About 50,000 union members walked off the job yesterday across East Coast and Gulf Coast seaports.
As if the U.S. economy needed any more volatility.
Tuesday was the beginning of – what will hopefully be – a short strike, held by the International Longshoremen’s Association (ILA).
East Coast and Gulf Coast Ports | Source: National Association of Manufacturers
As consumers, we don’t often think about shipping, distribution, logistics, and warehousing – the backbone of the supply chain.
Goods are just on the shelves when we go to the store. And products land in front of our doors when we press a button on our computers.
But when just one link of a supply chain goes down, damages can be catastrophic.
68% of all containerized exports and 56% of containerized imports go through the ports shown in the image above.
These shipments represent about $2.1 billion in trade daily.
But the ramifications of the strike will be higher. Estimates are that the strikes can cause as much as $5 billion of economic damage a day.
And the rhetoric coming from the head of the ILA is even more threatening…
ILA President Harold Daggett | Source: International Longshoreman’s Association
When speaking about the ILA’s negotiating position, ILA President Daggett said, “In today’s world I’ll cripple ya. I will cripple you. And you have no idea what that means.”
Who are we dealing with here? The mafia? It sounds like he’s going to kneecap the U.S. consumer.
What’s the fuss about?
Money and jobs, naturally.
Port workers now earn a base salary of $39 an hour – a bit more than $81,000 a year.
And for those willing to work overtime, it isn’t unusual to make more than $200,000. In fact, about a third of New York Harbor longshoremen do make more than $200,000 a year.
The average earnings for a port worker are around $125,000, crane operators make over $200,000, and foremen make over $500,000.
Daggett himself makes more than $900,000 a year. He also owns a 76-foot yacht and a Bentley.
Compare these figures to the average salary in the U.S.: $59,428. The average hourly rate is $28.34.
What does the ILA want?
The United States Maritime Alliance (USMC), which represents the ports and is negotiating the master agreement with the ILA, offered a 50% raise to the ILA.
The ILA rejected that offer, hence the beginning of the strike.
The ILA wants:
I’ll let you decide which party is being reasonable or not.
The concept of “fair” pay is often an emotional one and highly subjective.
What I can say is that a 50% – let alone a 77% – increase in the cost of labor would bankrupt most companies.
But this case is unique.
Each port is controlled by a single company. And it is highly preferable to deliver goods to a port location closest to end markets.
This means that all labor cost increases will simply be passed along to the freight carriers. And those increased costs will be passed onto retail and enterprise businesses. And those costs will – you guessed it – be passed on to us, the consumers.
This is an interesting and unfortunate dilemma, as only one party – the ILA labor union and its members – wins in the end. Prices will go up, not down. And without automation technology, we will not see productivity improve.
This isn’t just a fight about money and jobs. This is a fight against the adoption of technology. A fight against improving efficiency and productivity.
Yes, there is job displacement when that happens, but improved productivity has always resulted in a growing economy and new jobs.
Those jobs may change. Rather than operating a crane on the dock, a worker would be operating and monitoring multiple cranes in a control center. Or they might be supporting, maintaining, or repairing automated cranes and freight container movers at a port.
But it seems the ILA isn’t interested in those jobs, it only wants the one that it has right now.
The language used by the ILA was pretty striking, in fact:
We do not believe that robotics should take over a human being’s job. Especially a human being that’s historically performed that job.
The logic, or lack thereof, sums it up. If we apply that logic, we should still be digging ditches and trenches with shovels rather than using excavators. Or we should be making textiles by hand, instead of using textile machines. Or we should be picking corn by hand rather than using a corn harvester.
As romantic as the idea is – of us all returning to farm steading…
It would destroy the entire economy and bring about economic collapse.
The fact is that the U.S. is way behind Europe and Asia on port automation.
Only the Long Beach Container Terminal (LBCT) and the Trans Pacific Service Container Corporation (TraPac) stand out as having embraced automation technology.
Companies like Cargotech (Finland), ABB (Switzerland), Identec Solutions (Austria), ZPMC (China), and CyberLogitec (South Korea) are leaders in port automation technology. These businesses are thriving due to adoption around the world.
Ports in markets like China tend to look like this:
Source: Huawei
All the cranes and container movers work autonomously and are monitored and controlled by human operators in a control center.
The net results of adopting autonomous port technology are:
The reality is that companies and countries that don’t embrace automation technology will be at a competitive disadvantage. Ports and countries worldwide have already figured this out.
The impact of the supply chain problems at ports in the U.S. during the pandemic would have been dramatically reduced had automation technology been adopted.
One would have thought that would have been the catalyst for change and improvement.
Clearly, it wasn’t.
The fact is that automation technology has been around for decades for these kinds of applications. Many ports in the U.S. are largely operating the same way that they were 40 or 50 years ago.
Change is long overdue. And I’d like to think that we’d all agree that less crime, less corruption, less human trafficking, less emissions, and lower prices are things that we’d all want.
Let’s hope that the current strike is resolved in a matter of days, not weeks or months.
And for every week of the strike, it is expected that it will take about six weeks to recover from the backlogs. That means a one-month strike would result in six months of supply chain problems with prices jumping even more on a large number of daily goods.
Let’s hope it doesn’t come to that.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
