Quarrel at Ports Risks Driving Business From L.A.

The dockworkers and shipping lines are set to resume their on-again, off-again negotiations in San Francisco today, and the hope is that they’ll find a way to settle their differences and reach a new labor contract.

If that happens, local development officials are sure to hail the outcome and predict more heady growth for the West Coast ports. The 10-day lockout that roiled the nation’s economy last month will fast become, for most people, a faint memory.

But in truth, the world is changing, and the longshore union and shipping companies need to wake up to this fact.

As the dispute at the ports has caused the global supply chain to become knotted, major companies that import goods through Los Angeles and Long Beach already have started searching for alternative routes.

“Firms that do business on a global scale no longer can tolerate disruptions,” says James Prendergast, who heads supply-chain management services for IBM Corp.’s consulting arm.

Adds Dominic Ng, chairman of East West Bancorp, a lender to Asian entrepreneurs in the L.A. area: “People are trying to figure out how to do business differently in the future.”

Robin Lanier, director of the West Coast Waterfront Coalition, says that Wal-Mart Stores Inc., Target Corp., Home Depot Inc. and other big retailers are thinking seriously of moving more of their merchandise through East Coast ports.

Yes, it may cost those companies large sums to bring Asian goods through Egypt’s Suez Canal to Charleston, S.C., and the docks of New York and New Jersey. But such a move could have a payoff, as well: Already, most of the cargo coming into California’s ports winds up on trains heading east.

Shipping to the East Coast would bring goods in “closer to the big retailers headquarters facilities and most of their customers,” says Lanier. “The majority of Americans still live east of the Mississippi River.”

The stakes are high. Movements of imports and exports through the great seaports and area airports is now the largest source of employment in Southern California -- more than 400,000 jobs.

Realistically, most of the growing trade in apparel, consumer and industrial goods and toys coming from China and the rest of Asia will continue to flow through West Coast ports, particularly the L.A.-Long Beach complex, which together handled more than $200 billion in cargo in the last fiscal year. That was more than double the volume of goods that moved through New York and New Jersey, and many times the $33 billion worth that came through Charleston, S.C.

Indeed, the advantages of L.A. and Long Beach are formidable -- and won’t be overcome overnight: a depth of 65 feet, greater than any U.S. port; a vast infrastructure of container-unloading equipment; a plethora of rail connections; and a large home market in Southern California itself.

Still, the message of the retailers and other global companies is unmistakable: L.A. and Long Beach do not have a lock on trade, and can’t take their position for granted.

“I would be surprised if there were a single big company not thinking about alternatives,” says a spokesman for Honda Motor Co., which ships car parts through Los Angeles but has started exploring potential routes through Mexico to get supplies to its factories in Ohio and Alabama.

Some are looking to have backup sources of supplies right in the U.S., so they’re not captive to the ports. “You have to have a second source as a default,” says Hau Lee, a professor of operations information and technology at Stanford University’s Graduate School of Business. “A local supplier can give you that flexibility.”

In the face of these trends, leaders at the West Coast ports -- both labor and management -- must work harder than ever to ensure future growth.

Michael Stark, president of Weber Distribution, a logistics firm in Santa Fe Springs, says the ports could do more business if they installed a fully automated system of “data transfer and high-speed rail to move the goods rapidly.”

In fact, the local ports and shipping firms must continue to invest as much as $500 million a year in modernization during this decade if they are to keep up with the standards being set by the Asian ports of Shanghai, Hong Kong and Singapore.

Officials also must pay attention to the environment. More restrictions will be imposed unless the shipping lines and longshore union streamline procedures to get trucks on and off the docks in a more timely fashion and work to clean up some of the air pollution at the ports.

Finally, the longshore union and shipping lines must recognize that every time they dig in their heels and can’t reach an accord, they are putting one of the most powerful engines of the Southern California economy at considerable risk. Should there be another lockout or strike in 2002 -- or another port shutdown when the next contract expires in three short years -- “that would do real damage,” warns Stark.

Both the ports of Los Angeles and Long Beach project 6% annual growth in cargo in the years ahead, a pace that would bring them to $300 billion in trade around 2009.

But nobody should kid themselves. They will only get there if all the parties at the ports have learned a lesson from the troubles this time around.

James Flanigan can be reached at jim.flanigan@la times.com.