Freight Forward - Capacity Readjustments as Demand Normalizes

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.

Capacity readjustments are occurring across supply chains as demand slowly normalizes after two and a half years of crazy imbalances and rate fluctuations. It takes time to adjust the physical and it takes skill to understand the right data.

How supply chains readjust and what the new 'normal' may look like still remains to be seen as global economies face inflation and other geo-political threats.

In the meantime, the US ocean freight market has witnessed dramatic shifts in volumes from the West Coast to the East and Gulf Coasts due to earlier pandemic-related congestion at West Coast ports as well as the ongoing contract negotiations.

Asia import volumes grew at ports along the US East and Gulf coasts through the first nine months of the year as the West Coast continues to deal with longshore labor negotiations. The contract expired on July 1.?

Import volumes according to PIERS, a JOC.com sister company within S&P Global:

• Import volumes moving through the West Coast were down 1.7% for the period.
• From Asia to the East Coast jumped 11.8% from January through September compared to the year-ago period.
• The Gulf Coast experienced a 29.2% increase.

Total US imports from Asia through September were up 4.5% year over year.

• The share of Asian imports landing at West Coast ports for the nine months through September dropped to 57.5% from 61.2% last year.
• East Coast's import share increased to 35.1% from 32.8% last year
• Gulf Coast's share rose to 7.1% from 5.7%.

As market share shifts from the West Coast, capacity is disappearing on the Trans-Pacific lane because of declining demand. So far, this month, carriers have blanked 25.3% of available capacity.

"With the blank sailings announced thus far, the carriers have merely reduced capacity down to the same level as we saw last year," - Alan Murphy, CEO of Sea-Intelligence Maritime Analysis.

Meanwhile, "freight rates are in free fall" according to Murphy.

"The demand is just not there," Jon Monroe, an advisor to NVOs told JOC.com. Monroe noted that he would not be surprised if West Coast spot rates drop to $1,500 per FEU by November.

Demand for containerized soybeans and corn exports, however, has been strong for the Port of Los Angeles, up 20% through September, and the Port of Long Beach, up 10% according to Piers.

But, Virginia and NY-NJ, the two busiest East Coast gateways for grains, have seen their volumes drop in 2022, down 13% for Virginia and down 9% for NY-NJ through September.

Norfolk Southern is offering a new grain export service to the Port of New York and New Jersey ahead of the US Midwest soybean and corn harvest. The additional routing comes as ag shippers seek alternatives to Southern California ports and grain shipments face delays and higher costs due to low water levels along the Mississippi River.

Meanwhile, potentially good news appears underway as BNSF Railway lowers container backlogs at two inland rail ramps , St. Louis and Fort Worth, thanks to increases in chassis availability.

The ending of the BNSF St. Louis rail embargo follows Maersk’s announcement that it started accepting inland point intermodal bookings to Fort Worth as of Oct. 3.

Since putting the booking embargo in place, Maersk said that the average dwell time for import containers at the Alliance ramp has fallen to 24 days and that it is working with “BNSF to decongest the Alliance Ramp at Fort Worth by draying cargo off-dock.”

Despite the progress, both yards still need yet more chassis. BNSF said the Alliance yard has a chassis deficit of 1,500 while St. Louis needs 400.

Chassis provider DCLI said in a statement to JOC.com that street dwell for chassis in Dallas and the Midwest "has moderated in recent weeks, improving availability and significantly reducing the number of grounded containers at rail ramps across the country."

US trucking activity continues to defy forecasts calling for a contraction in demand, with a monthly measure of trucking ton-miles rebounding in August and remaining above year-ago levels.

The for-hire trucking ton-mile index (TTMI), released last week by Jason Miller of Michigan State University and Yemisi Bolumole of the University of Tennessee, rose 1.4% on a seasonally adjusted basis in August after falling 1.4% in July. Year over year, the index rose 3%.

“It’s hard to say we’re in a recession or freight recession when freight activity is up year over year,” said Miller, who is an associate professor of logistics and interim chairperson of the department of supply chain management at Michigan State. Miller is also a JOC analyst.

Volumes have remained high even as truckload spot and contract pricing have dropped , Miller said, a sign that capacity has caught up with demand. “Carriers added so much capacity that supply overshot demand and the spot market tanked,” he said. But that demand, in terms of ton-miles, is still out there.

• The ATA tonnage index rose 7.4% year over year on a seasonally adjusted basis in August, following a 4.7% annualized increase in July.
• The Cass Freight Shipments Index rose 3.6% year over year in August and 1.9% in July. Month to month, the Cass shipments index rose 6.6% in August.
• The Cass Volume Index dropped 2.9% in September from August but was 4.8% higher than a year ago.

As ocean carriers blank sailings, some are turning their eyes towards expanding their air freight networks. Maersk, for example, opened a 60,777-square-foot freight facility in Chicago that furthers its integrated offerings by providing ocean shippers expedited options for shipments from Europe and Asia.

The bonded container freight station near O’Hare Airport will move imports and exports from arrival to delivery and from tender to the carrier within 24 hours. From the facility near O’Hare, Maersk can now reach 70% of the nation’s population overnight.

Parcel Corner

Last week's Parcel Forum was just shy of a record-breaker in terms of attendance and a definite record-breaker in terms of the number of exhibitors including first-time exhibitors Maersk and Singapore Airlines.

Interest in parcels is being driven by the growth of e-commerce/omnichannel strategies (B2C and B2B) as well as the desire from carriers and providers to provide end-to-end solutions.

• Maersk acquired Pilot Freight Service, Performance Team, and Visible over the past couple of years to extend its capabilities further inland through the middle and last miles.
• Singapore Airlines extended its cross-border e-commerce solution from Asia to the US with its Parxl service.

While at Parcel Forum, I chatted with a number of attendees and recorded a great video with Joe Wilkinson, VP of Transportation Services for Intelligent Audit but sadly, the audio quality was poor. Apologies for not being able to share it with everyone.

However, a few takeaways from Joe (That's him in the photo????) :

• There is a leveling off in terms of package demand. This trend will continue into 2023 as demand normalizes. The leveling off will drive more competition into the market including a more willingness to negotiate between shippers and last-mile carriers.
• For the holiday peak season, Joe noted there will be more capacity versus packages.
• Higher parcel shipping costs in 2023. FedEx already announced a 6.9% GRI which is an average and does not include surcharges such as fuel, residential, large packages etc.
• UPS has not announced its 2023 GRI yet, but the company could possibly come in slightly lower than FedEx, perhaps around 6.50%. (UPS announces Q3 earnings Oct 25 and will likely announce 2023 GRI around that time).

Economic Outlook

• Tuesday, Oct 18 - Industrial Production (September) - Expectations are for a slight increase.
• Wednesday, Oct 19 - Building Permits and Housing Starts (September) - No change expected in building permits but housing starts are expected to decline.

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