Freight Forward - FMC works to implement OSRA-22 as inland moves struggle

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 Ocean Shipping Reform Act of 2022 (OSRA-22), signed into law in June, is the United States’ first major shipping reform in more than two decades. A number of rule clarifications, updates, and changes are underway to implement the law. In his weekly column, Mark Szakonyi writes on one such change that the US Federal Maritime Commission (FMC) must deliver on by mid-November is a rulemaking clarifying when it is “unreasonable” for ocean carriers to refuse to serve shippers. And within a year, the agency will have to figure out how to determine when a container line has adequate vessel space, and under what terms the carrier will be legally allowed to refuse a booking for that space.

Indeed, The FMC has its work cut out for itself. It is also asking the container shipping industry to weigh in on the best way to monitor how many exports container lines are loading as the agency prepares to collect data required by OSRA-22.

The FMC is required to publish on its website a quarterly report of import and export tonnage carried via loaded and empty TEUs for every vessel operated by ocean carriers and calling a US port. Carriers are required to provide the FMC monthly updates if they transport 1,500 or more TEU across imports and exports, regardless of whether containers are laden or empty.

And in another FMC move, FMC Commissioner Carl Bentzel noted that the agency intended to align data-sharing among containerized supply chain parties by adopting data standards developed by the Digital Container Shipping Association (DCSA). Eric Johnson writes that the FMC’s Maritime Transport Data Initiative (MTDI), launched in November, was set up to catalog maritime data elements for US inbound and outbound container flows, identify gaps in data definitions, and develop recommendations for common data standards and sharing policies.

“It is our intention to use much of what DCSA has done as a template for emerging national standards for intermodal maritime data, from point of origin to ultimate destination,” Bentzel said. “DCSA standards provide an invaluable tool for achieving standardized, digital data communication in the industry.”

Meanwhile, ocean freight continues to enter the US at a healthy pace despite drops in spot rates. Peter Tirschwell writes in his weekly column that as spot rates in the trans-Pacific fall below contract rates, many shippers have restarted a practice that was typical before the COVID-19 pandemic: approach carriers to reduce their direct shipper-carrier contract rates to reflect the realities of a lower spot market. The moves were anticipated by carriers and, at least in years past, usually resulted in concessions as carriers sought to keep cargo on their ships and maintain market share, even at the cost of lower revenue. However, so far this year shippers’ efforts have been met with mixed results. ?

While the FMC figures out how to monitor exports, the Port Authority of New York and New Jersey (PANYNJ) will begin assessing ocean carriers with a per-container fee for export boxes that dwell too long at the port. According to PANYNJ, its quarterly “container imbalance fee” will go into effect on Sept. 1 following a 30-day public review period.

The $100-per-container fee will be applied if ocean carriers do not remove at least 10% of the containers they dropped off during the quarter.

Although laden exports apply toward the quota too, the fee is primarily aimed at the high number of empty containers that many drayage carriers and shippers say is robbing the port of efficiency and raising their costs. The PANYNJ said in a statement the fee is especially critical because the agency expects to “handle record cargo volumes spurred by peak cargo season and a cargo shift from the West Coast.”

Railroads serving Kansas City are struggling to handle import containers coming from Southern California amid chassis shortages and maxed-out warehouses, according to draymen and cargo owners.

BNSF Railway and Union Pacific Railroad are metering traffic between Southern California and Kansas City while also placing restrictions on which containers can be picked up after making the 1,600-mile trek.

“It’s ugly and likely to get worse,” an importer told JOC.com. “UP has embargoed international intermodal [IPI] for at least one ocean carrier, so the carrier shifted all their IPI cargo to BNSF. But BNSF is already facing its own challenges, and now they have an influx of unplanned cargo. We’ve had at least two ocean carriers recommend we start shifting volume to port-to-port and transload.”

Ari Ashe writes that BNSF and UP have blamed shippers for the woes, arguing that importers must have enough space in their warehouses to take containers, unload the contents, and return chassis. If cargo owners let containers and chassis idle, then intermodal networks will be clogged because terminals only have so much room to store boxes, the railroads have said.

Despite rail delays, US shippers saved more than 30% on intermodal contracts during Q2, according to the latest JOC Intermodal Savings Index (ISI), compiled and analyzed by Ari Ashe. But falling trucking rates and poor intermodal service convinced some shippers to pull loads off the rails for shorter hauls.

The JOC Contract ISI averaged 132.4 in Q2, down from 136.6 during the same period a year ago, and from 137.0 in Q1.

The JOC Spot ISI averaged 110.9 during the quarter, down from 120.6 one year ago and 123.1 in Q1.

The JOC indexes measure how much money a shipper should save on 117 modally competitive US lanes. There are two indexes: one for the spot market and one for the contract market.

JOC ISI values are measured from a neutral base of 100. Values greater than 100 indicate that intermodal is cheaper; values less than 100 indicate trucking is cheaper. The higher the value, the more money intermodal saves an average customer.

All index values correspond to percentages, which means 132.4 signifies an average shipper saved 32.4 percent on an intermodal contract versus a truckload contract nationally. And 110.9 signifies a 10.9 percent savings comparing the intermodal and truckload spot markets.

On a rolling 12-month basis as of June 30, the JOC Contract ISI was 137.1, while the JOC Spot ISI was 116.3. Those figures are a glimpse into what a shipper saved over the last year, which is relevant because most intermodal contracts are valid for 12 months.

Declining truckload rates and increasing operating costs are resulting in new drivers at port trucking companies. Bill Cassidy writes that the move marks something of a turnaround from when drivers were exiting drayage because of high truckload rates and difficult working conditions. However, while adding new capacity on the margin, those returning drivers are likely to do little to bring down drayage rates due to high congestion at ports.

The Intermodal Association of North America (IANA) said during the first half of 2022 that it had 2,600 new motor carriers register for interchange agreements to haul containers, a 30% increase in the number of intermodal carriers.

The Port Authority of New York and New Jersey saw new registrations to enter the port’s marine terminals hit 1,009 trucks in June, the highest number of monthly registrations in two and a half years of records. Along with replacement of older trucks, the registrations likely reflect new carriers in the market, local trucking sources said.

In parcel news, FedEx Ground announced peak holiday season surcharges effective Sept 5 beginning with additional handling and oversize fees. Still confusing as ever, the 2022 surcharges increased in comparison to last year’s holiday season surcharges, and it’s changed up a bit in the way it determines residential surcharges. The company noted on its website that “as FedEx prepares for high demand during the peak holiday season, we are adjusting our networks to best deliver for our customers. We again anticipate the surge in residential volume to carry over into the new year.”

FedEx is also having to deal with an increasingly unhappy group of contractors who are looking to redefine themselves as franchises. Emma Cosgrove of Business Insider writes that being classified as franchisees would give delivery businesses more protection. Franchisors are required to disclose more information about the health of the franchisees and the broader business.

Lastly, in a bit of a surprise, Atlas Air Worldwide agreed to be acquired by Apollo along with J.F. Lehman & Company and Hill City Capital for $5.2 Billion. Atlas will continue operating under the Atlas Air Worldwide name and be led by John Dietrich and the current executive team. Atlas is one of Amazon’s air partners. In addition, it has been expanding its global network via a host of customers such as SF Express, Kuehne + Nagel, Cainiao, Flexport, and more.

What Apollo plans to do with Atlas is yet unknown but if it follows along with Atlas’ strategy, we could potentially see a new type of air express provider. Atlas Air noted in its 10-K for 2021, “We will continue to focus on securing long-term contracts with fast-growing customers, including those in express, e-commerce, and the fastest-growing regional markets, which provide us with relatively stable revenue streams and margins.”

Economic Outlook

• Wednesday, August 10: CPI for July. Another increase is expected but not as high as June’s increase according to Marketplace.
• Thursday, August 11: PPI for July. A much slower increase is expected in comparison to June’s 1.1%.
• Friday, August 12: Import price index for July is expected to decline.

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