Have you been served?
Contentious contract negotiations this summer between union longshoremen on the U.S. East and Gulf coasts and their employers have taught shippers an abject lesson: shipping goods internationally is not the same as buying a product at a store.
Or to put it more bluntly, the customer isn’t always right.
That’s strange, given international freight transportation is supposed to be a service industry. Heck, the carriers even call their scheduled sailings “services.”
North American importers and exporters have come to expect that they will get reliable, reasonably priced service. In truth, the “reasonably priced” part has not really been an issue for some time now.
Carriers have undermined their pricing power by flooding the market with new, larger vessels designed to eventually cut their operating costs. So rates have been pretty fair since the global economic downturn, with the exception of the first half of 2010.
Reliability is gradually improving too, at least according to the measurements of independent research groups that track port-to-port on-time percentages, and now even container delivery times.
But this greater reliability has come at a time when shippers are wading their way cautiously through a recovering U.S. economy. The numbers aren’t all that promising. According to the consultancy Seabury, eastbound transpacific volume grew only 1 percent year-on-year through May, compared to a projected 5 percent for 2012. U.S. exports to Asia and Europe are flagging.
And then… there’s the potential for a major disruption at U.S. ports. When talks broke down between the International Longshoremen’s Association and employers on Aug. 22, it was a bump in the road that shippers wanted to avoid.
The last thing a fragile economy needed was even the slightest scent of chaos. And that, more than anything, is what these terse negotiations have created. You see, shippers were largely unsurprised by the impasse. According to an American Shipper survey in late August, 62 percent of 225 respondents said they were not surprised by the breakdown in talks.
If anything, the breakdown confirmed fears that emerged in March, when ILA President Harold Daggett said the union would not back down this year.
Shippers began preparing for the situation, mentally or physically, from that moment. For those who put contingency plans in place, that meant the costs of a potential strike started adding up months before the brinksmanship reached its peak.
As I write this, we’re three weeks away from the Sept. 30 deadline for a new contract and though a strike may be avoided, the extra planning required from shippers (never mind months of edginess) can’t be wiped away with a handshake.
And that brings us back to the idea of service. Did, at any point, the “service providers” in the container shipping chain stop and think: how will this affect my customers?
Did ILA members think, if we strike, we won’t be doing the job for which we have exclusive rights — that is, handling cargo at container terminals?
Did the employers — terminal operators and shipping lines — think, if we push ILA members past their breaking point, we will ultimately be harming the interests of our shipper customers, never mind the effects on beleaguered and cash-strapped carriers?
Did the shipping lines themselves think, the way to ease the concerns of our customers is probably not to suggest that they ought to pay $1,000 per FEU for any container arriving or departing U.S. ports?
Did anyone ponder, if ILA ports are shuttered, we will be disrupting the U.S. economy at a crucial point in the calendar year, and at a crucial point in the country’s recovery?
The answers to all those questions appear to be no. The shippers, never mind the greater U.S. economy, have been left out of discussions, replaced by line-item issues like decades-old container royalty clauses.
Again, forget about whether there is or isn’t a strike. The damage had largely been done even before talks broke down in late August. Our research in late July showed more than half of shippers planned to divert cargo to non-ILA ports. As noted by American Shipper contributor Robert Sappio, a former longtime executive with APL, cargo bookings realistically needed to be shifted by the end of July, given the lead times from Asia and other far-flung origins.
By the time you read this, it’s way too late. And that’s another point. The ILA and employers have apparently worked toward the Sept. 30 deadline (when the current longshore master contract expires) as if they could sign a deal that day and things would magically return to normal the next.
The companies involved in coordinating their supply chains know better. Some will have front-loaded peak season shipments before the deadline to build up costly inventory. Some will have diverted cargo to the U.S. West Coast, or to east coast Canadian ports, incurring greater landside costs. Others will have simply held meetings and conference calls to discuss the impacts of a strike and what their response should be.
All these measures add cost. And yet, shippers are then expected to foot port congestion surcharges from some of the same lines who are represented in the contract talks by the U.S. Maritime Alliance (USMX), the negotiating body for the employers?
Yes, carriers’ operations would be affected by a shutdown of ILA ports. And yes, carriers will have to plan far in advance just like shippers, deciding whether to divert U.S. East and Gulf coast sailings to non-ILA ports, or whether to ride out a work stoppage on the water.
But if you’re a shipper, and there is a strike, would you rather have your cargo landed at congested non-ILA ports, facing delays on the ground transportation side? Or would you rather your cargo reside aboard a ship at anchor awaiting the end of the work stoppage?
What’s more, do you feel you even have a say in the matter?