Port Labor Talks Enter New, High-Stakes Phase With Contract Expiring

In a joint statement Friday, the two sides said they hadn’t reached an agreement to extend the contract, while work on the docks goes on as negotiations for a new labor deal continue.

The congestion at the Southern California ports has been at the center of U.S. supply-chain snarls that have contributed to spikes in inflation and tied up retail and manufacturing inventories.

More recently the gridlock has eased, but a return to big backlogs at West Coast ports ahead of the peak holiday-shopping periods this fall would be disastrous for merchants. It would also be a blow to the Biden administration, as port congestion would push up shipping costs just as the government is trying to tame inflation running at a four-decade high.

The International Longshore and Warehouse Union, which represents 22,400 dockworkers at 29 ports, and the Pacific Maritime Association, which represents employers and ocean carriers, met with President Biden in early June to discuss the talks. The two sides later released a joint statement saying they aren’t preparing for a strike or a lockout of workers.

On Thursday, Labor Secretary

Marty Walsh

said the talks had gone smoothly so far, without major disagreements between the sides.

“This negotiation has been going on now for six weeks,” Mr. Walsh said. “That’s not a lot of time and this contract is a very big contract. I’m assuming there will be issues. There’s going to be tough conversations. But that’s the beauty of negotiations.”

Importers and freight industry officials remain wary after strife during contract talks in 2002 and in 2014 caused dozens of container ships to pile up off the Southern California coast, costing individual retailers millions of dollars in increased costs and lost sales.

No one expected an agreement before the expiration of the contract. Shipping industry officials have said the union’s leverage is greater after the contract expires and when bringing goods into the country becomes more urgent later in the year.

Some importers are already rerouting cargoes to East Coast ports as a hedge against West Coast disruptions. “I think everybody is anticipating some kind of slowdown and that’s why we are seeing such a shift of cargo from the West Coast to the East Coast,” said

Craig Akers,

director of operations at the Toy Shippers Association.

The two sides agreed not to talk about the negotiations, which began May 10 in San Francisco. Before talks began, the parties said the discussions would be conducted daily. Observers say union leaders have taken two dayslong breaks in the talks, which has slowed progress.

The expiration of the contract without an extension removes mechanisms for handling workplace grievances and raises the specter of slowdowns if there are labor disputes at any of the ports.

People familiar with the talks say the two biggest issues in this year’s negotiations are worker pay and employers’ desire to bring more automation to their container terminals.

The ILWU agreed to allow automation in a previous contract, but in practice it has chafed against operators’ efforts to add robotics on the docks. Two of the 13 container-handling facilities at the Southern California ports have been fully or partially automated. Two other terminals have started to introduce automation, or say they plan to do so.

The employers’ group released a report before talks began in May touting the efficiencies of automation, saying the most advanced automated facilities at the Southern California ports processed containers up to twice as fast as neighboring conventional terminals. It also cited payroll data, saying the average dockworker with more than five years’ full-time experience in 2019 earned almost $190,000 annually.

A report underwritten by the union and released Thursday countered that automation is neither efficient nor productive and that it eliminates jobs. On salaries, it said that in 2019 the average dockworker at Los Angeles and Long Beach—who make up about three-quarters of the coastwide workforce—earned $89,950.

“It can be loud, stinky and hard work, but I think we are compensated well,” said

Jaime Hipsher,

a 46-year-old dockworker who drives a truck that hauls containers at the ports. Ms. Hipsher said she makes between $80,000 and $110,000 a year, depending upon how many shifts she can pick up, but she said there are fewer jobs to choose from because of expanded automation.

The labor report also said California should impose a tax on automated terminals in Southern California to make up for lower tax revenues from any dockworker jobs lost to automation.

The union has argued that its workers deserve a pay increase after moving record amounts of cargo during a global pandemic as ocean shipping lines made record profits. Denmark-based Sea-Intelligence estimated that global shipping lines that publicly report results counted more than $120 billion in earnings last year, triple the profits of the previous 10 years combined.

Shipping industry officials say importers are diverting cargo away from the West Coast in part because of last year’s congestion and because they still face delays in inland transportation from Los Angeles and Long Beach.

The cargo surge on the East Coast is causing ship backups from New York to Savannah, Ga.

Griff Lynch,

executive director of the Georgia Ports Authority, said there were a record 34 ships waiting for a berth off Savannah on Thursday.

“There’s not many shippers we talk to that don’t say they are trying to work around the West Coast,” he said.

Write to Paul Berger at Paul.Berger@wsj.com