The tentative wage deal agreed to between longshore workers and maritime employers along the US East and Gulf coasts could create as much as $5 billion in new labor costs over the six-year life of the next contract, according to estimates compiled by the Journal of Commerce. While this is a high number itself—other estimates put it much higher—marine terminal operators hope the wage deal will spur greater productivity and efficiency that will help pay for the increased costs.
The agreement struck on Oct. 3 between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX) will provide dockworkers with a 61.5% increase in the top wage scale over six years, the ILA said in a statement. That was enough to get the ILA to agree to a contract extension that reopened East and Gulf Coast ports after a three-day strike at the start of October.
The wage increase comes in tiers of $6 per hour in the first year, $5 in the second year, $4 in the third year, and $3 per hour over the balance of the contract. The salary hike, though, remains contingent upon both sides negotiating a final master contract by Jan. 15 that covers other thorny issues, including work jurisdiction, automation, and coastwide benefits.
Neither side has publicly said what the wage deal would cost the industry overall, and the actual costs depend on many unknowns, such as actual hours worked and container volumes handled. But a Journal of Commerce analysis based on the current growth rate in work hours at East and Gulf coast ports and cumulative hourly raises per year shows $4.95 billion in additional labor costs through 2030.
The estimate assumes work hours at the ports under the ILA master contract grow at an annual average of 4.3% over the next six years, the same rate of growth in coastwide longshore work hours seen since 2013, according to data from the USMX. That assumption would put total work hours at 64.4 million by 2030, up from 47.8 million in 2023.
In the first year of the deal, overall wages could increase by $312 million. The cumulative raise in the second year would bring wages up another $572 million. The third and fourth years add another $781 million and $937 million, respectively, while over $1 billion in additional labor costs could come in each of the contract’s final two years.
The estimate also assumes that the wage increases are paid as straight-time, rather than as overtime hours. Overtime pay can be a significant part of longshore worker income. While the container shipping industry will bear most of the costs, cruise ship and roll-on, roll-off carrier segments will also pay for the higher wages.
This method is about as good as any for estimating an unknown cost, according to Jason Miller, professor of Supply Chain Management at Michigan State University and a Journal of Commerce contributor.
Miller’s own rough estimate considers the cost of moving a marine container, with that amount assumed to be evenly split between labor costs and other operating and capital expenses. If lift fees are between $400 to $500 per container, Miller said a 61.5% rise in wages amounts to anywhere between a $125 to $150 increase in per-container lift costs.
If East and Gulf Coast import volumes hover around 13 million TEUs per year, roughly 7 million containers, through 2030, that translates to anywhere between $5.2 billion and $6.3 billion in added labor costs, Miller said.
“It seems like a reasonable number and why the ocean carriers would have been willing to agree to the wage increase,” he said. “How much revenue are carriers getting each year for 13 million TEUs of imports each year?
“Think about the value of the goods that will be coming through the East and Gulf coasts,” Miller added. “That number is getting into the trillions. The ILA wage deal is a relatively small share of that.”
‘Burundi-size’ cost?
But an executive with the terminal subsidiary of a European-based ocean carrier told the Journal of Commerce that the cost of the wage deal also needs to be measured against the cost of export and empty container moves, for which there’s little to no revenue.
East and Gulf coast ports are on track to handle about 19 million containers in total, full and empty, in 2024, according to the ocean carrier’s data. The new wage deal will increase its terminal unit’s labor costs by $170 per container.
Assuming a roughly similar increase across other terminal operators, the wage deal would cost the container shipping industry $3.2 billion per year in additional labor costs – or more than $19 billion over the life of the new contract – a cost the executive said will be borne directly by US consumers.
“The extra cost that US consumers will pay exceeds the entire GDP of a country like Burundi that has a population of 13 million inhabitants,” the executive said.
“Somebody is paying for the empties as well and it is not the carriers,” the source added. “The trade imbalance, and the resulting amount of empties, gets all priced in into what is being paid for the full import and export boxes.”
The USMX does not release figures on what it paid longshore workers. However, based on the dues contribution rate reported by the ILA in its most recent annual report to the US Department of Labor, its members were paid $2.9 billion in wages during 2023.
The ILA said in a statement about the tentative agree that the 61.5% wage increase “is unprecedented and serves as a testament to the union’s commitment to securing fair compensation for its members.”
The wage deal comes as ocean carriers are expected to continue reporting multi-billion-dollar profits. Among publicly traded ocean carriers, combined net income is expected to reach $16.8 billion in 2024, according to S&P Global consensus analyst estimates.
New wages add to lift costs
The ILA’s wage increases will flow through the industry via annual rate adjustments to the container lift agreements that ocean carriers have with marine terminals, a US-based terminal executive told the Journal of Commerce. Ocean carrier members of the USMX cover 70% of the ILA’s annual wage increases, while marine terminals and stevedores are responsible for the remainder.
So the $6 per hour wage hike in the first year of the tentative agreement, which represents a 15% increase, means ocean carriers face a 10.7% increase from their share, plus an annual increase indexed to overall inflation, in container lift rates.
The terminal executive said US terminal lift rates generally hover around $300 per container, while higher-cost regions such as the Northeast have lift costs around $400 per container. Labor costs charged by US marine terminals can account for up to 60% of their revenue, the highest share of such costs globally.
Whether terminal automation would temper costs remains unclear, the executive added, due to high upfront costs of automation technology and the uncertainty around its payback.
The most successful automated and semi-automated terminals were originally designed from the ground up specifically for those operations, meaning that it’s difficult to bolt-on automation technology to an existing operation. The hope with the new wage deal is that it will be accompanied by efficiency gains to move more boxes per hour, the executive said, noting that US container ports generally rank very low versus their overseas peers in terms of efficiency.
“Look at Europe where the longshoremen are unionized and many of the terminals are automated, but are much more productive,” the executive said. “When there is efficiency, it helps our ability to offset the wage increases. We’ll pay the higher wages but want to get something out of it in terms of productivity, not just increasing manhours. Otherwise, this is just further inflationary pressure.”
Another US-based terminal executive said the total cost of the wage deal should be juxtaposed against the size of the investment needed to automate US terminals. The source said the higher wages are a necessary investment in maintaining stable longshore workforces along the East and Gulf coasts, but those workers still need to hit benchmarks seen at other global ports.
“How can vessel services keep their schedules when there’s 35 moves per hour at Southeast Asia ports and 19 moves per hour at US ports?” the executive asked.
