BC Port Workers Strike Expected To Affect Supply Chain For Months, Claims Canfor Pulp As First Victim

Canfor Pulp Products Inc. (TSX: CFX) has announced the temporary closure of its Northwood Pulp Mill in Prince George, effective July 13, 2023, a result of limited storage capacity for pulp products, which cannot be shipped overseas due to the labor dispute at B.C. ports. The shutdown is expected to remain in place until the labor dispute is resolved and will result in the removal of approximately 11,000 tonnes of market kraft pulp per week.

Kevin Edgson, President & CEO of Canfor Pulp, expressed concern over the impact of the strike on their ability to deliver pulp products to customers in Asia.

“We are urging the federal government to take action to bring a swift end to the labour dispute at the Ports of Vancouver and Prince Rupert. As a result of the strike, we are unable to ship approximately 70% of our pulp products to customers in Asia,” said Edgson.

Industry expert John Coray, representing the Freight Management Association of Canada, highlighted that even if the strike were to end immediately, it is estimated that it would take until October for port supply chains to return to normal operations. Coray explained that disruptions occur even before a strike begins, as shippers anticipate the impact and adjust their operations accordingly.

The implications of the strike are far-reaching, with imports and exports coming to a halt. Canada’s reputation as a reliable source of goods is being compromised, as customers worldwide seek alternative options to fulfill their demand.

“In a few days, those yards are going to be full. Then, the next step is they’re going to have to actually shut down plants, whether it’s a sawmill or a mine,” he said.

However, Coray noted that grain is not affected by the strike, as it is considered an essential commodity and cannot be subject to a labor stoppage.

The strike, which began on Canada Day, involves approximately 7,400 workers at over 30 B.C. ports. The issues at hand include pay, provisions related to maintenance work, contracting out, and automation. Calls for back-to-work legislation have been made by business organizations and politicians, while Labor Minister Seamus O’Regan advocates for negotiations as the preferred approach.

Negotiations between the two sides resumed on Saturday with the assistance of federal mediators, following a previous impasse. Coray warned that the repercussions of the strike will soon impact jobs, as storage yards reach their capacity and production is forced to halt. He cited examples of sawmills and mines that may have to shut down operations until the products can be transported.

The strike is taking place against the backdrop of a high cost of living, affecting many individuals. Coray emphasized that disruptions in the supply chain have the potential to further increase consumer prices. Around $800 million worth of goods is shipped daily through the west coast ports, accounting for 25% of the country’s exports. While this situation is detrimental to consumers and importers, exporters face an even more challenging situation.

B.C. Premier David Eby recognizes the concerns arising from the ongoing strike and its impact on the cost of living across the country. He joins other provincial leaders in urging the federal government to prioritize the bargaining process and work towards a long-term solution that prevents such disruptions in the future.

According to information provided by the BC Maritime Employers Association (BCMEA), union longshore workers receive a median salary of $136,000 per year, along with benefits. Over the past three years, wages have increased by 10% since the start of the pandemic.

“A Cozy, Powerful Club”

A Center for Future Work study, commissioned by International Longshore and Warehouse Union (ILWU) Canada, the union representing the striking workers, offers a scathing alternative statistics from the side of the laborers.

“The work stoppage at BC ports has sparked predictable rhetoric from employer groups and pro- business commentators and politicians. They claim longshore workers are greedy and resistant to change, and must be forced back to work through legislation, in order to protect the national economy,” the study opened. “This argument has it exactly backwards.”

The study argues that it is, in fact, the shipping companies and terminal operators themselves who are motivated by greed, leading to a disruption in Canada’s economy, including the worst inflation in decades.

According to the report, the six largest global shipping lines, which control 70% of world shipping, are all members of the “influential” BCMEA. These companies, five of which have publicly available financial information, collectively raked in over $100 billion in profits in 2022, marking a staggering 1500% increase since 2019. In contrast, longshore wages in BC grew by less than 10% over the same three-year period.

The study also claimed that skyrocketing profits of the shipping industry can be attributed to their exploitation of the chaos and disruption caused by the COVID-19 pandemic, as they dramatically raised shipping charges. This strategy resulted in an unprecedented surge in profits, effectively shifting the burden onto consumers and workers worldwide.

As the global economy reopened, container shipping costs surged by fivefold. For instance, container freight costs from Asia to North America’s West Coast escalated from $2000 (US) per unit to over $10,000 at their peak in 2022. This price surge contributed to the inflationary pressures that have been unsettling the global economy ever since. Although container charges have somewhat stabilized, overall shipping costs, including terminal fees, remain high. The U.S. Federal Reserve’s index of deep sea shipping costs still registers over 50% higher than pre-pandemic levels.

Terminal operators, the study said, are also taking advantage of the disruption and swiftly increased their fees following the pandemic. Most terminals are owned by private equity groups, which means they are not obligated to disclose regular financial reports. Despite the ILWU requesting to review these reports prior to negotiations, the employers refused.

Within the past two years alone, major BC terminal operators hiked charges for standard services by up to 25%, significantly outpacing general inflation rates. The study said longshore workers cannot be blamed for these rising costs, as their base wages only grew by 6.6% during the same period. Moreover, wages represent only a fraction of the total costs in the shipping sector.

According to their data, between 2021 and 2023, while base longshore wages saw an increase of less than $3 per hour, a typical terminal operator inflated their labor charge-out rate by over $10 per hour, pocketing the difference for themselves.

“Clearly, labour is not the source of rising costs in marine shipping, and the resulting inflation. The greed of shippers and terminal operators, who took advantage of an economic and health emergency to fatten their bottom lines, is the source of the problem,” the study wrote.

Hourly wages for longshore workers align with those of other skilled industrial jobs, the study said. However, under the current dispatch system, they face considerable job insecurity, often experiencing periods of no work at all, and must wait several years to qualify for benefits. In recent years, their wages have significantly lagged behind BC’s exorbitant cost of living, resulting in a 2.5% decline in the real purchasing power of longshore wages since 2017. Additionally, longshore wages have grown at a slower pace compared to wages in the overall Canadian economy.

Information for this briefing was found via CityNews and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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