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How West Coast Port Closures Could Impact U.S. GDP

Posted on Friday July 11, 2014 by April U

The potential fallout from the failure to negotiate a July 1, 2014 contract agreement between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) is currently rife with conjecture, speculation, and posturing. That being said, the effects of a full-blown strike that could close west coast ports would have severe repercussions for the U.S. economy.

  • The U.S. economy could stand to lose $8.3 billion in 2014 according to one model if west coast ports shut down for 20 days.
  • The ILWU promised the cargo would continue to move, however, it is unclear if this is still possible since the ILWU is not currently speaking to the public.
  • Foreign shipping associations have already made plans to ship cargo in and out of alternative ports along the U.S. east coast and Canada.
West Coast Ports

Source: www.logisticsstrategies.com

An April 2014 report from Pennsylvania-based Maritime Associates for the PMA provides concrete data on the impact of west coast port closures as it pertains to U.S. GDP. According to the report, the total cargo movement through west coast ports in 2013 created a total economic value of $2.1 trillion. This represented about 12.5 percent of the total U.S. $17 trillion Gross Domestic Product.

More to the point of the potential effect of a wide-spread west coast port shutdown, an almost concurrent report commissioned by the National Association of Manufacturers (NAM) and the National Retail Federation (NRF) illustrated how severe the impact could be to U.S. GDP. The report first explains how manufacturing and retail industries make up more than 18 percent of the nation’s GDP and account for nearly 20 percent of all nonfarm payroll employment in the United States. Using the model of a potential 20-day port shutdown scenario, the report pegs the cost to the economy at $8.3 billion in 2014 and an additional $2 billion in 2015.

To be clear, this appears to be the worst-case scenario. In fact, according to a recent Journal of Commerce (JOC) article, ILWU initially pledged that cargo would keep moving. ILWU has a history of strong negotiation tactics that brought about a partial shutdown of the Ports of Long Beach and Los Angeles for several days in 2012, costing $1 billion.

The reality is that the ILWU and PMA are not talking publicly at this point. Outside reporting, such as a recent article in the Handy Shipping Guide, seems to fairly lay out the points of the dispute that are holding up contract negotiations. They include health care benefit retention, and disagreements over what constitute dock handling activities such as computer operations.

A third major point of contention is that the ILWU is asking for more stringent safety regulations that they say must be added to the ILWU-PMA Pacific Coast Marine Safety Code. While the Handy Shipping Guide article points out that any work stoppage by dock workers would be damaging, they and other shipping news outlets are quick to point out that a complete shutdown of the 30 west coast ports is a somewhat unlikely scenario.

Furthermore, overseas shipping interests like the British International Freight Association have pointed out in recent articles that many carriers are prepared to move cargo shipments through alternative ports. These include New England, New York / New Jersey, Boston, Savannah, Georgia, and even the Canadian Port of Vancouver. An interesting perspective laid out by the article is whether any of the alternative port plans would become permanent, thereby impacting west coast ports in the long term.

While the stakes are quite high in terms of potential impact on U.S. GDP, the situation is still unfolding and evolving. Our next look at the situation will show how the realities of the situation unfolded and who, if anyone were the clear winners and losers economically.

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