Tallying Port Dispute’s Costs

So how much did months of labor strife and uncertainty at West Coast ports cost the U.S. economy?

The short answer is that no one really knows. Clearly, the most damage came during the 10-day management lockout that ended Oct. 9. But the labor dispute hobbled cargo movement both before and after the lockout ended, and even now the hangover sends pangs through the economy.

Produce exporters forced to dump stranded fruits and vegetables on the domestic market still are tallying up their losses. Retailers that had popular products stuck at sea are waiting to see if they can make up for lost sales during the holiday season. Truckers continue to burn valuable fuel and time getting in and out of the still-congested waterfront.

“I’ve gone from making three trips a day to maybe one if I’m lucky,” said Rodel Biala, an independent trucker who figures he has lost at least $5,000 in income idling in long lines at the ports of Los Angeles and Long Beach. “I’m just trying to survive right now.”

But Biala’s quick calculation of his own personal setback isn’t so easy to extrapolate across the entire economy. Analysts say it’s impossible to gauge the precise overall figure because the effect goes far beyond the 29 West Coast ports, extending across industries and borders.

Certainly, sectors tied closely to the ports, such as trucking, were hit first and worst.

Still, some experts believe that many U.S. companies escaped major losses by stockpiling inventory or diverting cargo through East Coast ports. Other companies were able to largely recover once the ports reopened.

“I bet at the end of the day, when everything is cleared off the docks, the net cost to the economy is relatively small,” said Jim Glassman, chief U.S. economist for J.P. Morgan Chase & Co.

What also may never be known is just how close the U.S. economy came to the brink -- when the port backup would have turned from a costly but manageable supply disruption into a trigger for global financial chaos.

The West Coast ports handled about $310 billion in cargo in 2000, 42% of all U.S. waterborne trade, according to a study by the Berkeley Roundtable on the International Economy. Nearly one-third of automobile and truck imports are shipped through the ports of Los Angeles and Long Beach.

In Asia, where cargo piled up on the docks during the dispute, anxious manufacturers already suffering from the weak U.S. economy feared they would have to stop production if the ports remained closed much longer.

“If such a thing reaches a certain scale where the pain is really severe, you have an Asian financial crisis and an economic mess,” said Stephen Cohen, co-director of the Berkeley Roundtable. “Maybe 10 days is within a manageable figure, and had it gone on for another 10 days it would not have been manageable.”

Few believe that the toll on the U.S. economy will reach $19.4 billion, the damage estimate for a 10-day shutdown contained in a study commissioned by the Pacific Maritime Assn., whose 70 members include shipping lines, terminal operators and stevedoring services. Economists said a shock of that magnitude in an already shaky global economy would have had a noticeable effect on the U.S. stock market, employment data or other key barometers of fiscal health. Yet such ripples never materialized.

Shipping lines, presumably the hardest hit by this dispute, have been cagey about their own losses. Singapore-based APL said the port shutdown cost it $10 million in forgone revenue, wages and route diversion. But the PMA, which shuttered the ports after accusing the longshore union of engaging in costly work slowdowns, declined to provide any accounting for its members.

The Oakland-based Transpacific Stabilization Agreement, a rate-setting group whose 14 shipping lines account for the lion’s share of ocean cargo between the U.S. and Asia, has projected that its members will lose a combined $2 billion this year. But a spokesman acknowledged that most of that red ink is related to a sharp drop in shipping rates -- not the labor strife at the docks.

John Martin, whose maritime consulting firm conducted the PMA study, said it was far too early to provide any figures on the economic fallout, though he expected it probably would fall between $4.7 billion and $19.4 billion, the damage range he projected for a shutdown lasting five to 10 days.

Martin said it would take months to ferret out all the hidden costs related to the port shutdown, such as additional borrowing expenses for transportation firms whose financial ratings were downgraded.

Still, he conceded that his earlier projection would have to be revised significantly. For example, he predicted that a shutdown of 10 days or greater would lead to the loss of about 90,600 full-time-equivalent jobs (181.2 million hours) and nearly $693 million in federal, state and local tax revenue.

In fact, though dockworkers, truckers and others were knocked off the job right away and a few manufacturing plants depending on just-in-time inventory idled their assembly lines, there were no reports of widespread work disruptions.

Even major agricultural exporters reported only partial losses of their perishable cargo. Dole Food Co., which had predicted a loss of $2.4 million early in the shutdown, later put the figure in the $250,000 to $500,000 range.

Martin credited President Bush’s intervention in the dispute with containing the damage. Bush forced an end to the lockout by seeking a court injunction under the rarely used Taft-Hartley Act.

“Hopefully, the Taft-Hartley prevented a catastrophic impact,” Martin said. “There was pre-warning on this, and things may have gotten stopped just in time.”

But Patrick Anderson, a principal with the Michigan-based Anderson Economic Group, which has done studies on the effect of auto industry strikes, said the potential damages provided by the shipping lines were grossly exaggerated. He estimated the total losses for the port shutdown at $1.7 billion, which he said was comparable to the effect of the seven-week General Motors strike of 1998.

Unlike a natural disaster such as a tornado or earthquake, there isn’t a huge destruction of assets in a transportation strike. In addition, major retailers were bracing for troubled labor negotiations this year and had made contingency plans. Some inventory, such as perishable food, would be a total loss if the cargo were delayed too long. But in most cases, the cargo eventually will make its way into the economy.

Anderson noted that in this type of supply-chain disruption, many costs simply are shifted between economic players.

The expense of holding inventory, for instance, will be moved from the retailer or warehouse to the shipping company. Meanwhile, shipping companies lose business, but air freight companies and some trucking companies pick up extra trade. One retailer may suffer because its goods are held up at port, but because consumers still want to spend money, that just means another retailer down the block probably rings up the sale.

Anderson said the only way to arrive at a $1-billion-a-day loss would be to “sink the ships, not delay them.”

Nonetheless, the disruption did take something of a bite out of the economy.

The U.S. subsidiary of Honda Motor Co., which halted assembly lines from California to the Midwest and Canada, estimated its losses related to the ports’ shutdown at $83 million in wages, extra shipping fees and other costs.

General Motors Corp. and Toyota Motor Corp., co-owners of the New United Motor Manufacturing Inc. plant in Fremont, Calif., aren’t disclosing their losses. But NUMMI’s 3,500 workers still are working overtime to make up for a weeklong shutdown of pickup truck and car assembly lines after parts were held up at the Port of Oakland. NUMMI also had to air-freight 40 containers of parts from Japan and divert cargo through Portland, Ore., Long Beach and even Mexico.

What’s more, many of NUMMI’s suppliers had to idle assembly lines or air-freight in key components, according to Michael Damer, a NUMMI spokesman.

Big merchants are feeling the squeeze as well. The National Retail Federation, a Washington-based trade group whose membership includes major department store and discount chains, said that 39% of its members expect shortages of goods during the peak holiday shopping season.

Particularly hard hit were smaller firms selling seasonal items.

Jorge Rodriguez, the vice president of Mercado Latino, a Latin-food distributor based in City of Industry, estimates that he has lost $500,000 to $1 million worth of business because he was caught short of popular items such as Spanish olives and cooking wine that are in high demand in the holiday season. He said the port congestion still is wreaking havoc on his deliveries.

Some of his containers were diverted to Mexico and Alaska. From there they must be brought to California by truck, which takes time and is more expensive than rail.

“This is life-threatening,” Rodriguez said. “It’s like being a peanut vendor in Dodger Stadium without peanuts.”

For some companies, the rerouting of cargo through the East Coast or the Gulf of Mexico is likely to become permanent, even though it may add costs to their distribution system, according to Bill Wanamaker, a spokesman for the American Trucking Assn.

That’s potentially bad news for West Coast trucking and logistics firms, which stand to lose market share to competitors in other parts of the country. Wanamaker said he knows of one Southern California distribution firm that lost a huge chunk of business after a major retail customer decided it was too risky to continue receiving all its imported merchandise through the ports of Long Beach and Los Angeles.

“It demonstrates,” Wanamaker said, “that events like this have not just temporary consequences but permanent effects.”