The "Catastrophic Shutdown Of America's Supply Chain" Begins: Stunning Photos Of West Coast Port Congestion

Tyler Durden's picture

One week ago, when previewing what may be the first lockout of the West Coast Ports since 2002, we cited the Retail Industry Leaders Association who, realizing that failure to reach an agreement between the dockworker union and their bosses, the Pacific Maritime Association representing port management would lead to devastating consequences for the US retail industry, had several very damning soundbites:

  • "a work slowdown during contract negotiations over the past seven months has already created logistic nightmares for American exporters, manufacturers and retailers dependent on an efficient supply chain. A complete shutdown would be catastrophic, with hundreds of thousands of jobs at risk if America’s supply chain grinds to a halt."
  • "A west coast port shutdown would be an economic disaster."
  • "A shutdown would not only impact the hundreds of thousands of jobs working directly in America’s transportation supply chain, but the reality is the entire economy would be impacted as exports sit on docks and imports sit in the harbor waiting for manufacturers to build products and retailers to stock shelves."

And the punchline: "The slowdown is already making life difficult, but a shutdown could derail the economy completely."

Just so readers have a sense of what is at stake, this is what the average dockworker makes: $147,000 a year in salary, plus $35,000 a year in employer-paid health care and an annual pension of $80,000 (according to an association press release). It is the overtime compensation to the total shown here, which grosses to over a quarter of a million dollars, that dockworkers are negotiating to raise or else the key US supply-chains gets it.

Incidentally, the demands of the dockworker union and their leverage is precisely the reason for the dramatic discrepancy we showed in the following chart:


In any case, as of last night, the choking of the US supply-chain has officially begin, when as the LA Times reported last night, "West Coast ports — including the nation's busiest in Los Angeles and Long Beach — will partially shut down for four days as shipping companies plan to dramatically slash dock work amid an increasingly contentious labor dispute."


Terminal operators and shipping lines said that they would stop the unloading of ships Thursday, Saturday, Sunday and Monday, because they don't want to pay overtime to workers who, they allege, have deliberately slowed operations to the point of causing a massive bottleneck. Thursday is Lincoln's Birthday and Monday is Presidents Day, which are holidays for the workers.


Slowing down work "amounts to a strike with pay, and we will reduce the extent to which we pay premium rates for such a strike," said Wade Gates, spokesman for the Pacific Maritime Assn., the employer group representing the shipping companies. The local union in Los Angeles and Long Beach has denied using slowdown tactics.

Accoring to the LA Times, it is not clear if the partial shutdown foreshadows a total closure of the ports. Fears of a lockout of dockworkers, who have been without a contract since July, have risen in the last week and the two sides haven't held talks since Friday. SF Gate was far more clear on what the dockworker action means: "West Coast ports to shut down 4 days amid labor dispute."

Work delays and stoppages over the past three months have caused mounting problems for Bay Area importers and small-business owners, who say they are losing money as trucks line up daily outside the Port of Oakland waiting for container ships anchored in San Francisco Bay to unload.


The shutting down of port operations is ironic because it’ll make the situation worse, said union officials who claimed the association canceled a negotiating session Wednesday and has not been available since last Friday.


“This is an effort by the employers to put economic pressure on our members and to gain leverage in contract talks,” said Robert McEllrath, president of the longshore and warehouse union. “The union is standing by ready to negotiate, as we have been for the past several days.”

Regardless of who is at fault for the (partial) shut down, one can't blame dockworkers for doing what Greece is actively doing at the same time in its own negotiations with Europe: maximizing its leverage. Because as Bank of America showed yesterday, in a piece dedicated precisely to this topic, nothing short of 3.5% of marginal US GDP is at steak, which translated into CAGR terms, means that the fate of America's estimated 3% growth in 2015 is suddenly in the hands of a few thousand port workers, and with that, whether or not the US has a recession.

Some more thoughts from BofA:

Could port activity grind to a halt?


Due to continued unsuccessful contract negotiations between West Coast port employers (Pacific Maritime Association) and workers (International Longshore and Warehouse Union), there is a growing risk of a shutdown/lockout at West Coast docks, possibly within days. This past weekend, ports temporarily halted operations, adding to uncertainty. In our view, although a port strike/lockout could weigh on operations and profitability in some industries, the economic fallout of a one-week strike is likely to be limited to a loss of $0.8-1.8bn, representing a 0.1-0.2% hit to annualized GDP growth in 1Q15.


Size matters


Since the fall, a notable disruption in activity at the ports has materialized, and the risk is the current delays could spiral into full-blown gridlock, or that employers could lock out workers. West Coast ports are an important component of US trade. As cited by our Transportation Analyst Ken Hoexter, the value of total traffic at West Coast ports (waterborne, air and land) accounts for 12% of GDP. However, drilling down specifically to goods arriving/departing by water vessels (and hence, impacted by the labor dispute) reveals a much smaller share, only 3.5% of GDP or roughly $600bn, as of 2014.


Gauging the economy-wide risk during a shutdown


The economic fallout of a port shutdown is challenging to measure and depends heavily on the technique of analysis. Economic impact studies of West Coast  port shutdowns have yielded loss estimates as high as $2bn per day. However, analysis by Peter Hall of the University of Waterloo and by the US Congressional Budget Office criticized such techniques as they fail to account for the ability for firms to substitute to alternative transportation routes, resulting in inflated loss estimates. Instead, according to research published by the CBO in 2006, the fallout is likely much lower, roughly $65mn to $150mn per day if Los Angeles and Long Beach ports were to shut down for a week in 2004. To get a sense of what the risks are in today, we gross that figure up to account for higher trade volumes, and include all West Coast ports. Our back of the envelope calculation suggests the daily loss to GDP would be $150-350mn per day, or $0.8-1.8bn per week. That would represent 0.1-0.2% hit to annualized 1Q15 GDP growth.


Learning from the past: short-term pain is likely


If history is any guide, a temporary port shutdown would acutely hurt the trade sector in the short term, but would not threaten to derail the recovery. In 2002, port workers at 29 West Coast ports were locked out for roughly 10 days in October, before President Bush invoked the Taft-Hartley Act to reopen the ports.


What could go wrong?


We highlight two key scenarios that may lead to greater downside risk relative to our base case:

  • A protracted disruption could trigger non-linear (accelerating) economic costs as temporary contingency measures run their course, resulting in worsening supply chain disruptions. President Obama could intervene by invoking the Taft-Hartley Act as was done in 2002, but it is not clear if or how quickly the White House would be willing to step into a labor dispute this time around.

There is uncertainty regarding the capacity of alternative transportation routes. Extensive use of air freight and Canadian/Eastern ports may lead to capacity constraints at those sites, limiting the ability of industry to successfully substitute to alternative supply chains for an extended period.

So the bottom line is that nobody really knows what will happen if the "partial" stoppage becomes a permanent one, as dockworkers try lever their influence on the US economy (which according to financial comedy TV is so strong, it should have no problem to meet their demands, right?), but it is safe to say that the final outcome will be somewhere between the "catastrophic" devastation for the economy which the retail industry predicts, and anywhere up to a 3.5% hit to the GDP, which in turn means an economic recession, if only temporary.

One thing, however, about which there is no doubt at all, is the unprecedented congestion that has slammed the Port of Los Angeles and Long Beach harbor: that is very much real, as can be seen on the series of photos below courtesy of Mike Kelley. From his blog:

As anyone who follows my work knows, I'm fascinated by industry and infrastructure. For the past few weeks, a labor dispute has been unfolding at the Port of Los Angeles and the Port of Long Beach. After flying over the area while coming in to land at LAX, I saw all of these giant container ships anchored offshore and instantly knew that I had to photograph it.


The next day I called my pilot and said 'when is the soonest we can go up?!' Less than 24 hours later we were in the air. It was one of the most exciting experiences I've had doing aerial photography - being that far out at sea, with the huge swells underneath you, and these massive, massive container ships everywhere was like living a scene out of Walter Mitty's life.

Cargo ships have been backed up for weeks on end at the ports of LA and Long Beach amid a labor dispute.


The size of these ships blows the mind; many of them are over a thousand feet long.


We photographed them from anywhere between 200 and 5,500 feet, and even at this height the enormous size was something else entirely.


The haze and setting sun created an ethereal mood to all of the pictures

Cargoes from around the world are backed up right now


I've never seen ANYTHING like this, even rush hour at the 405 doesn't look so bad.


Colorful and massive, this ship is over 1000 feet from end to end.


From this angle, the scale and size of the city and ships becomes quickly apparent

* * *

Finally keep in mind that to many economists, or at least those who realize that the US economy is in a far worse shape than what official government data represents, an "exogenous" event like a West Coast port strike, just like a "Polar Vortex" is precisely what the doctor ordered. After all, what better scapegoat for the lack of growth than a few thousand dockworkers who are merely leveraging capitalism as much as they can... even if it means shutting down key US economic supply-chains in the process.

h/t @Theonlyexpert

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astoriajoe's picture

What is this "American exporters" that he mentions?

bigdumbnugly's picture

and just think...  these are just the obamaphone imports.

gmrpeabody's picture

"$147,000 a year in salary, plus $35,000 a year in employer-paid health care and an annual pension of $80,000 (according to an association press release)."

Fuck the bastards...

cnmcdee's picture

That I guess is the bribery fee for helping undercut the rest of the country with cheap import goods.

SafelyGraze's picture

it's ok for the ships not deliver their goods to the US

as long as the payment is made to china for these goods

in fact, the emerging model of paying for goods that aren't actually delivered promises to significantly improve the US economy


nope-1004's picture

Ya, "port stuffing".  Sale is made before goods are landed, so who cares?  We can all swim out to pick up those imitation cell phone batteries that last a month.


CrazyCooter's picture

Obama and his union proxy reminding the Chinese who keeps their workers employed?

Vlad in one ear, Obama in the other ... who gets to suit you!?!?



Troll Magnet's picture

Greedy motherfuckers, greedy motherfuckers, whatever.

I have no problem with these dock workers making what they're making.  At least they do real work compared to all the money changers who pocket millions and billions while doing nothing but scheming, stealing and fucking over people's lives. 

Manthong's picture

 OT, but more catastrophic and only a couple of weeks away.

The internet is about to become Obamacare.

A lot of people need to make a hell of a lot of noise right away..

Doubleguns's picture

And the attitude for unions deminishs even more. Plain folks are tired of being shat upon by union greed. Its time to change the laws on unions and hold them accountable for the damage they cause to other folks.  

Dame Ednas Possum's picture

But...but...think of all the economic activity and opportunity to fix this broken window. Bullish for fuckwit cat-stroking economics nerds.

The9thDoctor's picture

Just so readers have a sense of what is at stake, this is what the average dockworker makes: $147,000 a year in salary, plus $35,000 a year in employer-paid health care and an annual pension of $80,000

One of the main talking points of free market right-libertarians is that your income is your value to the marketplace.  It's very obvious that dockworkers have enormous value to the marketplace is because if they don't show up for work, the supply chain backs up and Zero Hedge calls it "catastrophic".  These dockworkers have plenty of leverage so hats off to them and hopefully they can negotitate a salary that better rewards their value to the marketplace.

I'm not being sarc here, I'm being legit. When we have a system completely dependent on offshored jobs and imported goods, the dockworkers bringing in the goods are the most valuable employees to that entire system.  Dockworkers should be the highest paying jobs in the country.  If dockworker wages become too high, then big corporations might reconsider domestic production as the costs would be the same or lower than importing in from third world sweatshops and coming in through the dock.

J S Bach's picture

Dear me!  Having to negotiate a cut in the well-over $200,000 per year in salary & perks for working in a dockyard would be "catastrophic".  My heart bleeds for them.

Never One Roach's picture

I'm guessing this port backup thingy is going to be very Bullish ... perhaps more Bullish then the plunge in retail sales, broke Middle Class and soaring joblessness.


This has to mean .... BUY MOAR STAWKS!

Panem et Circus's picture

So who owns the East Coast and/or Canadian ports, and more importantly are they publicly traded? Also, where can I buy options on tonnage fees for the Panama Canal???

Shocker's picture

Just another thing to add to this Recovery

Layoff List:


Squid-puppets a-go-go's picture

and before anyone bitches about the chart comaring union and non union pay rates, put it this way: if you are in that union, your pay is treading water with REAL inflation rate. Non union dockworkers are getting the stealth pay-cut

seminal1's picture
seminal1 (not verified) Arnold Feb 12, 2015 5:29 PM

Much of this port shutdown is related to who will pay the Obamacare tax on the dockworker's "Cadillac" healthcare plan.

"At the JOC’s TPM conference in March, PMA President James McKenna indicated that negotiators may decide to postpone the issue of who — dockworkers or employers — must pay for an estimated $150 million per year Obamacare tax on the union’s premium health care plan under which employers pay 100 percent of premiums in the ILWU health and dental care plan for members and their families, and union members pay just a $1 co-pay per prescription for medicine. Such “Cadillac” plans are subject to tax under Obamacare. Employers have indicated that a cost-sharing formula can be worked out, while the ILWU, in its traditional “no-give-back” strategy, does not want to pay any taxes on its health care plan. Since the tax takes effect in 2018, some have the idea that by then Congress will change Obamacare to eliminate the tax. If not, the union and employers can revive the issue then as part of a separate negotiation."

weburke's picture

The widening of the panama canal is going to cut into the west ports business, so the workers are getting their last chance at squeezing out these rates. 

"The project was initially planned to have been completed this year in time for the canal’s 100th anniversary.

Now, construction is expected to be finished in 2015, and the widened canal to open in early 2016, the authority says.

The widening will allow it to handle so-called “Post-Panamax” ships with a capacity of up to 15,000 containers, instead of the current maximum of 5,000.

But the project has been plagued by delays, strikes and a bitter dispute over $1.6 billion in cost overruns with the consortium of companies carrying out the upgrade.

“I don’t think we’ll be seeing another delay between now and completion,” Quijano said.

The consortium, known as GUPC, is led by Spain’s Sacyr."

boogerbently's picture

.....then they'll whine when we switch our business to a Mexican port (just a couple of hours south).

And Mex drivers will do all the trucking !

Really thinking, those guys.

BigJim's picture

Now imagine 'the big one' hits, there's a tsunami, and all these ships get washed ashore, and the container port gets knocked out of action for 6 months.

jo6pac's picture

Most of the ports are owned by the cities they are in but run by shell companies that are mostly owned by GS and so are shipping companies that the independent truckers drive for and they're paid shit.

This site you have to join but it's free and there are alot of ships seating of the coast of Calli not moving.

Pairadimes's picture

Well, this is one way for TPTB to fight deflation.

BRB - time to fill the back of the pickup with toilet paper.

Arnold's picture

Used China White?


Matt's picture

"One of the main talking points of free market right-libertarians is that your income is your value to the marketplace.  It's very obvious that dockworkers have enormous value to the marketplace is because if they don't show up for work, the supply chain backs up and Zero Hedge calls it "catastrophic"."

Yes, but they are using violent coercion, they sabotage by working slower, and prevent more workers from being hired because they want to make another $100K / yr in overtime? If it was a free market, slow workers would get replaced, and if that wasn't a problem, more workers would be hired to keep down overtime and keep up safety and productivity. This in turn would drive wages down, unless there was a labour shortage.  

TheLooza's picture

I think Season 2 of the Wire was severely underrated. And I hope for the sake of the Stevedores, that there aren't any hookers in them containers.

Clarabell's picture

David Stockman is actually recommending that the corrupt crony-capitalist TBTF banks return to an actual free market capitalist system. This is revolutionary! You're right. He should watch his back.

all-priced-in's picture

So union exercising total monopoly power over the labor supply of dock workers is your definition of free market?




SEIU member?





Matt's picture

Who are you replying to? The indentation indicates me.

The9thDoctor said that, liberatarian theory says the dockworkers in a free market are more valuable, so they deserve more money, while I countered that it is not a free market, since the workers cannot be fired and prevent new workers from being hired. 

Steve in Greensboro's picture

Sorry Doc, but this is an example of the abuse of monopoly power exercised by a union. 

Of course all monopoly power is eventually dissolved by the market, unless it is enforced by government power (the ultimate monopoly, the monopoly on force). 

Assuming the government doesn't interfere, the ports will soon enough be 100% automated because of this abuse by the union and the union brothers can go back to eating government cheese like the rest of the Democrat electorate.

Oldwood's picture

A monopoly is specifically purposed to defeat competition, to create immunity from competition, therefore it CANNOT in any way represent a market value, anymore than a mugger putting a gun to your head, demanding what's in your pocket, defines the value of your life.

While we can comprehend that markets forces are clearing and balancing forces to the economy, we also recognize that our specific failure is our doom, so individually we all seek protection, a monopoly of force in defending our future. Weakness breeds tyranny as tyrant can only rule over us with the cooperation of the masses, either motivated by fear or greed, but never with regard to competition.

Competition is truth and both are under attack,. Both are a threat to TPTB. Both are inarguable and as such must be killed and buried for the good of us all. All being those who rule us, those who live from our labors....ALL.

oxide's picture

There is more to it than just the salary. The unions are mostly locked to anyone that is not family. And consider this, Hong Kong has a dockyard that is 10-times bigger than anything in the US. And it is run entirely by something like 6 people sitting at computers. Every container is loaded or off-loaded, moved, sorted, stacked by automation. There is no real-world need for dock workers, anymore, except to just keep them employeed. Pay them for what their high school education is worth -- min wage.

CoastalCowboy's picture

I'm not sympathetic here. I've some cousins who are in the dockworkers union over here on the East coast. These guys openly brag about how little they work and how much they get paid. They brag about how they purposefully slow down the line in order to gain extra overtime.

These guys are making 6 figure incomes doing jobs that the free market may pay say 12 to 15 dollars an hour for one to do. I have friends who drive the trucks that haul the containers. They get paid per load so these slow downs take money out of these guys pockets. One of my friends who drives is in a mugshot book they keep of any truckers who get mouthy. Luckily, he grew up with my cousins so they kind of watch out for him, but when they're not around he gets hassled sometimes

A racket enforced with violence does not make a free market. Those who cross the ILA also have a tendency for bad things to happen to them. My trucker friend had his brake lines cut on his personal vehicle. This is all true too.

I have zero sympathy for those extortionists.

Binko's picture

There's a big difference between the value of your independent skilled labor, and the ability to band together in a group and create a choke-hold at a vulnerable position. The latter does represent value at all. It's more like when the mafia controlled all the trucking companies bringing food into a city. They create coercion not value.

What these guys do is not so special. Basically they operate heavy machinery. Millions of heavy equipment operators from the construction industry could probably be up to speed at a dockworkers job in about a week. And they would be thrilled to get a job at 1/3 the wage.

ebear's picture

Air traffic control is a tougher job, yet look what happened to them:

sun tzu's picture

How is it a free market when unions are protected by the government? There goes your bogus talking point of free markets. You're just too easy of a mark

glenlloyd's picture

You think that's bad, just think of all the unemployment the union itself is causing by the artificial level of wages...

Jack Napier's picture

These dock workers are part of a mafia that does not allow anyone to encroach on their territory. This high wage is not because of the value these jobs bring, which obviously is valuable. It is because they have monopolized the industry. There are plenty of well qualified, employable folks out there who could and would just just as good a job for a lot less money, but they aren't in the good old boys club. No tears shed here for these crooks.

booboo's picture

nepotism is the route to one of these jobs so leave the anti libertarian crap at the door.

Libertarian777's picture

don't think I get your point?

'market-right' libertarians would say that:

1. yes its a free market for labour

2. yes these longshoremen can demand a $200,000 a year salary

3. salaries that high will attract competition


Where the libertarian ideal falls down is the following:

Government, lobbied by the unions, would prevent 3., or competition in the workplace. If a 20 year old who had good eyes and can learn to use a crane came and said , train me and I will work for $100k a year, why would they not be hired.


The ultimate outcome though will be the following:

Robots will replace the longshoremen over time. Sure a robot might cost $5m, but it can work 24/7, will never strike and only needs to replace 3 workers (3x8hr shifts). Plus the robot can work as effectively at night as day.


In otherwords, in the short term, the dock workers have the economy by the balls, in the long term they've just shafted their entire industry.

austrian_skeptic's picture

Free markets would not contain the force, fraud, intimidation, coercion and extortion tactics utilized by the unions. There is certainly a value to dockworkers' production, but who could know what that truly is? The market cannot be opened to competition for those jobs because of organized labor's tactics. What would happen if the port brought in non-union workers and paid them according to market forces? Meanwhile, there is a potential for great losses for businesses, their employees and the national economy, not to mention the delay in goods to reach those that desire them (or need them). With US manufacturing and exports already in poor shape, what effect does this have on those businesses, jobs and employees? There is no free market. There is crony capitalism and the graft of the powerful.

diefans's picture

... Your dockworker price scheme is like paying customs - so why is anybody trading at all?

And why should anybody pay a certain dockworker as high as possible, when he could find anybody on the street doing this job for a little something???

Do not forget: Dockworkers are there because there is trade, its not the trade that is there, because of the dockworkers!

FreeMoney's picture

This is the "Giant sucking sound" Ross Perot warned us about....