Labor negotiations for dockworkers are approaching at ports on the West Coast as the workers' current contracts are set to expire on July 1, adding an additional risk to fragile supply chains.
If an agreement can't be reached, the workers would likely strike. But Pacific Maritime Association (PMA) President and CEO James McKenna isn't thinking that far ahead just yet.
"At this point in time, you have to be cautiously optimistic that we're not gonna get into a strike scenario, but it's early in the game," McKenna said on Yahoo Finance Live (video above). "We have not exchanged proposals or demands yet. So it's yet to be seen what will hit the table and what obstacles are stumbling blocks we may run into."
Negotiations are expected to start in May between the PMA and International Longshore & Warehouse Union (ILWU) workers. The contract covers about 22,000 union workers employed at 29 ports along the West Coast.
"We’re optimistic about negotiations and looking forward to sitting down with the employers in May," ILWU International President Willie Adams said in a statement. "The union and the employers sat down early on in the pandemic and negotiated pandemic protocols that allowed the cargo to keep moving. We are proud of the ILWU’s record-breaking results in the most difficult of times, and we believe we will get a fair agreement that protects the safety and well-being of these incredible workers.”
The stakes are high as dockworkers have moved unprecedented volumes of cargo.
"Every contract has a life of its own," McKenna said. "We're always talking about hours, wages, working conditions. It's yet to be seen what else will be inside that. But there will be multiple demands come across the table and multiple proposals go across the table. And it's our job to wade through them, get to the most important ones and see if we can't reach agreement in a timely manner."
One of the likely topics – and potential pain points — is automation.
"Automation is the future of our ports," McKenna said. "We are in an urban area. Our footprint is our footprint. We can't expand the footprint itself, which means you have to put more containers in the terminals that are in existence and to do so, you have to densify. The way to densify the terminals— one way is through automation."
He added that "as we look at it as just the totality of it, it hasn't decreased the labor. These terminals are now— the ones that are automated are able to handle additional cargos— 1 and 1/2 to 2 times as much as they did as a conventional facility."
'All the ports are full'
The 29 ports on the U.S. West Coast play a critical role in the country's supply chain, processing 44% of U.S. global imports and 61% of Asian imports.
The last round of expiring contracts, which included a lockout and work slowdown, wreaked havoc for shipments to the Western seaboard and impacted the national economy in 2014.
The disruptions came to an end when the White House got involved, but data from the Copenhagen-based Sea-Intelligence showed that shipping industry took eight to nine months to recover.
McKenna is hoping it doesn't come to that point again.
"We're still early in the process itself," he said. "I think it's important that everybody stays aware of what's transpiring in the negotiations themselves. It's not help at the table that's required. I think it's always about putting pressure on both sides to come to a quick and hopefully, not easy, but hopefully before the contract expires contract agreement."
And if talks end up going past the contract expiration date, he added, "it's important that everyone keeps a cool head, and that we work through the issues, and don't impact an already fragile supply chain."
A letter from the National Retail Federation (NRF) to both the ILWU and PMA noted that some retailers are already developing contingency plans if an agreement isn't reached by the deadline.
"NRF’s members are continuing to adjust to the ongoing supply chain disruptions," the NRF President Matthew Shay wrote. "Any kind of additional disruptions at the ports would add further costly delays to our members’ supply chains and likely add to inflation concerns and further threaten the economic recovery."
McKenna acknowledged the complexity of the situation.
"Retailers, shippers, they create options, right?" he said. "They don't wanna be caught if in fact something does happen to the West Coast. They don't want all their eggs in one basket, so to speak. It's a lot more difficult under the current scenario because all the ports are full ... Canada's full. The East Coast is full, the Gulf is full. There's still options out there, but it's not the same ability to just move from the West Coast and pull into another port, start unloading cargo. So those decisions are harder. They're more complicated now, but it's part of what we do. And so this is not unusual as we start to head contract negotiations."
Furthermore, according to McKenna, it's crucial that ports not only avoid a stoppage but also increase capacity.
"Hopefully we'll get to where we need to be on the whole issue of automation," he said. "But again, it's essential for these ports to continue to grow. We're at 100% capacity now. So if we don't do something different, then we're where we're at. And then cargo will have to find other places to come into this country. Where by automating, we're able to keep more jobs, we're able to handle more cargo, and I think it's a win-win situation."
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter: @daniromerotv