators than the carriers.

 

Regards,

Jacob Intrieri

Principal Consultant, LINQ

 

One Man's Perspective

So the ILWU and PMA reached a tentative 5 year agreement apparently after getting a pseudo-ultimatum from the Secretary of Labor to get the deal done or be forced to negotiate in Washington, DC. It's an interesting turn of events in a challenging situation. This is my perception of this negotiation process how this most likely played out.

March 2014, PMA President Jim McKenna advises the import community this year will be different regarding the ILWU contract renewal. Both sides have agreed to maintain business as usual in the ports while they work to get a new deal done.

July 2014, Shippers shift volume to the East coast in anticipation of a labor action since the contract has expired. PMA continues to advise no big deal mentality, that we're all working together.

August 2014, Space is a huge challenge for shipments moving to the East coast now and steamship lines begin pushing GRI's that stick for the first time in 5 years. Market rates begin to rise.

September 2014, PMA begins complaining of work slow downs along the coast. ILWU viemently denies the allegations, although they are dispatching fewer crane operators and gangs to work vessels.

November 2014, ILWU brings port productivity to a crawl with continued slowdowns. Mud-slinging campaigns in full effect for both sides. Focus shifts from getting the deal done to making each other look bad in the press. 

January 2015, Both sides request the intervention of the Federal Medication and Conciliation Service. This is the same group that seemed to help with the ILA negotiation, so shippers are optimistic.

February 2015, ILWU now has a new request to be able to fire mediators that rule against them. I'm guessing the intervention of the FMCS is not going as well as we'd hoped. The Scretary of Labor is sent to aid the negotiation and suddenly the deal is done. 

I wonder if Secretary of Labor Thomas Perez was confused when he got there? The PMA agreed to everything requested and yet the ILWU was still holding out. The one thing outstanding was this new need for ILWU to have the authority to fire mediators that rule against them. 

My next blog will be about how we even got to this point with longshoremen earning $160k/year on average with a pension plan better than most firemen and it's actually the carrier's fault.

 

Regards,

Jacob Intrieri

Principal Consultant, LINQ

 

ILWU/PMA News

The ILWU/PMA contract expired July 1st and they still have not come to a resolution. I know for most of us in the supply chain community, a hard deadline means something, but that doesn't seem to be the case in with these groups. It seems from the very beginning these negotiations weren't conducted in good faith from either party. There has been so much effort made to make the other side look like the guilty party in the press that these two entities have completely lost sight of the goal. 

While the goal should have been to complete a fair contract on or before the deadline, the negotiations started with a lethargic note that both sides have agreed to keep the ports open during the contract negotiations if they run past the expiration of the current contract. That lack of urgency set the tone for these negotiations from the start and that lack of urgency has since permeated throughout the negotiation and the terminal productivity ever since.

If both sides could just sit down and negotiate in good faith, this would be resolved. Stay out of the press, don't post messages on Youtube that infuriate the other side and paint one side of the picture, and stop releasing statements that are slanted and promote panic in the importing community. 

This week the PMA released a statement they were coordinating a lockout Thursday, Saturday, Sunday, and Monday. Why did they skip Friday, you might ask? Well, if you look at the ILWU Paid Holiday Schedule, they were already slated to be closed Thursday for Lincoln's Birthday and again Monday for President's Day. This new lockout is essentially the same process they had last week with vessel operations suspended over the weekend. Please stop posturing in the press and focus on the actual goal of the discussions. Whether you agree with the ILWU or PMA, the fact is a contract has to get done to get the ports operational again.

If these discussions had started out more focused and the PMA had locked out the ILWU back in July, we'd all be better off right now. Those of us that remember the lockout in 2002 have always used that as a gauge for how bad it could get, but this continued lack of production through the ports is much worse. Get back to the table, stop posturing with the press, get used to the phrase "no comment," and get this finished.

 

Regards,

LINQ Staff

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