The future of the global supply chain relies on a new contract between unionized dockworkers and the shipping operators at the U.S. West Coast ports.
The current agreement, which covers the International Longshore and Warehouse Union (ILWU)'s more than 22,000 workers at the 30 ports on the West Coast, is set to expire on July 1. Negotiations over a new agreement began May 10 in San Francisco.
A deal is not guaranteed: The Pacific Maritime Association (PMA) and ILWU released a joint statement on Tuesday that said the two sides "are unlikely to reach a deal before the July 1 expiration of the current agreement."
Some observers are predicting an August 1 "drop dead date" to finalize an agreement before implications are felt at ports, and one expert explained why the dockworkers seem to have some leverage this summer.
"The ILWU definitely have a position in this negotiation," Patrick Penfield, a supply chain management specialist at Syracuse University, told Yahoo Finance. "They have a lot of leverage so they really are in the driver's seat with this particular negotiation as far as when it will happen."
Penfield explained that "peak season, your shipping season for the ports is mid-August to October. And that's where we're getting a lot of inventory in from retailers. So if there isn't a deal done by then I'd say... you're probably looking at these work slowdowns."
As for what the unionized dockworkers will be asking for, Penfield said they are "looking to push for more wages which they'll get, no more automation, which they'll probably get also, but I think they're probably going to try to claw back some of the stuff that they gave up in their last contract."
'History has always shown us that they do negotiate a deal'
The negotiations are a delicate topic as the U.S. continues to experience historic supply chain disruptions from the pandemic, material shortages, and soaring fuel prices.
PMA President and CEO James McKenna told Yahoo Finance in April that both parties are seeking to assure observers that negotiations would not result in supply chain disruptions.
"This timing is typical, and cargo operations continue beyond the expiration of the contract," the joint statement added. "Neither party is preparing for a strike or a lockout, contrary to speculation in news reports. The parties remain focused on and committed to reaching an agreement."
Syracuse's Penfield is not expecting a strike or lockout if the labor talks drag on, though work could slow.
"History has always shown us that they do negotiate a deal," Penfield said. "They really don't strike and they don't lock out — that usually doesn't happen between those two. [However,] what'll occur is they'll keep talking and then what will also happen is there'll be a work slowdown."
Past contract talks have run beyond their expiration, causing short-term service disruptions. In 2002, negotiations around technology integration caused a slowdown until the George W. Bush administration intervened and invoked the Taft-Hartley Act to reopen the ports. During the Obama administration in 2014 and 2015, the White House also got involved to help end the year-long contract battle.
The Biden administration is trying to stay ahead of the curve on the talks. On Friday, President Biden spoke at the Port of Los Angeles about his policy adjustments to combat inflation following a new report that showed inflation unexpectedly accelerated.
During the same press conference, Port of Los Angeles Executive Driector Gene Seroka said he expects labor talks to go past the negotiating deadline but downplayed the trade risks.
“It’s important to know with all this cargo on the way, the rank-and-file dockworkers will be out on the job every day,” he said. “And the employers know they’ve got to get these products to market. So we’re going to give these people some room. Let them negotiate in their space, and the rest of us are going to work on keeping the cargo and the economy moving.”
Retailers seem to be watching the talks closely.
“There is still a significant amount of uncertainty with the lockdowns in China and the ongoing labor negotiations in the LA port,” Macy’s Chairman and CEO Jeff Gennette said in May. “Factors like these drive us to continue taking a prudent and disciplined approach with our lead times and forecasting.”
At the same time, some metrics show supply chain pressures have been easing. Data from Flexport, a freight forwarding company, showed that ocean delivery times from China to Europe and the U.S. have improved in the last month.
"The reason why we're seeing better ocean freight rates and pricing and delivery is because there's less demand," Penfield said.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv