'Container Cliff' Avoided Until Early February
CNBC Senior Talent Producer
After a week of secret negotiations, The Federal Mediation and Conciliation Service announced that an agreement has been reached between the International Longshoremen's Association and the U.S. Maritime Alliance that will avert the strike of 14,500 longshoremen members in 14 major East Coast ports spanning from Maine to Houston, including the New York and New Jersey port, on Dec. 30.
Talks between the dockworkers and the shipping companies broke down Dec. 18, just weeks after a critical West Coast port complex was crippled by a strike involving a few hundred workers. Issues including wages are unresolved, but the key sticking point is container royalties, which are payments to union workers based on cargo weight.
"The container royalty payment issue has been agreed upon in principle by the parties, subject to achieving an overall collective bargaining agreement." said FMCS Director George H. Cohen, who led the mediation.
The parties initially agreed to an additional extension of 30 days until midnight on Jan. 28 when both parties shall negotiate all remaining outstanding Master Agreement issues, including those relating to New York and New Jersey. Later, the union and the Maritime Alliance agreed to extend it even further, until Feb. 6, because of the holidays.
(Read More: Beyond Twinkies: Why More Workers Are Striking)
"Given that negotiations will be continuing and consistent with the Agency's commitment of confidentiality to the parties, FMCS shall not disclose the substance of the container royalty payment agreement," Cohen said. "What I can report is that the agreement on this important subject represents a major positive step toward achieving an overall collective bargaining agreement."
News of the extension is a welcome update for the National Retail Federation, but the federation's President and CEO Matthew Shay issued the following statement urging for a long-term contract agreement to be finalized: "While a contract extension does not provide the level of certainty that retailers and other industries were looking for, it is a much better result than an East and Gulf Coast port strike that would have shut down 14 container ports from Maine to Texas."
The National Association of Manufacturers (NAM) told CNBC a strike would come at a price tag of $1 billion per day. Robyn Boerstling, the association's director of transportation and infrastructure policy, welcomes the news but said in a blog it is critical for both parties to use this time wisely and reach an agreement
"Manufacturers implemented costly contingency plans this month, and the last thing manufacturers need is a repeat of the same scenario in January," Boerstling said. "Even with this progress outlined today, uncertainty remains until a final agreement is reached."
One retailer, Ingrid Hirstin Lazcano, founder of Andean Dream which manufactures gluten free cookies, pasta and soup mixes made of "Royal" Quinoa in Bolivia, was so worried about the impact of the strike that she wrote a letter to the Obama Administration urging for a compromise to happen.
"Finally in the 11th hour we see an agreement," she said. "We live in such a global economy, a port ground would leave the balance of global trade on shaky ground. I am so relieved. The loss of jobs from a strike and the revenue to the ports would have a deep impact on an already fragile U.S. economy."
The New York-New Jersey port is the second largest port to handle manufactured goods from China and is the largest port on the East Coast. In 2011, the New York-New Jersey port handled $208 billion in cargo — the most on the East Coast.
Approximately 3,200,000 TEU, a shipping measurement that stands for twenty-foot equivalent units, of containers and 700,000 cars are handled per year in the port of New York New Jersey. According to economic data from the Port of New York and New Jersey, the port generates more than $5 billion in annual tax revenues to state and local governments.
According to shipping experts, the New York and New Jersey port handles approximately 10 percent of China imports, 69 percent of Israeli imports and 37 percent of Italian imports.
The products imported from these countries include furniture, plastics, apparel, beverages and chemicals. In 2011, the New York-New Jersey porthandled $208 billion in cargo, the most on the East Coast.