Containers are stacked up high at the Port of Oakland. (Photo by Justin Sullivan/Getty Images)

On Tuesday, President Obama dispatched Labor Secretary Tom Perez to fix something that nearly brought international marine commerce on the west coast to a halt over the long weekend: a lockout of the dockworkers, who are mired in a contract battle with the owners of the 29 ports from San Diego to Bellingham, Wash. Retailers have gnashed their teeth over the delay, which some analysts say could add up to $7 billion in extra costs this year, leading to spoiled goods and understocked shelves.

What’s the fight about? The contract expired last July, and the Pacific Maritime Association — which bargains for the shippers — has accused the International Longshore and Warehouse Union of slowing down work to gain leverage. One last sticking point over arbitration procedures resulted in a fruitless meeting on Friday, and the ports decided to shut down rather than pay overtime on the holiday weekend.

But labor isn’t the only problem America’s ports face. A rapidly increasing amount of cargo arriving in ever larger ships has scrambled normal operations in west coast ports, requiring costly and time-consuming infrastructure upgrades and leaving the dockworkers union trying to maintain as much control over the process as it can.

Despite the intense pressure on the union and the shippers to come to an agreement, Kevin Ricciotti — a marine insurance salesman who chairs the Harbor Transportation Club, a trade association — knows it won’t solve everything.

“The dirty little secret here with the ports of L.A. and Long Beach is that while everyone’s trying to put the emphasis on labor,” Ricciotti says, "there are some underlying issues that we have currently right now that are only going to manifest themselves later down the road."

 

Traffic through the ports has rebounded since the recession. (Pacific Maritime Association) Traffic through the ports has rebounded since the recession. (Pacific Maritime Association)

“It’s just kind of snowballed"

Ultimately, the problems all come back to something that ought to be good news for those who do business in the ports: Shipping tonnage has risen in the past few years, from 296 million tons in 2009 to 340 million tons in 2013, as the country has recovered from the recession and imports and exports have increased.

And it’s not just the number of ships, it’s their size. A new generation of vessels built for a widened Panama Canal carries more than twice the cargo they used to. American ports have done a lot to allow those ships access, dredging deeper channels and buying bigger cranes.

That’s where things stop going right.

Here’s the problem with bigger boats: One carrier can’t fill up an entire vessel, so they take on containers from other shipping lines, which have their own lists of customers and transport supply chains. When the boxes all end up on the docks, they’re hopelessly jumbled, and take a long time to sort out. That means cargo can now sit in a port for one to three weeks, according to analyst firm Kurt Salmon, which defeats the purpose of just-in-time supply chain planning.

“The issue is that although the ports have done a tremendous job shoreside, they haven’t done as good of a job on the land side, operationally,” says Weston LaBar, director of the Harbor Trucking Association, which represents companies that drive boxes to destinations inland. "There’s no real consistency on who's hauling what cargo and where it’s going to go." The terminals are working on IT systems that help things work more smoothly, but implementing them is a long, tricky process.

The next complication is the seemingly basic challenge of finding something to haul the container away on: a chassis, the flatbed that hooks on to the back of a semi-trailer. Functional chassis have been scarce at the west coast ports lately, as responsibility for storing and maintaining them shifted from the shippers to third-party leasing companies, causing huge headaches for the people who truck big boxes off the docks.

The problem may be resolved soon, as Fortune described earlier this month, with a common pool of chassis that can interoperate with different kinds of containers and trucks. But the issue probably played as big a role in port congestion over the past year as any slowdown on the dockworkers’ part, harbor businesses say.

Finally, all the congestion is creating a shortage of truckers to haul away the containers. Since most of them are owner-operators and get paid per load they ferry from dock to final destination — a warehouse or a rail yard, usually — waiting in long lines to pick up boxes limits the number of “turns” they can take in a day. The average turn time increased from two or three hours in 2010 to more than four hours in October 2014, according to the Digital Geographic Research Corporation.

Long turn times have prompted truckers to take long-haul routes that at least put food on the table, even if they’re never home to eat it (and has created fertile ground for an organizing drive by the Teamsters, which argues truckers should be paid as hourly employees instead).

“It’s just kind of snowballed over the last 18 months or so,” says LaBar. “It’s really a perfect storm. If the driver doesn’t do well, we have less drivers, and then the motor carrier doesn’t get paid well.”

Now, terminals are charging trucking companies late fees for the return of containers, which drives up costs. “Everybody’s just trying to charge everybody else,” says Ricciotti, of the Harbor Transportation Club. The long-term threat: Fed up with the sclerosis, shippers are starting to find ways around the U.S. ports, like going up north to Canada’s Prince Rupert.

“Where are we going to get to a point where we never see that business again?” Ricciotti worries.

 

What labor still controls

The rise and fall of the unionized workforce at the west coast ports. (Pacific Maritime Association) The rise and fall of the unionized workforce at the west coast ports. (Pacific Maritime Association)

Now, it’s true that some of these problems have solutions that require input from the powerful ILWU.

For example, operating round-the-clock would go a long way toward making the ports as productive as many of those in Asia, where labor is nowhere near as expensive. At the moment, adding another shift would require paying overtime, which makes it prohibitively expensive. And from information that’s come out about bargaining so far, there’s no evidence that’s even under discussion. (Both sides are operating under a media blackout in the final stages of negotiations.)

How about adding technology? The ports have been experimenting with automated systems that allow them to stack containers higher and wider, increasing the volume that can flow through to ground transportation. However, such systems can also reduce manpower by 40 percent to 50 percent, according to an April study by the Port of Los Angeles.

That’s not necessarily a deal-breaker. Starting with containerization in the 1960s, the ILWU has made its peace with technological advancements, allowing labor-saving automation to be installed in exchange for excellent pay and benefits. And over the last few decades, port traffic has risen fast enough to offset the fact that each container requires fewer man-hours to unload.

However, there’s only so far that can go before the union’s membership really starts to dwindle. According to the Pacific Maritime Association, the registered workforce has shrunk from its height of 14,279 in 2007 to about 13,600 today, even as volume has bounced back from the recession.

“There’s a new wave of technological change that is definitely in the background,” says Peter Hall, a professor at Vancouver’s Simon Fraser University who specializes in port governance. “And I think that from the ILWU side, the members get very nervous about whether the guarantees will still be in place if they continue to accept the technology.”

That’s partly why, for example, the last sticking point in negotiations — over whether the arbitrators who referee grievances can keep their positions for life — is so important. Appointed arbitrators decide whether people in different job classifications should be union members, says Hall. How about a person who just sits in front of a computer all day? Those people don’t even have to be on the docks to do their jobs; maybe they don’t have to be members of the union, either.

Already, the ILWU has ceded many of the jobs that have moved off the docks entirely — like control of the chassis and unloading the containers, which now happens at warehouses inland. While the union has done a good job of organizing horizontally across all the ports on the west coast, it’s failed to organize the rest of the maritime transportation pipeline. And it hasn’t built alliances, even within the very labor-friendly west coast communities where they work.

“The way I like to think about this industry is it’s one where you can create a small number of good jobs, or a lot of bad ones — and maybe not even that many bad ones,” says Hall. “It is hard to see how they could be more than a dwindling, increasingly up-skilled, small fraction of the supply chain if they only stay working on the docks.”

As a union that controls a bottleneck in American commerce, the temptation to use that leverage on behalf of existing members is strong. But as the labor market transforms along the transportation pipeline, it’s not clear how long the unions’ leverage will last.