Requiem for a Dockworkers’ Strike
by clifford winston
cliff winston is a senior fellow at the Brookings Institution and co-author of Revitalizing a Nation: Competition and Innovation in the U.S. Transportation System.
Published October 15, 2024
With prodding from the Biden administration, the International Longshoremen’s Association (the dockworkers’ union) and the United States Maritime Alliance (an ocean shipping carriers’ and marine terminal operators’ association) tentatively settled a strike that could have closed major ports on the East and Gulf Coasts. The strike would in short order have disrupted hundreds of billions of dollars in productive activity — and quite possibly changed the outcome of the November election. But we’re not quite out of the woods: the negotiating parties kicked the can down the road, setting a post-election deadline of January 15, 2025 for inking a new contract.
Out of sight, out of mind for the present, perhaps. But even if a deal is concluded without fuss in January, it ought to make the public wonder why the ocean shipping industry, which today consists almost entirely of foreign-owned companies, can operate as a cartel. Thanks to U.S. government policies exempting ocean shipping from antitrust laws, the cartel is able to earn profits far beyond the cost of capital, which it then must share with unionized dockworkers in the form of wages well in excess of the competitive cost of labor. Indeed, industry profits topped an astonishing $400 billion from 2020 to 2023, while many dockworkers earned $100,000 or more annually before the strike and can look forward to a whopping raise come January if there is no work stoppage.
Market power in shipping services means higher freight rates and higher consumer prices. Arguably as important, the lack of competition in ocean transport infrastructure undermines innovation and compromises operations during periods of peak demand. Publicly owned U.S. ports are far less automated than their foreign counterparts because unions insist that ports avoid automation that could cost jobs — and because ports need not worry that inflated costs and unreliable service will affect their market share because they face little competition. No wonder, then, that U.S. ports garner embarrassingly low global rankings for efficiency by the World Bank.
Inefficiency and excessive profit were facts of life in the U.S. airline and trucking industries until they were deregulated more than four decades ago. The government protected those industries from competition, leaving it to the carriers and their workers to fight over the surplus. But Washington never deregulated ocean shipping because it was persuaded a century ago by the argument that ocean transportation was different — that is, the industry needed to be protected from competition in order to enhance national security and to remain financially viable.
To complicate matters, U.S. ocean transportation consists of two different markets affected by different inefficient regulations. The century-old Jones Act restricts freight delivery from one U.S. port to another — say, between New Orleans and San Juan — to American carriers using domestically built ships and American crews. As a result, shipping rates are sky high, a burden born disproportionately by Hawaii, Alaska and Puerto Rico.
Price competition is also restricted in international shipping, but in this case by an exemption from U.S. antitrust laws that permits ocean carriers to fix rates through “shipping conferences.”
These conferences are cartels in which multiple shippers agree to provide scheduled service on specified routes at uniform rates. The historical justification for this blatant denial of competition is that ocean shipping companies face high fixed costs (expensive ships with large carrying capacity) but relatively modest variable costs (maritime labor, fuel and port fees). Thus unconstrained, shipping companies would have incentives to slash rates to fill their capacity in lean times, leading to a boom-bust market of very low rates followed by bankruptcies, followed by very high rates, and so forth.
Alas, neither shipping companies, nor dockworkers, nor government port authorities have an interest in dropping the exemptions that virtually guarantee them a long walk on easy street.The losers, of course, are consumers who must pay more for shipping.
Still another exemption allows members of international shipping alliances that have formed since the 1990s to coordinate capacity. Thus, when merchandise trade rebounded in 2021 after the worst of Covid-19, the alliances were able to elevate prices by collectively deciding not to add back the capacity they had shed at the start of the pandemic.
Today, there is no justification for anticompetitive exemptions. The shipping conferences may stabilize shipping rates, but at levels far above costs. And there is no particular reason to believe that ocean shipping is especially ill-suited to thrive in a competitive market.
Alas, neither shipping companies, nor dockworkers, nor government port authorities have an interest in dropping the exemptions that virtually guarantee them a long walk on easy street. The losers, of course, are consumers who must pay more for shipping — not to mention the economy as a whole, which can become collateral damage in squabbles over the way the stakeholders divide the surplus.
A century ago, protectionist policies toward ocean transportation were merely a costly irritant. Today, thanks to the growth of global supply chains, protectionist policies and monopoly ports have significantly increased those costs. Moreover, the overall economy has become vulnerable to potentially disastrous interruptions in international trade in the event of a prolonged strike.
The fixes would be pretty straightforward. First, ports should be privatized and subject to competition over traffic, as ports often are in other countries. To be sure, none of the stakeholders have much incentive to privatize ports to improve their efficiency. But policymakers have not even considered the issue of privatization, and they may find that resistance could be overcome by enlisting political help from smaller ports itching to expand market share.
Second, ocean transportation services should be deregulated by phasing out the antitrust exemptions enjoyed by the shipping industry and by scratching the Jones Act. In many ways the challenge of overcoming opposition to deregulating ocean transportation ought to be easier than the one faced in the 1970s and1980s, when much of intercity transportation was deregulated. After all, the shipping industry is foreign-owned, and the number of dockworkers at risk is far smaller than the number of workers affected by the deregulation of the airlines, trucking and rail companies.
Perhaps policymakers might be incentivized to repeat the deregulation magic today if they were reminded that the political cost of a strike that broke critical supply chains would be greater than the political cost of forcing shippers and their unions to come to terms with competition. The East Coast strike was a warning. It would be nice to believe that the warning sank in.