Port Long Beach Longshoremen Dec 2012 2
The ILWU and PMA are locked in a standoff that could cost the U.S. economy $2 billion a day. Labor Secretary Tom Perez is mediating contract talks in the hopes of avoiding an even more expensive strike or lockout. Reuters

Tense contract talks roll on this week between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA), which represents maritime shippers and port operators. Each side blames the other for a labor dispute that has resulted in a slowdown on West Coast ports, but regardless of who's at fault, the faceoff is taking a major toll on the U.S. economy.

The dispute now costs the economy about $2 billion a day, estimates Kevin O’Marah, the head of research for SCM World, a group of senior supply chain executives from companies that include Barnes & Noble, Nike, Microsoft and Shell. O’Marah bases that figure on a 2002 work stoppage, which cost about $1 billion a day.

“Thirteen years ago, volume was significant but nothing like it is now,” says O’Marah, pointing to increased inbound traffic from China and other emerging markets in Asia.

Some industries are hurt more than others. On the export side, easily perishable agriculture and meat products suffer. On the inbound side, delayed shipments of apparel, machine parts and electronics are taking a heavy hit.

Longshoremen have been working without a contract since last summer. The PMA has accused the union of engaging in a slowdown for several months, and it locked out workers over the past two weekends.

Some companies have responded to the slowdown by diverting products to other ports like Norfolk, Virginia, and Savannah, Georgia. But that short-term fix has limited effectiveness.

“It’s very hard to redirect products that are already in the supply chain,” O’Marah says. “It’s a little bit like trying to get out of Boston before a blizzard. There are less seats available and the price starts going up.”

On Sunday, the White House sent Labor Secretary Tom Perez to mediate bargaining sessions in San Francisco. A major sticking point is the arbitration process used to resolve disputes between dockworkers and management, according to the Associated Press. Retailers and manufacturers say a full-blown work stoppage could cost close to $2.5 billion a day.