LINQ Supply Chain Solutions

LINQ Supply Chain Solutions

Innovating supply chains, one LINQ at a time

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

 

Blog Stats

  • Total posts(3)
  • Total comments(0)

Forgot your password?