On the Waterfront

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Perhaps the most important event in the movement of international cargo in the last 100 years, was the circa 1970, almost universal adoption of shipping containers.  Prior to the general use of containers, cargos typically consisted of boxes and crates that had to be loaded into large nets and hoisted into and out of a cargo ship’s holds.  This process was very labor intensive, dangerous and prone to damaged and lost merchandise. 

Containers can be loaded and unloaded, stacked, transported efficiently over long distances, and transferred from one mode of transportation, container ships, rail cars and semis, to another, without being opened.  The system is completely mechanized so that all handling is done with cranes and specialized fork lifts. 

The old “break bulk” style of loading and unloading, which required a large number of workers, was dangerous, slow and expensive.  Unfortunately, the transition to containerization created an almost existential battle between labor and port management.  After a decade of eroding employment, the International Longshore and Warehouse Union (ILWU) went on strike on July 1, 1971, closing all 56 west coast ports for 130 days. 

Now, with July 1, 2022 expiration of the current ILWU contract with the Pacific Maritime Association (PMA) what can investors expect?  Will this year’s negotiations, in the unforgettable words of Yogi Berra, be a case of “déjà vu all over again,” or can an agreement be reached without a material disruption? 

The leaders of both the ILWU and the PMA are adults and experienced negotiators.  However, a key issue in this year’s negotiations will be automation.  The movement of containers lends itself to automation and many of the world’s largest container ports have been aggressively adopting automation in the pursuit of lower overall costs, 24/7 operations and increased safety. 

Investors should recognize that any move towards substantial job losses is going to be a very difficult issue to resolve.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA

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