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Friday, September 28, 2012

Potential strike by Longshoremen would cripple East Coast Economy

Last week, as the Chicago teachers’ strike was puttering out of the news cycle and the National Football League’s lockout of its referees was thundering in, a federal labor mediator announced to little fanfare that the International Longshoremen’s Association and U.S. Maritime Alliance had agreed, “for the good of the country,” to extend the master contract governing dock work from Maine to Texas for 90 days.
The media barely covered the news, but the implications were enormous. If the two sides had failed to reach a deal before the existing contract expired on Sept. 30, the resulting chaos would have touched not only the 20,000-some longshoremen who punch a clock on the East Coast, but thousands of truckers and railroad men, mechanics and warehouse workers, and the many millions of Americans who buy and sell automobiles, home electronics, designer jeans, toothpaste and anything else that’s manufactured on foreign shores. Pretty much everyone.
Three months from now, it could still happen.

The last time the U.S. had a major work stoppage on the docks, when the West Coast longshoremen’s union was locked out amid stalled contract negotiations in 2002, the economic costs were said to reach $2 billion a day. And then there are the political implications. Had the ILA followed through on its strike threat, President Barack Obama would have faced an interesting decision not five weeks from Election Day: allow the work stoppage to drag on an already sluggish economy, or invoke Taft-Hartley to send the longshoremen back to work, provoking the ire of a loyal and powerful constituency.
There are reasons for the lack of attention. In an era when virtually every consumer good is available at the click of a mouse, it’s easy to take for granted the massive enterprise required to move a pair of Nikes from a factory in Vietnam to a stockroom on the Upper West Side. Perhaps as important in explaining the quiet surrounding the issue is that neither side in the negotiations is known to cherish attention. One is a labor union with a history of mob ties dating back to the days when stevedores gaffed stray cargo with steel hooks. The other is a group of mostly faceless institutional investors who have been snapping up terminal operators for the last five or so years.
There’s a famous story about ILA President Harold Daggett. It was the early 1980s, and as the newly elected secretary-treasurer of Local 1804-1, Mr. Daggett had taken it into his head to move the local’s offices closer to the New Jersey waterfront, where his membership worked. The idea went over well with the local president, and with the bank officer who approved a loan for a union hall behind a tangled stretch of rail yard in North Bergen. But not everyone was onboard.
Mr. Daggett was still working out of the old local offices at 403 Greenwich Street when a messenger ferried the young union man to a grocery store in East Harlem. Beyond a pair of steel doors in a windowless storeroom, a Genovese family hitman was waiting, a canvas athletic bag thrown open on the floor.
“You motherfucker,” said the mob tough who awaited him in a dimly lit back room. “Who the fuck are you to take this local away from me?”
At least, that’s the story Mr. Daggett told in federal court in 2005, where he faced charges of conspiracy and extortion.
Daggett told the court: “I said, ‘I’m not taking anything, I’m going closer to the membership,’ and he pulled out a gun and shoved it in my head. I said, ‘Please, don’t do this to me,’ and he cocked back the trigger and he said, ‘I will blow your brains all over the fuckin’ room. I’m going to kill you.’”
Mr. Daggett walked out of the storeroom alive, and he moved his local to North Bergen. But the union’s relationship with the mafia persisted. In 1987, a federal commission reported that the ILA “has been virtually a synonym for organized crime in the labor movement.” In 1999, a federal judge found that Local 1588 in Bayonne was under control of the Genovese crime family; five years later, the same local was placed under court monitorship after investigators discovered that the union’s top officials were kicking back half of their salaries to the mob. In 2010, Nunzio Lagrasso, then vice president of the ILA’s Atlantic Coast district, was charged with extorting tribute payments after longshoremen received their Christmas bonuses.
When approached for comment, the ILA lived up to the ideal posited by Johnny Friendly’s gang in Elia Kazan’s 1954 classic, On the Waterfront, keeping it “D and D,” or deaf and dumb, declining to return emails and phone calls. In past statements, representatives have said that charges against the ILA amount to a governmental effort to take control of the union.
Whatever the truth of that claim, the whiff of organized crime emanating from the harbor didn’t prevent institutional investors from engaging in a dockside turf war of their own. Beginning in 2006, when the soon-to-be-embattled insurer AIG acquired a terminal operator with businesses in Newark, Philadelphia, Baltimore, Tampa and Miami, container terminals became hot properties. By the end of the following year, Deutsche Bank and the Ontario Teachers’ Pension Fund had also bought into the Port of New York and New Jersey, and Goldman Sachs had acquired a majority stake in SSA Marine, the biggest terminal operator in the U.S.
Of course, those were the days of the boom economy, when buying into the shipping business seemed like a smart way to get linked to inflation and take advantage of the growth in global trade. As a result, the investment funds paid great multiples on earnings for the terminal operations. When Dubai Ports World took over CSX World Terminals in 2004, it paid 14 times earnings, according to research published by Jean-Paul Rodrigue, a professor of transportation and logistics at Hofstra University. When Deutsche’s RREEF Infrastructure fund bought Maher Terminals in 2007, it paid a multiple of 25.
“Just like there was a real estate bubble, there was also a port real estate bubble,” Mr. Rodrigue told The Observer. “People bought ports at very high rates, so they had very high expectations.”
Then the financial crisis came steaming toward shore. The bottom fell out of the housing market, and workers were laid off in droves. Demand for foreign goods plunged, and container traffic slowed to a crawl. If the institutional investors that bought in at the high end of the market were going to make good on their acquisitions, they’d have to get serious about cutting costs.
“The new players in the shipping business are looking at significantly diminished earnings,” said Chris Ward, the former PANYNJ chief. “It’s gone into a nose dive due to the economy, and people are beginning to ask, ‘How are we going to recover that cost?’ The ILA contract has potential for that.”
Last July, as Sam Cooke’s “A Change is Gonna Come” played over the speakers in the ballroom of the Westin Diplomat Resort & Spa in Hollywood, Fla., Mr. Daggett, a bald bear of a man, appeared on a podium to formally accept the position of ILA president and warn his delegates of the fight to come.
“Investment bankers, pension funds, have invested billions of dollars in our industry,” he said. “And they fully intend to get a return on investment.”
From where Mr. Daggett stood, that meant the new terminal owners would soon be pushing for increased automation on his docks—rail-mounted gantry cranes, which not only move containers off of ships but carry the boxes around the yard, and powerful software that tracks the cargo, allowing truckers to locate their freight with less human assistance.
In case the delegates wondered where Mr. Daggett stood on such innovations, he told them about what he’d seen on a visitto the Port of Rotterdam two decades back: a ship-to-shore crane lifting containers onto railroad cars, smaller cranes at the end of the line lofting containers onto stacks. The entire operation seemed to be run by a handful of computer operators in a glass-enclosed tower.
“There was not one person on that terminal who was there to run that terminal except those men in that tower,” Mr. Daggett said. “If I had a hand grenade, I would have threw it up there.
“It was terrible,” he continued, “I was sick. You gotta believe me, we are against automation in the U.S. on the East Coast and the West Coast.”
The degree to which Mr. Daggett’s explosive imagery should be credited is unclear. Joseph Curto, president of the New York Shipping Association, which represents management in negotiations over local contracts, told us that Mr. Daggett has an inclination toward “colorful language.”
“He’s a strong union leader, and he’s interested in protecting the jurisdiction, better benefits and pay,” Mr. Curto said. “He’s doing all of the things that a strong leader does.”
One source suggested that, Mr. Daggett’s public stance notwithstanding, he knows change is inevitable and is intent on making the best of the situation. “If that technology is eliminating jobs, it’s also creating them somewhere down the line,” the source said. “If automation is going to create jobs, that should go under the union’s jurisdiction.”
In the days before container shipping revolutionized global trade, dockworkers performed grueling work for low pay and uncertain hours. Containers changed that, replacing sheer manpower with mechanized cranes, reducing at once the number of hands needed to work a ship.
As the old longshoremen left the docks, the union’s rank-and-file dwindled, but the jobs that remain pay well. The average longshoreman earned $124,000 last year, according to the USMX, while in New York, one-third of ILA members earned more than $208,000. What’s left is a membership that may be better able to withstand a strike—at least economically—than any other. What’s more, the ILA’s role as the gatekeepers of global trade allow the union to exact an economic toll out of proportion to the size of its membership.
“They’re strategically located in the choke-hold position,” noted David Jaffee, a sociologist at the University of North Florida who studies transport workers. “This is the last stronghold of union power in the U.S., or in the supply chain at least.”
In the end, automation wasn’t the issue that brought the ILA to the brink of a work stoppage. In July, USMX CEO James Capo said the sides had reached a tentative agreement on terminal technology. Having given ground on the issue, though, USMX demanded concessions.
In the early days of containerization, the ILA struck a sweetheart deal. Recognizing that the new container cranes would vastly reduce the need for longshoreman labor, the union demanded and won a guarantee that the workers would not lose their jobs to the new machinery. For decades, that meant longshoremen got paid for a set number of hours regardless of whether their labor was required. While the workers who received those early guarantees are gone from the waterfront, the principle remains intact, with pension plans and bonuses funded by royalties based in part on the weight of containers that cross the terminal.
Other rules vary from port to port. To operate a ship-to-shore crane in New York and New Jersey, management is required to employ three crane operators, though only one works the crane at a time. Shop stewards, meanwhile, get paid whenever a member of their craft is on the clock, no matter where the shop steward is or what he’s doing—an arrangement that allowed Ralph Gigante, a relative of former Genovese family boss “Vinny the Chin,” to earn more than $400,000 in 2009, and allows ILA timekeepers to be paid for more than 25 hours in a day.
“The one advance with which the ILA can be credited is the discovery of quantum economics,” said Matt Yates, director of commercial operations for American Stevedoring Inc., which operated a container terminal in Red Hook until last year. “It’s where workers are being paid by different companies at the same time, when they’re at none of the workplaces.”
(Still, as Sopranos capo Christopher Moltisanti once put it, “This no-show shit is hard—deciding what not to wear to work, what not to put in my lunchbox …”)
In August, having compromised on automation earlier in the summer, management insisted that the union give ground on work rules, including pay practices and guaranteed hours in the Port of New York and New Jersey. Mr. Daggett dug in, calling a halt to negotiations and threatening a strike.
On a recent afternoon, The Observer stopped by the Port Newark Container Terminal, owned in part by former AIG subsidiary Highstar Capital. Orange ship-to-shore cranes danced a mechanical ballet, lifting containers off a Moravian vessel called the Jennifer Rickmers and setting them ashore, from where a platoon of $1 million “straddle carriers,” piloted by longshoremen perched in cockpits two stories high, sorted the boxes along the docks.
As we headed toward the cranes, we asked our guide about a pile of scrap metal towering over the terminal. The junk, it turned out, is the biggest export from the Port of New York and New Jersey—that is, if you don’t count empty containers. Waste paper and used clothing are other big exports. “To some degree, we’ve become a colony to the manufacturing nations of the world,” Thomas Wakemen, the deputy director of the Center for Maritime Systems at Stevens Institute for Technology in Hoboken, told us. “The world has changed.”
At the docks, change may need a little longer to take hold. Although the 90-day extension announced last week moved a potential work stoppage past the presidential election, the core issues remain. The ILA must defend its jobs. The terminal operators still need to cut costs.
Shmuel Yahalom, a professor of economics at SUNY Maritime, threw up his hands when asked what the economic impact of a strike would be. “The price tag on a work stoppage is almost too big to determine,” he told us, adding that the East Coast is more densely populated and utilizes more ports than the West Coast. Start with the billions of dollars a day the work stoppage on the West Coast waterfront caused in 2002, and estimate upward.



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