Freight Forward - The Bumpy Road to "Normal"

Welcome to Freight Forward, where each Monday, I’ll recap what happened in supply chains the previous week through?JOC.com?articles and additional sources and also what to expect for the week ahead.

Just in case you’re wondering, I’m Cathy Roberson, a supply chain writer, and researcher. For this weekly series, I serve as a research analyst for the Journal of Commerce (JOC), for whom I identify trends, provide thoughts and input into stories and assist with parcel last-mile queries.

As ocean, air, trucking, and rail rates continue to ride a two-year bumpy road of ups and downs, a look back at the height of COVID-19 should be a huge reminder to all of us that risk mitigation is of the utmost importance in strategic planning.

“Even if trans-Pacific spot rates descend to pre-pandemic levels, which they are rapidly doing…attitudes to supply chain risk formed over the past two years won’t change nearly as quickly because the shock was too great to ignore,” writes JOC’s Peter Tirschwell.

Indeed, investments in risk mitigation tools are likely to increase including the need for visibility across supply chains. One such example recently announced is Project44’s new platform called Movement. According to project44 its aim is to better connect the independent modes and regions into which it expanded through its 2021 purchases of ocean visibility providers Ocean Insights and ClearMetal and last-mile visibility provider Convey.

Signs of ‘normal’ are increasingly popping up. The Non-vessel operators (NVOs) market share seems to have returned to normal to 49% for the first seven months of 2022 after handling a record high 51.4% of US imports from Asia for 2021 according to data from PIERS, a sister company of JOC.com within IHS Markit, part of S&P Global. Total eastbound trans-Pacific NVO volumes dipped 2.4% YoY through July, while carrier direct volumes climbed 14.7%. This data does not include less-than-container load (LCL) volume handled by neutral NVOs. The same five NVOs occupied the top five spots in the list as last year despite handling less cargo, but with Expeditors International advancing from second to first, Apex Group dropping from first to third, and Kuehne + Nagel moving up a spot from fourth to fifth.

However, normalcy at some ports seems to be elusive for now as contract negotiations continue with US West Coast port workers. It’s now reached a point in which job actions in Oakland and the Northwest Seaport Alliance of Seattle and Tacoma have slowed down cargo-handling operations and prevented some terminal operators from working night shifts, waterfront sources told JOC.com.

In addition, the International Longshore and Warehouse Union (ILWU) accused terminal operator SSA Marine of conspiring with the machinists union to “trigger” a National Labor Relations Board hearing into its jurisdictional claim over approximately 25 port mechanics jobs at the Port of Seattle’s Terminal 5 (T5).

Meanwhile, Mediterranean Shipping Co. joins the list of ocean freight carriers that have invested in air cargo. The company announced its MSC Air Cargo division with the first of four long-haul Boeing 777-200 freighters, leased and operated by Atlas Air, scheduled to begin operations in the fourth quarter.

“This is our first step into this market, and we plan to continue exploring various avenues to develop air cargo in a way that complements our core business of container shipping,” MSC CEO S?ren Toft said in a statement.

The announcement comes as air cargo rates out of Asia have fallen since the record highs of last December, driven by slowing demand, a rise in available capacity as long-haul travel picks up, and shippers moving back to ocean carriers as port congestion eases.

• ?“Long-term rates are, in many cases, double the spot market, and are not likely to drop below spot rate levels anytime soon,” said Mads Ravn, vice president for air and sea in the US at DSV.
• ?“We see capacity exiting markets like Hong Kong and Vietnam to try to stop the erosion of rates which have already hit unsustainable levels for full freighter flights,” Ravn added. “That being said, we have seen an absolutely crazy development for the good and bad in the past two years, so we still recommend balanced long-term fixed solutions backed by guaranteed capacity.”
• Thomas Mack, executive vice president for global air freight at DHL Global Forwarding, said another reason for falling rate levels was that the spillover from congested container shipping markets that pushed shippers into the air was flowing back to ocean.
• ?“This is taking some pressure off the market and spot rates are currently declining,” Mack told JOC.com. “However, we need to monitor the situation carefully, especially in case there are regional lockdowns in China again.”

Another sign that ‘normalcy’ may be returning is BNSF Railway saying that a quarter of the container backlog that has disrupted operations at its Dallas-Fort Worth intermodal terminal has been worked down through better equipment turnaround, improved yard operations, and greater chassis availability. But rail volumes out of the Southern California ports still need metering as the terminal works through thousands of long-dwelling containers.

As a result of the backlog decline, Tom Williams, group vice president for BNSF Railway’s intermodal business said BNSF is now able to run more trains from the LA-LB port complex and foresees more train capacity out of the ports this week. Williams added that there were days shortly after Labor Day when BNSF had to "significantly meter" trains between Southern California and Dallas-Ft. Worth because available space inside its terminal was extremely limited, but he believes the worst has passed.

• “We are taking a tough situation and making it less bad by getting the stacks organized, making chassis available, and trying to make it an orderly operation there,” Williams said. “Ideally, we would have a very limited volume stacked at Alliance. It’s not designed as a stacked operation.”
• “We’ll be diligent about what we load at the port[s] and balance that with what’s able to go out on the street,” Williams said. “We’ve made significant progress week over week, both in terms of what’s stacked and the increase in the number of trains out of LA-LB that will move this week.”

From JOC’s Inland Distribution Conference

If you missed the updates from the conference, please check them out here and here. I was fortunate to meet several folks in person that I've met on social media - one of which was Matthew Leffler, aka the 'Armchair Attorney'. Matthew hosts a podcast that I encourage folks to view. At the last minute last Friday, Matthew graciously hopped on a Zoom call with me to chat about his top takeaways from the conference:

A few session updates:

Warehousing demand continues to climb throughout the US and there’s no sign demand will slacken anytime soon, speakers told the JOC Inland Distribution Conference in Chicago. That demand is forcing warehouse operators and customers to innovate as freight continues to pile up, filling not just warehouse space but trailers and containers. The warehousing market in Chicago, the largest US inland hub, is “absolutely crazy,” said Karen Galena, president of specialized services at First Logistics, a Chicago-based warehousing services company.

“I’ve never been in a position where people are calling every day looking for space,” Galena said during the conference’s Inland Market Report panel. “We have new customers that need warehousing space, and existing customers who want to expand their space with us.”

New customers mostly want temporary storage. “They’re looking for storage for three months, six months, less than a year because nobody knows what’s going to happen in the marketplace,” she said.

Meanwhile, CSX Transportation and Union Pacific Railroad said they are committed to intermodal shippers of all sizes in the long term, addressing concerns that large customers who use mega-carriers will get capacity in the coming years while others will be left behind.

Kari Kirchhoefer, UP’s vice president of premium marketing and sales, told JOC’s Inland Distribution Conference in Chicago this week that UP will not abandon non-asset IMCs or the shippers they serve.

“It seems very hard for me to see a world where we have that happen when besides just domestic intermodal, we have a significant base of auto parts and parcel guys that move in our ‘EMP’ and ‘UMAX’ fleet,” she said. “I don't see any future that doesn't have a portion of our railroad still running with non-asset partners.”

But those non-asset IMCs are concerned that as Schneider joins UP in January, the western US railroad will not have enough resources to serve all customers simultaneously. Still, Kirchhoefer noted that UP’s purchase of 5,600 chassis, the last of which will be delivered within the next month, and recent investments in GPS technology for rail-owned containers are other signals that UP is committed in the long term.

FMC Chairman Daniel Maffei addresses JOC’s Inland Distribution Conference

Make no mistake that the Federal Maritime Commission authority does not stop at the water's edge,” FMC Chairman Daniel Maffei said. “In fact, our National Shipper Advisory Committee ... which was also commissioned by Congress, is made up of half exporters and half importers, and they recently recommended that we expand the scope of our authority to include all carriers.”

Maffei said the agency regulates chassis to an extent, while railroads enjoy an intermodal exemption from US rail regulators, restricting the US Surface Transportation Board's purview to carload transport. But given that railed cargo moves through a bill of lading, shippers can take their complaints against ocean carriers that contract the landside move to the FMC, he said.

“We will continue to hold regulated entities accountable for violations of the US Shipping Act, no matter where they occur in the process. Whether it's Los Angeles, Savannah, Chicago, or Memphis,” Maffei said.

Economic Outlook

Monday, October 3 – S&P PMI – No change from August’s 51.8 but New Orders received by private sector firms expanded in September according to the Sept 23 Flash PMI announcement. However, New Export Orders remained in contraction, with the rate of decrease the second-fastest since May 2020.

Wednesday, October 5 – International Trade Balance – A slight increase for August is expected as both imports and exports increase slightly ahead of what looks to be a muted holiday season.

Friday, Oct 7 – US Unemployment – Expected to remain unchanged from August at 3.7%.

That’s it for this week. Please be sure to hit the subscribe button to receive the latest updates.

For readers interested in reading more JOC stories, click on?CATHYR20?to receive a 20% discount (Note this is for first-time subscribers.).

What did I miss? Have a question? Let me know in the comments. I’ll be checking back throughout the week to answer questions, address comments and share additional insights.

In the meantime, here’s hoping everyone has a good freight week ahead!

-Cathy