LOS ANGELES -- The early extension of a West Coast longshoreman’s contract is a credit positive, according to a Moody’s Investors Service report.

Battles between the unions and the ports during previous contract negotiations have caused disruptions to port business over the past 15 years.

"The early extension two years before the scheduled expiration in July 2019 is unprecedented and reflects the ILWU and the Pacific Maritime Association (the employer organization) recognizing that labor stability is a key determinant in retaining and attracting business for West Coast ports," Moody's analysts wrote in an Aug. 3 report.

The International Longshore and Warehouse Union announced on July 28 that West Coast-wide election returns showed that ILWU rank-and-file members had approved a three-year contract extension through July 1, 2022. The official results from the preliminary vote were expected to be announced today.

A container ship in the Port of Los Angeles
A container ship in the Port of Los Angeles. Port of Los Angeles

The contract covered workers at 29 ports in California, Oregon and Washington, in addition to the three that Moody's rates. The agreement is between the longshoreman's union and the Pacific Maritime Association.

The vote came after a year of negotiations.

"There was no shortage of differing views during the year-long debate leading up this vote, and members didn't take this step lightly," said ILWU International President Robert McEllrath in a statement. "In the end, the members made the final decision to extend the contract for three years."

The amicable resolution to the current contract negotiation is credit positive because recent negotiations involved significant disruptions that led to permanent loss of market share for West Coast ports, according to Moody's Aug. 3 report.

West Coast ports had repeated labor disruptions between 2000 and 2015.

The most damaging of these, according to Moody's, was an 11-day shutdown in 2002, which ended only after then-President George W. Bush invoked the Taft-Hartley Act to end the labor lockout.

West Coast ports such as the three rated by Moody's -- the Port of Los Angeles, the Port of Oakland and the Port of Tacoma -- lost market share to Asian trading partners during previous union battles, Moody's said.

Following the 2002 shutdown, many shippers sought to increase supply-chain reliability by adopting a “four corners” strategy, which established import/distribution operations at ports in the Southeast and Northeast in order to reduce their reliance on West Coast ports as exclusive or primary gateways for routing Asian cargo to the Midwest and East Coast.

"The contract extension offers the potential for five years of labor stability, resolving a risk that has caused significant disruptions at West Coast ports and contributed to a loss of Asian import market share to East Coast ports over the past 15 years," Moody's analysts wrote.

The increased labor stability is particularly timely for West Coast ports, Moody's said, because the expanded Panama Canal and capacity improvements at Gulf Coast and East Coast ports have made transport to Gulf Coast and East Coast ports significantly less costly and more efficient.

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