Three lessons from the US port crisis

There are only two weeks left before the US election, and most of what you’ll read in political coverage between now and then will be about the tick tock of the campaigns. So, as a last look back at the Biden administration and what it has meant for America, I’d like to focus on the recent port strike and how it was successfully defused by the White House.

The basic story is that the National Economic Council and its Supply Chain Task Force, answering directly to the president, began negotiating with all the participants in the strike — the ports, terminals, multinational shipping giants, labour unions and local officials — back in May, a full four months before the International Longshoremen’s Association members’ contract expired on September 30. The first task was to try and mitigate the effects of the strike on the east coast, where roughly half of US imports and exports dock. To that effect, the White House looped in retailers, which began to redirect shipments to the west coast and through other channels less likely to be affected by the strike. This effort, which involved learning from the pandemic and Baltimore bridge collapse, is one reason that we didn’t see a bigger supply-side hit from the strike.

But the efforts really heated up as NEC officials began to dig into the details of the conflict, and in particular the balance sheets of the global shipping giants. As one administration official told me, “When we started to take a look at this industry and its profits, it was remarkable how much higher margins were than where basic supply and demand dictated that they should be.”

Indeed. Here’s a quick look at just how Croesan the profits of the major global shipping companies have been, relative to port workers’ wages.

Between 2015 and 2023 members of the United States Maritime Alliance (USMX), which represents foreign-owned shipping companies, reported profits that were up at least 350 per cent. Compare this to wages for American workers which were up 42 per cent and wages for ILA union workers, which were up just 15 per cent.

The biggest foreign-owned groups in particular, several of whose executives sit on USMX’s board of directors, raked in hundreds of billions in profit and passed on record profits to shareholders. Maersk paid out more than $10bn in dividends to shareholders in 2023 and more than $6bn in 2022, while Hapag-Lloyd paid €11bn in dividends in 2023 and more than €6bn in dividends in 2022.

And many of the CEOs and their families are among the richest people in the world. The Aponte family, owners of Mediterranean Shipping Company, made tens of billions during the pandemic and became the richest family in Switzerland with estimates of the family’s net worth increasing up to $100bn.

The MSC Group, perhaps accidentally, lifted the lid on its financial performance for the first time recently. The holding company of the world’s largest shipping liner company reportedly made $38.4bn in profits. The Saade family, majority owners of France’s CMA CGM, received a multibillion-dollar windfall from the company’s record profits during the pandemic. Evergreen’s Chang brothers had a combined net worth of $4.1bn, according to Forbes as recently as May.

The imbalance between capital and labour is a passion point for the president. So four days before the September 30 deadline he personally made it clear that there was no way that the administration would be invoking the Taft-Hartley act, which would allow the government to break the strike. Instead, he ordered the parties to the table, and senior White House officials spoke to companies one by one, making it clear that massive profit gouging in the midst of a pandemic while refusing to pony up more money for labour wasn’t a good look.

And, it worked. As one administration official told me, “[the shipping giants] certainly didn’t want to be blamed for a supply-side shock to the US economy”. I’m guessing that they weren’t so keen on the potential of such an event ushering in Trump 2.0 either.

Almost no press has focused on this issue, perhaps because it’s about Joe Biden’s efforts rather than Donald Trump or Kamala Harris. But the lessons from the port strike and its resolution are important for policy and business leaders going forward. I’ve summarised the top three takeaways below.

1.) Grotesque corporate profiteering on the part of multinationals is now going to be named and shamed by US officials. Look for this to increase dramatically (and, I must admit, ironically) if Trump is elected, but I suspect Harris will do some of the same.

2.) The federal government is now actively involved in preventive market shaping in the public interest. This dovetails with the post-neoliberal era that Biden has ushered in, which — as I describe in my column today — actually takes us back to the true roots of the Bretton Woods agreements, which were unfortunately watered down by large corporate interests over the past several decades.

3.) Labour is putting more pressure on companies not only around wages and benefits but also technology. This port strike follows other work stoppages, like those in Hollywood last year, which were basically about how and whether companies can replace workers with technology. Consider that the reason we’ve arrived at this political moment is because 8-12 per cent of the industrial workforce in rich countries was disrupted by China and technology. We are about to see artificial intelligence, automation and other advanced industrial technologies become the China shock 2.0. How companies and governments deal with this will be a matter of life and death for democracy.

Peter, what do you make of the port strikes? Are there any lessons you’d add to my list?

Recommended reading

Don’t miss Zephyr Teachout’s fantastic piece in The New York Review of Books on why Harris must not decouple from the Biden administration’s position on trade. This is her crucial vulnerability, but there is still time to fix it.

Lots of great stuff in the pages of the Financial Times this week, including my colleague Ed Luce on the possible outcomes of the US election, and Martin Wolf on whether (and how) China can cure its economic ills.

Also in the FT, my colleague Sujeet Indap had a sharp look at how lawyers’ oversized compensation packages may be pushing the entire justice system in the wrong direction: And Elaine Moore examines why tech bros want so many kids. Answer: masters of the universe think their “superior” genetic material should be spread widely. I fear narcissism will be too.

Otherwise, I’ve been digging into some interesting new books, including The Unaccountability Machine, by Dan Davies, about why bigger isn’t better when it comes to complex systems. I’m also reading British historian Hannah Durkin’s fascinating account of The Survivors of the Clotilda, which was the last slave ship to enter the US. The sheer nearness in time of this event (1860, five decades after the slave trade, though not slavery itself, was supposed to have been abolished) will give pause.

Peter Spiegel responds

Rana, you’ve written extensively and compellingly about the strange economics of the international shipping industry, so far be it from me to challenge you on your analysis and conclusions. It would be, in the words of Walter Winchell, a battle of wits with one of us unarmed.

But your account of the Biden administration’s active participation in the dispute — and its decidedly pro-labour stance on the strike — is worth considering for another reason, I think. Biden has rightfully characterised his presidency as the most pro-union in modern history. Not only did he side with the longshoremen’s union in the port strikes you cite, he also famously joined the picket line with the United Auto Workers last year during their work stoppage against the major US carmakers. 

That presidential advocacy has coincided (or, some would argue, triggered) one of the most turbulent periods of labour unrest in recent history. According to the Department of Labor, there were 35 major work stoppages in 2023 affecting 460,000 workers. That was the second-most number of striking workers in the US since the 1980s.

In addition to the longshoreman and the UAW strikes, Boeing is attempting to settle a month-long work stoppage by its machinists; the Hollywood writers and actors struck against major movie studios; and Starbucks and Amazon have been attempting to fend off efforts to organise their workforces. The National Labor Relations Board recently announced it had received 3,286 petitions to organise over the past 12 months — more than double the number from when Biden came into office.

Aside from the merits of any of these actions, there are important political ramifications — none of which have seemingly been beneficial to Biden and would-be successor, Kamala Harris.

The first consequence of Biden’s labour advocacy is that it has been added to the list of particulars wielded by business leaders when they argue that this White House is uniquely anti-business. On top of aggressive antitrust policies at the Federal Trade Commission and the Justice Department — as well as active regulation and enforcement at the Securities and Exchange Commission — Biden’s pro-labour stance is one of the most frequently raised complaints I hear from business leaders. I think this is why you don’t see the kind of business support Barack Obama and Bill Clinton received for their candidacies. 

The second byproduct of Biden’s stance is a warped mirror of the first: despite business anger over the president’s advocacy, the Democrats have seen no real uptick in support from union members. Teamsters president Sean O’Brien actually spoke at the Republican convention in Milwaukee earlier this year, and his union failed to endorse anyone for president, the first time the group did not back a Democrat in nearly 30 years. And polling shows that barely half of union members support Harris. 

This is not good news for Harris, especially in union-heavy swing states in the industrial Midwest. So Rana, despite what you argue are strong economic merits of Biden’s intervention in the port strike, I don’t think he’ll see any political gain from his intervention. Union members seem to be thanking him by backing Donald Trump.

Your feedback

And now a word from our Swampians . . .

In response to “America must relearn diplomacy — the Eizenstat way”: “My wife and I had the good fortune to be visiting Berlin several years ago and to be able to see Ambassador Eizenstat speak about Holocaust reparations and to introduce to the audience a Holocaust survivor who also gave a riveting talk. What most impressed me was how Eizenstat put Germany’s remorse (of course, as we see today, not universal there) and reparations in context given the dithering by many other countries. He was giving credit where it was due, notwithstanding no doubt growing up as I did with a strong aversion to the country.

Additionally, I would also note that many in previous generations of diplomats from the US state department (and perhaps still) not only didn’t care a lot about what happened to the Jews but also wouldn’t hire a Jew for the department were they not eventually forced to. Fortunately, things have improved at the state department over the years, and Eizenstat is a key reason why.” — Rick Soloway