Overview
Trade operations at all seaports along the U.S. West Coast are facing great uncertainty. In July 2014, the current labor contract between the International Longshore and Warehouse Union (ILWU) and its employer group, the Pacific Maritime Association (PMA), expired. In January 2015, a federal mediator was assigned to intervene in contract negotiation talks. As disruptions continue, the economic impact becomes increasingly significant and widespread.
This economic analysis, published in June 2014, commissioned by the NAM and the National Retail Federation (NRF), details just how much of an impact this stoppage can have. West Coast ports are a critical artery of the nation’s transportation infrastructure and essential for the seamless flow of imports and exports—cargo moving through West Coast ports represents an economic value of 12.5 percent of U.S. GDP.
Executive Summary
Trade operations at all seaports along the U.S. West Coast face a summer of uncertainty. On June 30, the current labor contract between the International Longshore and Warehouse Union (ILWU) and its employer group, the Pacific Maritime Association (PMA), will expire. A protracted dispute between the negotiating parties could lead to reduced or shuttered terminal operations for an extended period. If such disruptions occur, the economic impact would be significant and widespread according to a new economic analysis of West Coast ports commissioned by the National Association of Manufacturers (NAM) and the National Retail Federation (NRF). The last major port disruption due to a contract negotiation was the 2002 10-day West Coast ports lockout, which cost the U.S. economy several billion dollars and took months to recover.
West Coast ports are a critical artery of the nation’s transportation infrastructure and essential for the seamless flow of imports and exports—cargo moving through West Coast ports represents an economic value of 12.5 percent of U.S. GDP.2
The NAM and NRF asked economists from Inforum to quantify the macroeconomic consequences of a West Coast ports closure, considering various durations of time. The Inforum analysis uses the LIFT economic model3 and breaks down the impact on U.S. employment, output and income if port operations cease for 5, 10 or 20 days at 30 West Coast ports along the continental United States (Alaska and Hawaii not included).
A widespread interruption of this magnitude would negatively affect economic activity and jobs through three main channels: export loss, import delay and higher costs, and reduced purchasing power for consumers. First, export loss would directly lessen output and employment of exporting industries, and the loss would indirectly reduce activity in their supply chains. Second, the interruption, delay and higher cost for imports would also reduce GDP and employment by throwing sand in the gears of productive activities. An important characteristic of competitive and modern supply chains is the orchestrated and speedy integration of goods, services and information. An interruption to flows within these highly sophisticated supply chains can be particularly costly to manufacturers and retailers, especially as time passes during a protracted dispute. Finally, because consumers would be saddled with higher costs for their products, overall household purchasing power would be diminished.
The chain reaction associated with each of these channels, also known as “knock-on effects,” would impact the supply chains of domestic and global manufacturers, retailers, agricultural and food producers and other key industries that rely on and serve ports up and down the West Coast, including, but not limited to, trucking, rail and warehousing. This is of critical concern as retailers prepare for back-to-school and holiday shopping seasons during the summer months.
Manufacturing and retail sectors, in particular, are concerned about a protracted West Coast port disruption because trade losses mount exponentially as a coast-wide port closure drags on through time, increasing the price of inputs, finished products and services. A 20-day port shutdown scenario would lead to a $6.9 billion loss in exports in 2014, and effects would linger into 2015, marking a $1.7 billion loss in export activity. An import disruption during this same 20-day period would cost the economy $8.3 billion in 2014 and an additional $2.0 billion in 2015.
Together, 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. Given a still-fragile economic recovery and lower-than-expected first-quarter growth, $2 billion or more in daily economic losses during a major West Coast port disruption is not something the U.S. economy can sustain.
Even though a labor agreement is not expected to be reached by the June 30 deadline, the ILWU and PMA must remain at the negotiating table, without engaging in disruptions, because the economic consequences of an intractable and prolonged dispute are too severe to ignore.
- This research was conducted by Inforum at the University of Maryland with the support of the National Association of Manufacturers and the National Retail Federation. The principal author was Inforum Executive Director Jeffrey Werling. Questions may be directed to [email protected] or (301) 405-4607. More information about Inforum may be found at www.inforum.umd.edu.
- 2 Source: Martin Associates, Economic Impact and Competitiveness of the West Coast Ports and Factors that Could Threaten Growth, page 3.
- 3 LIFT stands for Long-Term Interindustry Forecasting Tool. LIFT is developed and maintained at the Inforum Research Center at the University of Maryland, College Park.
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