Freight Forward - Focusing on cost discipline and service quality

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.

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.

Carriers, logistics providers, and shippers are taking stock across their supply chains with an eye toward mitigating costs and strengthening services.

“We face a challenging global economic outlook, a softening market, and at the same time, our customers are looking to radically improve their supply chains to make them more resilient and agile,” A.P. M?ller-Maersk’s CEO Vincent Clerc said in a statement. “To navigate through and beyond this environment, we will intensify our focus on cost discipline and service quality while increasing customer centricity and decision power in the front line,” he added.?

Indeed, as part of this focus, the 2M Alliance of Maersk and Mediterranean Shipping Co. are adding three vessels to its trans-Atlantic services in Q1 while slowing sailing speeds as the carriers try to match excess capacity with weakening demand.?

Meanwhile, retailers and NVOs plan to continue routing cargo through East and Gulf coast ports due to uncertainties over the direction of West Coast longshore contract negotiations, now in their 8th month.

The West Coast’s share of imports coming from Asia dropped to 58.8% in 2022, down from 61.0% in?2021, according to PIERS, a?Journal of Commerce?sister product within S&P Global. The East Coast share rose to 34.2%, up from 32.9%, while the Gulf Coast share rose to 6.7% from 5.8%.?

Technology will also continue to play an important role in cost mitigation and new services. Ocean?carrier Zim Integrated Shipping Services, for example, is among the investors in an Israel-based cross-border trade finance startup, 40Seas, that recently raised $11 million in venture capital.?

40Seas aims to help small and medium-sized businesses (SMBs) get access to digital finance solutions, including online payments and extended payment terms, that they would ordinarily struggle to secure?from traditional banks.?

Zim will initially integrate?40Seas’ products into its own digital forwarding subsidiary Ship4wd, a platform the shipping line?uses to serve smaller importers and exporters. Along with investing in the funding round, Zim has established a three-year revolving credit facility of $100 million, with an option to extend the facility to $200 million.?

“40Seas empowers exporters to get paid immediately upon shipment so they can get a head start on their next production cycle,” the company said in the statement. “For importers, the platform offers deferred payment options to help them free up working capital and grow their business without tying up available lines of credit.”

Breakbulk demand falls

Average charter rates are declining in the multipurpose and heavy-lift (MPV/HL) fleet as breakbulk-able cargoes return to the now-cheap container segment. The MPV sector still anticipates a 2023 upsurge in energy-related and renewables cargoes, however.?The Toepfer Multipurpose Index (TMI) forecasts a 10.8% slide in average daily charter rates for January from December.?

China’s new COVID surge could also be holding back steel cargoes and hampering port operations. Some industrial and project-related cargoes have already been booked for the third and fourth quarters of 2023, Yorck Niclas Prehm, Toepfer’s head of research, told the?Journal of Commerce. “(But) there are only limited non-project-related cargoes in the market, and forward bookings turn to shorter pre-booking periods,” he said.??

Inland

Forward Air acquired Land Air. The acquisition is the first major acquisition in the expedited LTL sector since Forward acquired Towne Air Freight in 2015.

Land Air brings a network of 27 facilities, about 300 trucks, and 250 truck drivers to Forward’s expedited LTL network. The Bowling Green, Kentucky-based company also brings employees who specialize in the same expedited business as Forward, which has offered all of them jobs. “They’ve been a formidable competitor for four decades, so we know and respect them,” Tom Schmitt, Forward’s chairman, president and CEO said in an interview.?

The acquisition also hints at ongoing consolidation in trucking as rising costs and lower freight volumes tighten profits, and the founders of privately owned businesses such as Land Air Express look to exit. “These people are looking to pass on the baton to new owners who will give long-term employees a good home with future growth,” Schmitt said. “This is how we approach acquisitions.”?

Meanwhile, LTL carrier, Roadrunner, is?launching an expedited service connecting Southern California and Chicago using team drivers as part of a network reorganization that will shorten freight transit times on 130 major lanes by one to four days, Chris Jamroz, executive chairman of less-than-truckload (LTL) carrier Roadrunner told the?Journal of Commerce?in an interview.?

The Southern California-to-Chicago service will be attractive to manufacturers moving components from the ports of Los Angeles and Long Beach into the US market, companies such as automakers, Jamroz said. “They have plants in the Midwest, and once shipments hit the ports, it’s rush, rush, rush,” he said.?

“The automotive business continues to be the sweet spot,” Jamroz said. “It’s the third year of low production [because of chip shortages], so there’s a lot of pent-up demand. Manufacturers still want to sell more products. So, everybody needs speed, and they’re just not willing to pay as much for it.”?

Eventually, Jamroz sees freight shipping patterns shifting from “horizontal” to “vertical,” with more freight entering the US through Mexico, in particular. “The recalibration of the supply chain to that north-south angle is going to be the theme for the next decade,” he said.?

Estes Express is also in expansion mode. The LTL carrier is opening a new terminal near its Richmond, Virginia, headquarters and building a third terminal in Southern California on a 40-acre site east of the Inland Empire. That follows the opening of a larger LTL terminal near the Port of Savannah?in 2022.?

“Looking out at this year, there’s a temptation to say maybe we don’t need to build more terminals,” Webb Estes, who was recently?named the company’s president?and chief operating officer, told the?Journal of Commerce. “But we’ll continue to add facilities where it makes sense, even if that expansion doesn’t fit perfectly with the six-month horizon. We’re in this for the long-haul.”?

“This is definitely a different economy than we saw last year, but I think opportunities are coming to us,” said Estes. “We’re bringing in new accounts, and our on-time service looks really good.”?

As 2023 begins, “we’ve definitely hit a more steady state, and we’ve got a better work-life balance for our people,” Webb Estes?said. A slower pace provides time for better optimization of lanes, facilities, and equipment utilization and more attention to collaboration with shipper customers.?

Parcel

• Walmart Commerce Technologies announced a partnership with Salesforce. Retailers using Salesforce Commerce Cloud will be able to offer their customers pickup and delivery with Walmart’s store fulfillment technologies and local delivery services.
• FedEx will further cut Sunday delivery service in mid-March. "With more than two years of data from providing Sunday deliveries, we are better able to target specific markets where we have seen proven demand," according to an internal FedEx memo.

TPM and TPM Tech??

The countdown to TPM Tech and TPM is underway. Each week, I’ll highlight a session. This week’s highlight is one I’m particularly looking forward to – Retired General David Petraeus will discuss geopolitical risks with Lindsay Newman, head of geopolitical thought leadership for S&P Global Market Intelligence.

Lindsay Newman was interviewed last week in a WSJ article on the impact of geopolitical risks on businesses, and if you receive the daily WSJ Logistics email, you may have noticed her quote in the Jan 12 email, “We see more volatility ahead rather than less.”

Economic Outlook

• Wednesday, Jan 18 – December Retail Sales – Expectations are for a 1.0% decline yoy. November retail sales declined by 0.6%.
• Wednesday, Jan 18 – December PPI – An 0.1% decline is expected after a 0.3% increase in November.
• Wednesday, Jan 18 – December Industrial Production – A slower decline, 0.1%, is expected compared to a 0.2% decline in November.
• Wednesday, Jan 18 – November Business Inventories – No change from October is expected.
• Thursday, Jan 19 – December Building Permits – An increase from November is expected.
• Thursday, Jan 19 – December Building Starts – A decline from November is expected. (Commentary will be interesting to determine if this is just seasonal or if economic conditions may be playing a role.)

For Journal of Commerce subscribers, the 2022 Review and 2023 Outlook is out. Check out some of the articles on the?website.

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 wishing everyone a good freight week ahead!

-Cathy