Ports, Shippers & Longshoremen: The Auto Industry & the UAW Redux?

Last Wednesday's Wall Street Journal carried a very informative article about the nation's longshoremen's unions.

According to the Journal's piece, there are 100,000 members of the two longshoremen's unions, with average annual compensation of $120,000. They are reputed to be the highest paid blue-collar workers in the country.

What struck me immediately about this union is how similar the country's shippers, ports, and other related business entities have dealt with the longshoremen's unions. Basically, it echoes how the once-Big 3 of the US auto industry, GM, Ford and Chrysler, handled the UAW. The WSJ piece describes how port management companies have agreed to pay longshoremen for containers they don't even touch, just because they come through a union port. In example after example, the unions exercised their power to extort...er....extract concessions from management that build costs into shipping and docking operations.

Technological improvements are allowed if the displaced longshoremen are paid as well, and the union workers given the jobs of operating the new equipment. Union ports won't handle goods from non-union ports, on penalty of the longshoremen simply refusing to unload the cargo. The West Coast's longshoremen's union pioneered the use of master agreements, whereby the shipping lines agree not to use non-union ports, in order to have union workers handle their ship's cargos in the valuable ports of California, Oregon and Washington.

At first, I thought that this might be highlighting a situation that could go the way of the automakers. Upon discussing this with my business partner, I was musing about whether, say, Mexico could create a parallel, non-union transportation system for goods. Perhaps upgrade a port on each of their coasts, link each by rail to the US, and proceed to undercut the American ports and, thus, longshoremen. Apparently, Wal-Mart and some other companies are using just such a fledgling operation already.

Apparently, the master operating agreements will preclude this gaining much ground. Such a parallel system would need its own fleet, and railroads as well. The entire operation would have to be replicated, from originating production point to end-user commercial site. Possible, but burdensome. Maybe a modest amount of production can move this way, but I wonder how much of the US total shipping by tonnage can go such a route within the existing port constraints.

What's similar in the longshoremen's unions case to the auto workers case is that the union has adroitly grabbed the choke points of its dependent business system, and created substantial value for its members.

What's different is that, unlike auto makers, who cannot prevent other companies from rendering their pacts with unions uncompetitive, there seems to be no alternative for anyone to using unionized ports and laborers for existing shipping and dockwork. Give these guys credit, the longshoremen's leaders seem to have sewn up every alternative to their control. The only way this would change is if the nascent efforts of a country like Mexico, mentioned in a prior paragraph, can build sufficient volume to threaten the competitiveness of the unionized port management company's profits, and, thus, the jobs of the union workers there.

So, perhaps the longshoremen more closely resemble the dairy and sugar farmers. They are relatively few in number, and thus gain substantially from the economically-indefensible tariffs they have created in the shipping and transport system. The real cost each of us 250+ million Americans pay, per item, is tiny, compared to the surplus wages the 100,000 longshoremen enjoy. Just like the few dairy and sugar producers, who split the various tariff revenues among a very few farmers. Who thinks sugar is overpriced in the US, despite the fact that it is at something like twice the world price?

At a 2500-to-1 US population to longshoremen ratio, each of us pays about $48/year to these union workers. That's why we probably won't see an industrial challenge to their monopolistic position astride the world's, and America's, logistics/supply chains. And since non-union ports can't be used, there's no real competition for Los Angeles or Seattle. Thus, the businesses aren't really incented to break ranks with the union, so to speak. Unlike foreign auto makers, who could, and did, enter the US and create disaster for GM, Ford and Chrysler, there's really nobody on the global scene who can effectively do that to ports in any country.

Here's the real eye-opener from the WSJ piece. It cited an anecdote of former white-collar managers successfully landing longshoremen's jobs in Charleston, SC. Could it be that your son or daughter should aspire to be come a longshoreman?