Charlie Woo, like many local businessmen with their hands in international commerce, has some not-so-fond memories from the summer of 2002.
As chief executive of Megatoys Inc., a Los Angeles toy retailer that imports most of its products through the local seaports, Woo struggled to keep his business afloat six years ago as a contentious contract dispute between West Coast dockworkers and shippers slowed and then temporarily shut down the harbor.
"It had a major impact. I took a big loss," he said. "The orders all came in late. I had to use air freight just to meet customer demand, and every time we did that, a profit turned into a loss because the freight itself was more expensive than the toys."
The 10-day worker lockout that paralyzed the West Coast's 29 ports cost the U.S. economy upwards of $10 billion.
Now, Woo and thousands of other port users are watching and waiting as the International Longshore and Warehouse Union and the Pacific Maritime Association return to the bargaining table to hammer out a new labor agreement for 25,000 dockworkers and marine clerks.
The two sides began talks in San Francisco last week, almost four months before the six-year contract expires and much earlier than usual. The hope is to reach an agreement before the July 1 deadline and avoid any work stoppage.
"Starting early is always a good sign, but it doesn't mean it will end early," said Daniel Mitchell, a labor expert and UCLA professor of management and public policy.
The longshore union represents tens of thousands of waterfront laborers whose salaries often top $100,000 per year placing them among the highest-paid blue-collar workers in the country. The longshoremen, among the few union workers who are seeing their ranks grow, handle virtually every cargo container that enters or leaves the ports.
The union is one of the nation's most powerful, in part because shippers and retailers are so heavily dependent on the Los Angeles and Long Beach ports, Mitchell said. The local port complex the largest in the nation and fifth-largest in the world handled 15.7 million cargo containers last year, which accounted for over $100 billion in economic activity.
"You can't outsource the port. If you are dependent on either shipping out or shipping in, you don't really have lots of alternatives," he said. "That's always been the reason why the union has been in a strong bargaining position. At the end of the day, employers have been willing to pay (dockworkers) relatively high wages."
Union officials are expected to try to protect their benefits package, which averages about $50,000 per employee annually. Under a health care plan described by maritime officials as "the envy of most Americans," workers pay no premiums and receive total coverage for standard medical benefits.
The union also has said new safety standards and measures to reduce port pollution will be discussed. Since 2002, more than 10 workers have died on the job.
Spokesman Craig Merrilees acknowledged that the talks could prove difficult, but the union plans to hold its ground and fight for the workers.
"Both sides are working hard to avoid the mistake that management made in 2002 when they shut down the ports and locked out the workers," he said. "The union is concerned about making sure that good jobs are available in the port communities."
Across the table, the maritime association, which represents about 80 shippers and terminal operators, is looking to change dockworker shift schedules to make port operations more efficient. The maritime group wants to eliminate an early morning shift they believe is inefficient and extend later shifts to compensate.
The association also plans to revise the union's health care plan through measures including the use of generic drugs.
"Health care costs are rising and the PMA is looking for a way to rein in those escalating costs," said Steve Getzug, a spokesman for the association.
He said the previous contract allowed for substantial growth at the ports by making operations more efficient and the companies want to continue that trend. And Getzug pointed to the early talks as a sign that the two sides can work more collaboratively than last time.
"With this contract, PMA really is looking to build on the progress we've seen in the past six years," Getzug said. "Both sides are optimistic going in that with an early start to meetings there can be an agreement in place before the contract expires on July 1 and without the kind of disruptions that we saw in 2002."
A bitter fight
Indeed, the atmosphere today is markedly different from 2002.
Going into the previous negotiations, the two sides, along with most port customers and even the White House, expected a bitter fight and both the union and management began digging in their heels even before the talks began.
James Spinosa, then the union president, wrote a column for the union's official magazine deriding the shippers' tactics, saying "instead of choosing the path of cooperation, the PMA has chosen confrontation."
Spinosa also said he had begun seeking pledges of support from other unions in the event of a work stoppage.
At issue was the implementation of technological advances, including computers and optical scanners to transmit cargo data, that the maritime group said was long overdue. The union resisted the move, saying the technology would lead to the elimination of longshore jobs.
The acrimonious talks dragged on for months, well past the July expiration date. In October, the maritime association said workers were intentionally slowing the flow of cargo an allegation the union denied and the association locked workers out of their jobs.
The move left international trade paralyzed along the West Coast as cargo-laden ships backed up in the harbors with nobody to unload the goods.
After 10 days and billions of dollars lost, President Bush issued an emergency injunction to force workers back on the docks. He invoked the 1947 Taft-Hartley Act the first time it had been done since 1978 to compel the two sides to resume talks. The following month, the parties reached an agreement that included some technological upgrades for companies and increases in pension and health care benefits for the workers.
In the wake of the lockout, many national retailers tried to spread their import shipments across the country so they would not be as vulnerable to a shutdown of the West Coast ports.
Wal-Mart Stores Inc., the world's largest retailer, diverted a significant amount of cargo to the Port of Houston and eventually built a distribution center there as the company redistributed its imports away from Los Angeles.
"The last go around in 2002 was a real wakeup call for those who had put all their eggs in the L.A./Long Beach basket," said Erik Autor, vice president and international trade counsel for the National Retail Federation, the world's largest retail trade group. "Retailers have since reduced their exposure in Southern California by moving their goods through alternative ports of entry."
Nevertheless, the local ports still handle 40 percent of the nation's imports and, given the increase in international trade with China and other countries, a work stoppage this time would likely be worse than in 2002, Autor said.
"We're very anxious to avoid a similar scenario this go around," he said. "If we had a complete shutdown, it would have possibly a greater impact because the amount of trade that goes through the West Coast ports has grown since 2002."
Even if retailers anticipate a disruption in goods movement, the intricate transportation schedules prevent most companies from diverting cargo on short notice.
Megatoys, which did about $100 million in sales last year, imports nearly all of its products through the local ports. Woo said he has no good options if the ports close down.
"If things don't go too well I really don't have any alternatives," he said. "We're going to pay close attention to (the negotiations), but I don't really have an alternative."
Like local importers, terminal operators have few options in the event of a work stoppage.
"There's not much we can do. I mean we're fixed," said Frank Pisano, vice president of Port of Los Angeles terminal operator Trapac Inc. "It's not like we can just take our ships somewhere else."
In the event of a strike or walkout, the company would still be responsible for millions of dollars in rent, insurance and other costs, he said.
But Pisano said the negotiations do not seem as tense as in previous years, so he is not worried about a major work stoppage.
"I just don't see that happening this year," he said.
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