Could a port strike really cripple the U.S. economy?

December 27, 2012

The fiscal cliff is no longer the only threat facing the U.S. economy. Some 14,500 dockworkers from Baltimore to Texas are threatening to strike this week, a move that could throttle an array of key ports and disrupt commerce across the nation.


Apocalypse now, port edition. (AP)

For months, negotiations have dragged on between the dockworkers' union and the group that represents  shippers and port operators — their disagreements have centered on container royalties, which are used to augment worker wages and benefits. Without a resolution, dockworkers are poised to strike at 14 shipping-container ports starting Sunday, including Boston, New York-New Jersey, Baltimore, Charleston, Savannah, Miami and Houston.

"This is truly a ‘container cliff’ in the making," warned Jonathan Gold, the National Retail Federation’s vice president for supply chain policy.

So how much economic damage would a port strike cause? Estimates can vary widely. Business groups claim that a comparable 11-day lockout at ports on the West Coast in 2002 cost the economy $1 billion per day, or nearly 4 percent of the nation's output during that period. Yet other economists have argued that these figures are often inflated and that the economy can handle temporary disruptions.

There's no question that the 14 threatened ports on the East Coast and Gulf Coast are critical — nearly half of ocean-going shipping containers coming to and from the United States go through these points. The biggest port, New York-New Jersey, handled $208 billion worth of goods last year.

And the dock workers, for their part, have enormous control over the loading and unloading of cargo. "Many of them, like the crane operators who transfer containers from ships to the docks, are highly skilled and cannot be easily replaced," writes Steven Greenhouse of the New York Times.

Still, calculating how a port shutdown would affect the economy is notoriously tricky, not least because it's difficult to figure out how supply chains will adapt. As Peter V. Hall of the University of Waterloo explained in a 2004 paper, many past studies simply assume that most of the value of the cargo will be lost during a shutdown and that all the jobs that depend on that cargo, from truckers to retailers, will take a hit accordingly. "In other words," Hall writes, "they assume the ships carrying the cargo sank."

But, Hall explained, that's too simplistic. Many companies stock up on extra goods ahead of an anticipated labor dispute. And, in the event of a port shutdown, many supply-chain managers will ship goods by rail or air instead — air freight surged during the 2002 lockout at Los Angeles-Long Beach. These contingency plans do cost money, so there is a real loss here, but it's smaller than often assumed.

That explains why academic estimates of the costs of the 2002 lockout have ranged from many billions of dollars per day to just $2.5 billion in total. That's the difference between a mild disruption and economic doom.

Making things even more complicated is the fact that the looming dockworkers' strike on the East Coast won't affect all cargo — just containerized cargo such as household goods, clothing, and frozen foods. As a strike-preparation memo from the International Longshoremen's Association explained, workers will still handle U.S. mail, military cargo, perishable goods such as fruits and vegetables, as well as non-containerized "break bulk" goods such as cars, wood products, and steel.

What's more, certain industries may suffer more than others. U.S. grain exporters, for instance, are already reeling from both the recent slowdown in China and low water levels on the Mississippi that are bogging down barge traffic. An East Coast port shutdown could hamper grain exports even further.

Why does any of this matter? In part because of politics. Last week, more than 100 business groups wrote to President Obama asking him to use his emergency powers under the 1947 Taft-Hartley Act to intervene and prevent a strike. President Bush used these powers back in 2002 to end the West Coast lockout. (Note that the two are slightly different: A lockout is initiated by management, a strike is initiated by the workers.)

"Failure to reach an agreement resulting in a coast wide shutdown will have serious economy-wide impacts," the letter said.

Although the White House has urged the two sides to reach an agreement, it has refrained from saying how it would handle a dock workers' strike on the East Coast ports. The question of how much economic damage would result from a disruption at 14 major shipping-container ports will no doubt weigh heavily in the decision.

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