Friday, August 3, 2007 Contract with shippers prelude to bigger talks Deal with clerical workers averts shutdown of LA port By Dan Machalaba The Wall Street Journal     The last-minute contract agreement reached last week to keep clerical workers at West Coast ports from striking is a warm-up to a big showdown looming over the next dockworker contract.     Early next year, terminal operators and shipping lines will begin broader talks with the International Longshore and Warehouse Union, whose more than 14,000 U.S. members work the docks from Bellingham, Wash., to San Diego. Four years ago, a 10-day lockout of workers paralyzed ports, ratcheted up costs for retailers and other customers and caused cargo backups for months.     The customers that rely on the ports say that if the three-year contract negotiated with the clerical workers is any indication, a fierce fight and lots of brinkmanship can be expected. The clerical workers also are ILWU members.     Big users of shipping lines "are hoping this isn't an omen of what to expect next year," said Erik Autor, vice president and international trade counsel at the National Retail Federation, a Washington trade group representing U.S. retailers. "The threat of a walkout is very troublesome because it creates a huge amount of unpredictability for retailers and other shippers who need to manage complex supply chains."     West Coast ports are critical to the economy because they handle cargo valued at about $500 billion annually, including much of the clothing, electronics, toys, and furniture that appear on store shelves throughout the U.S.     Already, a flash point is brewing over plans to modernize the ports. Terminal operators and shipping lines are preparing to introduce automated cargo-handling systems on the West Coast that will move cargo faster and more efficiently.     "Automation of cargo handling is the next big battleground on West Coast docks," says Mark Sisson, a senior port planner at Aecom Technology Corp.'s engineering-and-consulting unit. He says automating the docks at Los Angeles and Long Beach, Calif., will cost billions of dollars and take more than a decade.     The move would require major changes in work rules. The union also worries that it could result in job losses. Bob McEllrath, international president of the ILWU, says automation is a "challenge" to the union.     "We don't stand in the way of automation or technology, but we don't allow the employers to use that as a subterfuge to outsource our jobs," Mr. McEllrath said. "We want to look at protecting our work force and share in the profits that they are going to make."     Medical costs could be another sticking point. The ILWU's members, already among the highest paid union workers in the U.S. -- about 60% of longshoremen get an average of $127,000 a year -- now have 100% of their benefits paid for by the employers.     The talks over the clerical-worker contract that ended last week provide a hint at the relationship between the union and port users. The negotiations were marked by a strike threat and went nearly a month past the expiration of the previous three-year contract. In the end, the 750 workers reached a settlement, subject to rank-and-file approval, with 14 terminals in Los Angeles and Long Beach without a work stoppage. The tentative contract includes a 7% wage increase over three years and establishes a multiemployer fund to safeguard workers' health, welfare and pension programs.     The two sides point to the agreement as a sign they can work together, despite the tension. "The fact that we continued to bargain for nearly a month after the contract expired and ended up in a compromise, bodes well, in my judgment," said Steve Berry, who negotiated on behalf of the terminal operators.     For years, West Coast container-terminal operators have looked on with envy as Asian and European docks converted to automated systems. West Coast managers say they must modernize, too, or risk running out of waterfront land to move the ballooning volume of Asian imports.     Modernization is coming to ports elsewhere in the U.S. A.P. Moller-Maersk Group's new container terminal in Portsmouth, Va., set to open in September, will be the most automated in the U.S. Maersk, the world's largest shipping line by vessels, came to an agreement with the International Longshoremen's Association, which represents East Coast dockworkers. The Danish company says it expects its new terminal to significantly increase cargo flow and speed the loading and unloading of trucks and trains.     The ports of Los Angeles and Long Beach already handle more than 210 million tons of cargo a year, and demand is expected to exceed capacity as early as 2010, according to the Los Angeles Area Chamber of Commerce. "Ultimately, these facilities have to employ technology to handle the amount of volume that will go through them," said Jim McKenna, president of the Pacific Maritime Association, which negotiates with the ILWU on behalf of West Coast terminal operators and ship lines.     Instead of having a work crew at each of the cranes that handle containers in the yard, automated systems rely on computerized mechanisms to do most of the work of lifting, moving and lowering containers. Operators sit in a control center and are involved only at the beginning and end of each move.     Ports on the East Coast and Gulf Coast, as well as emerging container docks in Canada and Mexico, stand to benefit if labor-management conflicts on the West Coast drive shippers to find alternatives. Still, shippers are limited in their options because the biggest container ships can't fit through the Panama Canal, while sending cargo in the other direction around the globe to reach the U.S. East Coast adds time and expense.     So far, both sides are saying they don't want another port lockout, and their leaders are said to get along better than their predecessors. Contract talks also started earlier than usual. The current six-year deal expires July 1, 2008.     "We learned a lot from 2002," said Mr. McKenna. "Both of us recognize any disruption to the ports and impeding commerce will be viewed by everybody as unacceptable."         Copyright 2007 Wall Street Journal