With idled cargo ships piling up along the coastline, President Obama ordered his labor secretary to California to try to head off a costly shutdown of 29 West Coast ports.
Obama dispatched Tom Perez on Saturday to jump-start stalled labor talks between shipping companies and the dockworkers' union. The move ramps up pressure to resolve a dispute that stranded tens of thousands of containers on cargo ships over the holiday weekend.
The Los Angeles and Long Beach ports account for some 40% of the nation's incoming container cargo, with $1 billion in goods moving through daily. A prolonged shutdown could hobble some Southland businesses and ripple across the U.S. economy.
On Saturday morning, 32 massive ships were anchored outside the ports, unable to unload thousands of cargo containers filled with auto parts, electronics and clothes destined for store shelves across the country.
"Any company that imports supplies, inventory or parts is going to feel it," said Ian Winer, a managing director at Wedbush Securities. "There are very few companies who don't have something coming through those ports."
That has businesses across the world focused on a dispute between a network of terminal operators and one of the strongest unions left in American industry.
After nine months of talks, the two sides agree on key issues including healthcare but remain gridlocked over rules governing the removal of arbitrators, who settle disputes on the docks.
At stake is a new contract for roughly 20,000 dockworkers at 29 West Coast ports. The
The association has accused union workers of slowdown tactics and has at times halted the unloading of ships, including this weekend. The local union denies the allegations. The unloading of ships is expected to resume Tuesday.
But the congestion has been building for months, because of the labor dispute and other factors. And the holiday weekend stoppage heightens fear of a longer-term disruption.
Some businesses have attempted expensive workarounds, rerouting goods via air or through Gulf and East Coast ports, analysts said. Items ordered by retailers for the spring probably won't reach stores on time. Deliveries from Asian manufacturers could be delayed until after the Chinese New Year, which starts next week.
For now, retailers still have inventory left over from the holiday season, analysts said. But they will need shipments before the busy spring shopping season.
Communities close to the ports have been hit first and hardest. In Los Angeles, which has recovered slowly from the recession, truck drivers and warehouse workers are already seeing their hours cut.
Elsewhere in the state, the agriculture industry is in pain.
Ronald C. Leimgruber, namesake and owner of a farm in Holtville in southeastern California, said his small company normally exports two or three 20-ton loads of alfalfa hay and grasses a week . Now, he's forced to stockpile it or sell it cheaper domestically.
"You do whatever you can to survive," he said.
Customers have canceled orders, and Leimgruber fears they may never come back. His sister's trucking company is also suffering. She usually sends 24 loads of goods to the ports each week, he said. It's dropped to five. She's laid off all but a few of her employees.
"All those wives won't get a good Valentine's Day, because their husbands aren't working," Leimgruber said.
Companies across the globe will also feel the effects. A shift toward "just in time" manufacturing means companies keep their inventories low, making them far more susceptible to supply chain interruptions.
Honda North America Inc. will slow production at factories in Ohio, Indiana and Canada because it can't get crucial parts from Japan, said spokesman Mark Morrison.
The company has tried using air cargo and special truck shipments to obtain key supplies since January.
If labor disruptions continue, businesses may reconsider their reliance on shipping to the West Coast, said Mark Vitner, a senior economist at Wells Fargo.
"The longer we have disruptions at the ports, the more and more people say this is a reason to do business elsewhere," he said.
An extreme example of what could happen came Tuesday, when South Korea's largest shipping company, Hanjin, announced it was pulling out of the Port of Portland.
The shipper accounted for 78% of business at the port, according to the Oregonian newspaper, importing apparel for companies such as Nike and exporting apples and other crops.
Just last weekend, a Hanjin ship sat for four days without being unloaded amid walkouts and lockouts.
Another looming threat is the widening of the Panama Canal, which will allow much larger cargo ships to head directly to the Gulf and East coasts, where ports are racing to expand. That business now mostly flows to L.A. and Long Beach.
With the canal project scheduled for completion next year, this is a bad time for the West Coast to give "themselves a bad name in terms of reliability," said Jock O'Connell, an international trade economist.
For now, the unions have a strong hand.
While globalization has hurt unions in many U.S. industries, it's had the opposite effect at West Coast ports. Surging trade with Asia has nearly tripled traffic at the ports of L.A. and Long Beach over the last 20 years and given dockworkers here ever more clout.
Today, the dockworkers are among the best-paid blue-collar workers in the country, earning between $26 and $41 an hour. And their union — tied not to the fate of any one company but to a whole network of international trade — has been able to play hardball.
"These 20,000 workers occupy one of the central choke points of the entire U.S. economy," said Harley Shaiken, a UC Berkeley professor who specializes in labor unions. "That gives them enormous power."
It will be up to Perez and a federal mediator to craft a deal that satisfies the dockworkers, the shipping companies and the many industries watching the talks.
If an agreement comes in the next week, the aftershocks will be "a blip," said Winer, the Wedbush managing director. But if it drags longer, the situation could be dire, he said.
"Six months would be a horror show," he said. "Even if this lasts more than a month, it's going to be a significant issue."