Freight Forward - Drowning in empty containers

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.

“The container shipping market is in the process of reverting back to normality. Depending on how the data are viewed, this process may have begun as early as September 2021 but is likely to not reach its endpoint until mid-2023,” Lars Jensen, CEO & Partner, Vespucci Maritime writes in a JOC story.

Indeed, import volumes appear to be reaching a peak. ?

• Griff Lynch, CEO of the Georgia Ports Authority (GPA) told JOC that the number of containers “on the water” destined for Savannah peaked between 265,000 and 270,000 containers in July but has fallen below 250,000.?“All these things will manifest themselves in mid-to-late September, and moving into October, we’re going to see activity simmer down,” Lynch said Aug. 8. “August will be strong — we won’t see a decline in August — and September should be OK. We’ll see about October.” And even if imports begin to decline on a year-over-year basis, volumes will remain well above pre-pandemic levels, Lynch said. “We’re not saying there’s a cliff,” he explained. “But certainly, there is an easing of pressure that’s on the horizon.”
• OOIL chairman Wan Min noted that “Our ships are sailing full on our main long-haul trade lanes and are forecast to continue to be fully loaded in the coming weeks. [But] there has not been much evidence, so far, of the kind of significant seasonal uptick that is often a feature of the traditional trans-Pacific peak season.”
• ?“The normalization of freight [spot] rates will go hand-in-hand [with] the easing of bottlenecks,” Xavier Destriau, CFO of ZIM, told JOC.com. Container spot rates on the trans-Pacific trade are about double from two years ago. And while there are signs that US port congestion is easing, Destriau said delays are still absorbing about 10% to 12% of Zim’s functional trans-Pacific capacity. Asia port congestion has eased pressures shifted to the US East Coast, he said. Destriau said US import demand from Asia remains strong, but growth is slowing. The backlog of auto parts for original equipment manufacturers (OEMs), coupled with the traditional stocking up of retail goods for the winter holidays, is keeping demand elevated, he said.

As noted by Lars Jensen, the process for the ocean freight market to return to ‘normal’ will take time. Part of the reason is due to empty containers. Peter Tirschwell’s latest column on empty containers is well worth the read. For ocean carriers, loading empties when they are not needed at origin is costly and further delays services that in many cases are still operating far behind schedule. “When you put a ship into New York and you’re already five, six, seven days behind schedule, you have a choice to make: You can take as many export-laden containers as you have, but do you leave your ships alongside loading empties, further delaying getting back on schedule, or do you cut and run? The carriers have been cutting and running to try to regain service levels,” said Craig Grossgart, senior vice president of ocean at SEKO Logistics. “That is always the decision you have to make because the loading of empties is pure cost and no revenue in this market because [carriers] are flush with equipment in Asia.”

Tirschwell notes that the situation is a sharp contrast to 2021 when carriers, seeking to capitalize on record eastbound trans-Pacific spot rates, spared no effort in rushing empty containers back to Asia, denying service to many exporters in the process. This prioritization of empties over exports ignited a political firestorm in Washington, DC, that led to the June signing of the Ocean Shipping Reform Act of 2022.

The port of New York and New Jersey has been struggling with a pile-up of empty containers. Michael Angell has followed the port’s progress and has written several good articles on the port’s attempt to rid itself of the containers. In one of Angell’s latest updates, the largest marine terminal at the Port of New York and New Jersey will cut weekends and holidays from the period during which an ocean container can linger before it racks up storage charges. In a recent tariff, Maher Terminals eliminated Saturdays and Sundays from the “free time” period allowed for import containers. Along with no weekend grace period, the new tariff also cut the grace period for non-working holidays outlined in the International Longshoremen’s Association (ILA) contract. The changes go into effect on Sept. 23. The move also affects refrigerated containers, which will still have two days of free time.

Solving the congestion caused by empty boxes requires more cooperation among ports rather than punitive fees on ocean carriers Wan Hai Lines Vice Chairman Randy Chen said at the Port of Philadelphia for the inaugural call of its first weekly liner service from Asia. “Instead of idly watching the marine terminals slow down, expanding our network to include direct calls from Asia to ports such as Philadelphia is very much part of how we will continue to diversify and get our supply chains back to peak efficiency,” Chen said. “This includes offering Philadelphia as an alternative to returning empty containers so that import boxes will not be unduly affected in other ports of call.”

(Photo credit: English Purcell, SCPA)

Not only are empty containers a concern but a chassis shortage continues. However, the South Carolina Port Authority hopes to ease the pain. The South Carolina Ports Authority has taken possession of more than 5,000 new chassis as it launches the initial phase of its proprietary chassis pool. About 5,450 chassis have been received out of a total order of 12,900 units, according to SC Ports. Of the newly available chassis, 2,100 have already been leased out to cargo owners or trucking companies until next March. When the full order of almost 13,000 chassis is filled, which is expected in March, Charleston will officially exit the South Atlantic Chassis Pool (SACP) and join the Port of Virginia as the only two ports in the US with port authority-owned-and-operated chassis pools.

Further inland, Teri Errico Griffis provides an update on railroad employee contract negotiations. The Presidential Emergency Board (PEB) recommends US railway workers receive a 22% pay increase over the next three years and $5,000 in bonus payments. Under a wage proposal, it called for retroactive pay hikes of 3% for 2020 and 3.5% for 2021, with additional raises of 7% in 2022, 4% in 2023, and 4.5% in 2024. Workers would also receive five annual $1,000 payments which, combined with the wage increases, could average more than $11,000 in immediate payout to employees. Other recommendations by the board include adjustments to health care premiums, retirement benefits, and work rules. Errico Griffis notes that the PEB’s recommendation is non-binding. The two sides have 30 days to review and can either use the proposal as a basis for a new deal or reject the recommendation completely. If the parties cannot reach a deal, Congress can step in by Sept. 17 and create legislation to force binding arbitration. If Congress does not act in time, union workers will be legally allowed to strike, picket, or start a lockout when the 30-day review period ends.

It's not just transportation feeling supply chain angst. The warehouses are full to the brim. The latest US Census Bureau inventory data for June, reported on Aug 17, finds that retail and wholesale inventory (not seasonally adjusted) increased from May and year-over-year while manufacturing inventory slipped slightly from May but up double-digits from June 2021. While manufacturing and wholesale sales outpaced inventory buildup month-to-month, retail sales slowed from May which continued to be a factor for bulging warehouses.

According to industrial developer Jones Lang LaSalle (JLL), the demand and growth of inland distribution facilities reflect not just higher inventory levels but changing distribution patterns that are emerging in the COVID-19 era as importers and other shippers change the routes and lanes used to move goods to market. That activity is driving demand higher in locations that formerly were secondary markets but now are gaining importance. Markets such as Austin, Texas, and Jacksonville, Florida, are growing quickly, fed in part by the demand generated by the shift of containerized imports from Los Angeles and Long Beach to East and Gulf coast ports such as Houston and Savannah. “Despite consistent upward pressure from new deliveries, these gains have persisted well into 2022. Rents are poised to climb over the next several months,” according to JLL’s second-quarter industrial outlook.

Parcel Update

The last mile continues to evolve as the retailer, Gap Inc. introduces GPS Platform Services which provides logistics services to direct-to-consumer (DTC) providers and business-to-business (B2B) providers. Services include fulfillment, storage, returns, and parcel delivery services (domestic and international) – likely taking advantage of Gap Inc.’s generous parcel contract with its last-mile providers. ?Hopefully, more details will be provided when Gap reports its quarterly earnings this week. Stay tuned.

In a recent tweet, AirTerra founder, Jim Kennedy, commented on Gap’s logistics services noting that legacy companies need to find ways to innovate by turning cost centers into potential profit centers. (AirTerra was acquired by AEO last year):

Meanwhile, Walmart is finally beginning to take its last-mile services in-house. I’ve noted for years that it needed to own this part of the supply chain in order to maintain customer service and its brand all the way to the customer’s front door instead of handing it off to 3rd party crowd-sourced platforms. By providing that ‘one throat to choke,' customer retention will likely increase. So, as part of this take-back, Walmart and DoorDash are splitting, and Walmart is acquiring Delivery Drivers Inc. the staffing company behind its Spark Driver platform.

As for the holiday peak season surcharges, they are slowly being announced with Amazon the latest announcing a holiday peak fulfillment fee. Still waiting on UPS and a few others to announce their holiday peak surcharges…..

Economic Outlook

• Tuesday, Aug 23 – S&P’s flash August PMI which will likely decline from July’s 52.2 reading.
• Wednesday, Aug 24 – Durable goods orders for July will also likely decline.
• Friday, Aug 26 – University of Michigan’s latest consumer confidence reading is expected to come in a bit higher than its July reading while advanced reading on trade in goods and real consumer spending for July will be published as well.

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

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Also, if you're interested in more US inland analysis, be sure to check out JOC's upcoming?Inland Distribution Conference.

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