Episode Transcript
[00:00:01] Speaker A: Hello, I'm Mike King and you're listening to a clip from episode 29 of the Freight Buyers Club featuring Lars Jensen, CEO of Vespucci Maritime and Peter Tierschwell, VP at S P Global. This was recorded in December, but we're talking about the implications of possible lockdown at container ports on the US eastern Gulf coast from January 15th. It's become quite a political hot potato in the US now in the second week of January as I'm releasing this clip, talks between the ILA union and line interest represented by USMX about automation are ongoing. And I think the points Lars and Peter make in this podcast are just as valid now as they were a few weeks back when it was recorded. Big thanks to Damerco Express Group for supporting independent journalism. And thanks all for listening. Enjoy.
[00:00:51] Speaker B: Peter, Just coming back to this union issue. JOC is reporting that the breakdown, they've agreed on wages, the breakdown is now over the use of rail mounted gantry cranes, which I've been in use for almost two decades in the U.S. even I think longer elsewhere. But please correct me if I've missed that one. If they don't reach agreement, we're looking at this big shock on January 15th. How do you view this impasse?
[00:01:16] Speaker C: Well, there's been an impasse ever since June and the impasse has not lifted. And so there has been no real meaningful resumption of negotiations that has taken place even after the so called settlement of the wage issue during the, during the strike at the beginning of October.
So there's different ways of looking at it. There are now we are talking to the principals involved, people who are very close to the negotiating scenario, you know, who are very familiar with it. And even within that group there are different views. So there is one school of thought that says that the ocean carriers do not want another confrontation with a President of the United States. So they did not want the last confrontation. And in the face of direct presidential power, the white hot glare of presidential power, the carriers capitulated immediately and gave the union a staggeringly large wage increase, which of course the costs will be compounded because the west coast stockworkers are going to expect that same level of increase the next time that they negotiate a contract. So they don't want to get into that situation again. And so there is one school of thought that says that the ocean carriers are not going to push this and that they're actually going to give the union whatever they want. There is going to be as a result of that, a settlement prior to January 15th and that there will not be a strike. That's one school of thought. Another school of thought says that the carriers are actually furious with what happened because they were all but coerced. They were coerced into the 62% settlement. If you recall the reporting, we reported this. Others reported it. The group CEOs were invited into a meeting with the White House Chief of staff. It was only the group CEOs, those were the only people who could come onto the call. And they were told that an announcement is going to be made in two hours time or whatever it is, and that this is going to be the announcement and end of story. So now it's up to you, ocean carriers. Are you going to openly defy the President of the United States and also by prolonging the strike, if that's what they had chosen to do, Possibly essentially injected themselves directly into presidential politics, meaning that the outcome of the election could have gone in a way that the ocean carriers could have been blamed for having the election go this way or that way. They don't want any part of that. But now there is no election. The election is over. The ocean carriers have already expressed their disappointment in the USMX staff position, which was lay low ever since June. So of course, ever since June, even earlier than that, there was, you know, all sorts of bombast from the union disparaging the ocean carriers, as, you know, price gougers, foreign, foreign owned, all those sort of boogeyman descriptions and yet silence from usmx. And yet the ocean carriers, they look at the US Market, it is the highest cost port market in the world. They do not collect terminal handling charge in the US and so therefore the costs come to them and the market is going to determine their ability to pass that along. And they also have a view that because there's not a lot of new terminal capacity being built in the US that the only way to basically create a pathway to handle growing trade volumes in the coming years is to get more throughput per acre of land or through per hectare of land. And the only way you do that is through automation. And so therefore that school of thought says that the ocean carriers are not going to get in so easily that they will look to the fact that you have people like Elon Musk in Trump's inner circle who are no friend of unions. And also Elon Musk has been out retweeting negative reports about the union. So they know that they actually have potential allies within Trump's orbit and that might make them be a little bit more aggressive this time. Versus last time.
[00:05:35] Speaker B: They are certainly in a really difficult position. I mean, turning back automation when the US ports aren't really great performers globally, as you well know in Singapore, from those productivity levels, there is a really tricky thing for them to agree to. But politically, it's a tough position that is. How do you think Trump sees this then? I mean, I can see him going either way, or maybe it will come down to a toss of a coin. He could implement Taft Hartley. He could back dag it and say, you know, he's the sort of strong leader he seems to admire. I could see that going either way. If he backs dag it, he can tell, well, I'm taking on these evil foreign container lines. It could go either way. Right.
[00:06:12] Speaker C: So from a political point of view, if Trump's political instincts are what guide his behavior, he will side with the union 100%. His announced nominee for labor secretary is a pro union person. His political base is blue collar workers like dock workers. He has already been openly expressing support for the dock workers position. And so therefore the, and the union is going to visit Mar a Lago again on the 12th of December. So in two days, there's going to be another meeting with Trump and with the ILA leadership at Mar a Lago where they are going to presumably receive or seek assurances from Trump that he has their back so that they will go on strike. Because look at the timing of it. The strike is five days before the inauguration. So they go on strike. They're in, they're on strike for five days. Trump comes into office, knight in shining armor tells the ocean carriers, guess what? There's going to be hell to pay unless you agree to what the, the union is asking. And then he saves the day. There is no strike and the ocean carriers have to go and lick their wounds and live to fight another day.
[00:07:33] Speaker B: That seems like the most likely scenario. And I think I called a three day strike last time. I'm calling it a five or six day strike this time because the PR of the strike starts on the 15th. Trump's inauguration on the 20th, strike ends is just too attractive to someone who so brilliantly communicates politically. Lars, what's your take on it? Do you want to have a. Are we betting?
[00:07:53] Speaker D: Yeah, I mean, I would say say a week. Plus it's going to take a couple of days into the Trump. Because here's what I mean, I agree basically with everything Peter has outlined here, but I see another play that's important to keep in mind here. Endgame, as I see it, is that the carriers, usmx, they're going to lose this battle. I think that is more or less a foregone conclusion. So the only question then is how do they want to lose it? And at the end of the day they're going to have to lose it in a way that makes it the easiest to pass on these costs to the customers. That means it is in their interest that the strike is as long as possible, as painful as possible. So when this is all set and done, it is easier for them to then go to all of the U.S. importers and exporters and say basically either the base rate has gone up by X dollars or let's introduce a new surcharge. Why don't we call it the ILA surcharge? Or they, they love the three letter acronyms. But at the end of the day, if they're going to lose this fight, the more visible it is that they have been brow beaten by a combination of the US administration and the ila, the easier it's going to be for them to then force through rate increases to compensate them for this.
[00:09:02] Speaker B: But the ILA surcharge then was that how many years of non automation does that continue? I mean, I like the idea of these surcharges. They're very inventive.
[00:09:11] Speaker D: Exactly.
[00:09:12] Speaker C: The other thing to keep in mind here is that the ocean carriers view of longshore labor negotiations has completely changed. So for many years I covered west coast US Doc worker negotiations. I was the, for a short time in the 1990s, I was the bureau chief of the Daily Journal of Commerce newspaper in San Francisco. And that's where the ILWU is based. So I covered those, you know, several negotiating rounds. And the one thing that was consistent about all of them was that the pma, the Pacific Maritime association, which is the counterpart, the west coast counterpart of the usmx, always had marching orders from the carriers to essentially give the union what they want and keep the ports open and do not create trouble. And that's one of the reasons why the ILWU on the west coast, you know, they're among the highest paid blue collar workers in the world, not just America, because that was the orientation of the ocean carriers. So I talked to Joe Miniacci, he was the PMA president in 2002 during the 10 day lockout, which kind of opened many people's eyes to the risk of port disruption to supply chains. He told me he was absolutely under orders from his board members who were dominated by the ocean carriers to keep the ports open in general. But then the ocean carriers learned that it's actually when the ports are not open, when the cargo is not flowing, when the ships are not docking, when they are sitting idle outside the ports, that's when they make money. So there was a distinct difference in tone from ocean carriers related to the ila. Whereas in the past, they would have said, oh, you know what? We don't want trouble. We want to keep the ports open. We want to keep cargo flowing. You know, we have a role to play. You know, all this. Now, their attitude is more like, well, we tried our best. We did what we could. What will be, will be. What happens, happens. And that is a fundamental change, because it is a recognition by carriers that disruption is ultimately financially in their favor, whereas they didn't really have that framework of understanding in the past.
