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Feb 19

US Port Labor Strike: Does Force Majeure Apply for Kiwi Exporters?

THE US PORT LABOR STRIKE: FORCE MAJEURE?

Many New Zealand exporters to the United States have felt the impact of the ongoing labor strike between the US Longshore and Warehouse Union (“ILWU”) and the Pacific Maritime Association (the association which represents US West Coast cargo carriers, terminal operators and stevedores). The dispute’s central issue concerns disagreements between the dockworkers and the port owners and shippers over a new collective bargaining agreement (the employment contract which applies to all union members).

Labour disputes such as this one definitely affect the ports’ productivity, as both side engage tactics to put economic pressure on the other side to agree to their terms. Part of the ILWU’s alleged tactics have been a work slowdown, where dockworkers purposefully slow down their productivity as an informal means of putting pressure on the members of the Pacific Maritime Association during the negotiations. The ILWU denies conducting a slowdown, as for the most part it is an illegal unfair labour practice under US federal law. The ILWU blames the loss of productivity on port congestion caused by chassis dislocation, near record container volume, and the inability of most terminals to handle larger vessels. On the rather foreboding date of Friday the 13th of February, the dispute reached a boiling point with a partial suspension of port operations by the Pacific Maritime Association in retaliation against the ILWU workers for their alleged slowdown tactics.

Under US law, the White House can sometimes intervene in a labour union dispute under the Taft-Hartley Act (also known as the Labor Management Relations Act of 1947 codified in 29 USC Section 401-531). The Taft-Hartley Act regulates the right to strike and prohibits unfair labor practices such as slowdowns by unions and lockouts by employers. The allegations that both sides are employing these tactics in the current dispute brings about the likelihood that the White House could intervene here with a Taft-Hartley injunction, which asks a US court to order that any slowdown or lockout be temporarily suspended (for 80 days) while negotiations continue. The President is authorized by the Act to ask for such an injunction where “a threatened or actual strike or lockout affecting an entire industry…will, if permitted to occur or to continue, imperil the national health or safety.” 29 USC §176. It is apparent that the port congestion imperils the US economy. However, whether President Obama would intervene with a Taft-Hartley injunction is unknown; as such a move would be politically unpopular amongst his Democrat supporters.

The impact of the congestion at the West Coast ports has been felt around the world, as these ports serve as a major conduit of the global supply chain. The impact of the congestion on NZ exporters is evidenced by rising shipping rates and the increased necessity for compulsory air freight shipments to get NZ goods into the US in order to fulfill contractual obligations on delivery targets. This places major pressure on Kiwi companies’ profit margins and may cause claims for breach of a supply agreement when delivery obligations are unfulfilled. To complicate matters even further, for NZ exporters who have shipping terms which place the expense for shipping to their distributors’ or end-customers’ location in the interior of the United States (ie, shipping under the Incoterm DDP), interstate trucking rates are expected to sky-rocket once the port congestion issues clear up and the containers are unloaded.

NZ exporters with decent contracts or purchase order terms and conditions with their US counterparts may have a very important mechanism to ease the burdens caused by the port congestion dispute under the force majeure clause. Under US law, a force majeure clause excuses performance under a contract where there are certain acts of God, war and civil unrest issues, and often times also strikes and labour disputes, which prevent performance of the contract. However it is important to note that the increased cost of shipping cannot alone trigger a force majeure claim unless those costs are insurmountable.

In order to determine whether the force majeure applies to an agreement, a review of the clause is required in order to determine if labour disputes are specifically covered. A well-drafted force majeure clause will list all the specific events which could trigger the clause’s protections, may set up a notice procedure that the exporter must follow, and will detail the effects of the clause’s protections (such as suspension of performance or termination of the contract).

While the end of the labour dispute causing the massive congestion of the West Coast ports is in sight, the headache it has caused for NZ exporters is likely to reverberate for quite some time. If an NZ exporter’s contract contains a force majeure clause covering labour disputes, this could potentially save the exporter from huge losses or breach of contract claims. NZ exporters should check their contracts to determine if the force majeure clause provides this type of protection, and should consider inclusion of this term in the future on all contracts if they do not

- Zachary D. Norris, JD, LL.M. and Ada Echetebu, JD, LL.M.

*This article is for general informational purposes only and does not constitute legal advice, nor should it be construed as constituting any legal advice from Norris Echetebu Law, The Norris Law Firm or any of its affiliated lawyers. For specific analysis of your US legal issues, please contact the attorneys at Norris Echetebu Law at +64 (0)9-889-2602 or visit us on the web at http://nz-uslegal.co.nz/