Freight Forward - Freight Growth to Continue

Welcome to Freight Forward, where each Monday, I’ll recap what happened in supply chains the previous week and what to expect for the week ahead. Just in case you’re wondering, I’m Cathy Roberson, 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 Shanghai and other Asian ports reopen from their latest COVID lockdowns, how much US-bound freight to expect during the upcoming peak season is a big question mark.

The Georgia Ports Authority (GPA) is preparing for a milder peak season this year due to softening demand and a smaller-than-expected backlog of cargo as factories reopen in Shanghai, but the port says it’s in a better position to handle any unforeseen spikes in volume than it was in 2021.

A month ago, the GPA was confident the port of Savannah would see another surge in imports from Asia this summer following the lifting of COVID-19 lockdowns in Shanghai. Today, the outlook is murkier.

“Many, including myself, thought there was a massive backlog of vessels near China, but I’m seeing information now that may lead us to believe that the demand is softening,” Griff Lynch, CEO of the GPA, told JOC.com. “If that is true, maybe the peak season is still strong on the East Coast because of diversions from West Coast ports, but not overwhelming, as we initially thought. We see some heavy volume coming at us, but we’ll have to wait to see what volume looks like beyond that.”

US imports from Asia totaled 6.5 million TEU this year through April, up 2.7% from the same period last year, according to PIERS, a JOC.com sister product within IHS Markit, now part of S&P Global. April imports of 1.7 million TEU, highest in 13 months, were up 6.5% over April 2021 and the third-busiest month on record for Asian cargoes into the US.

The Port of Los Angeles said last week it handled 887,357 TEU last month, the second-busiest April in its 115-year history. For the four months through April, the port handled more than 3.5 million TEU, which it said was 1.0% ahead of its record pace of last year.

Data also showed that imports this year have declined into the West Coast while rising, in some cases substantially.

Retailers since the beginning of the new year have been diverting some of their imports from West Coast ports to the East and Gulf coasts as a hedge against possible disruption linked to West Coast longshore contract talks that began last week. According to JOC Senior Editor, Bill Mongelluzzo, this is typical behavior in a year when the contract between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) is set to expire.

Talks between the ILWU and PMA began on May 10.

A brief background and what to expect from Peter Tirschwell, Vice President, Maritime, Trade & Supply Chain at S&P Global Market Intelligence. (A huge thanks to Peter for allowing me to experiment with video recording & editing while he was under the weather. I believe I may have snipped the video a bit too early but I hope you get a general understanding!)

However, the negotiations may not be smooth sailing for either side. Last week the ILWU requested that contract negotiations be suspended until June 1, according to multiple sources close to the talks.

A source with knowledge of the negotiations said little progress has been made since the talks began. But, unlike previous contract negotiations, a member of a federal government task force that meets with stakeholders on the West Coast told JOC.com two months ago the White House made it clear to both employers and the union that work slowdowns or employer lockouts will not be tolerated this year.

Meanwhile, the ports of Vancouver and Prince Rupert, already at capacity with Asian imports destined for US and Canadian markets, say they will be in no position to handle any cargo diverted from the US West Coast in the event of disruptions linked to ongoing longshore contract negotiations.

“The terminals are full. There’s nowhere to put anything,” Cliff Stewart, vice president of infrastructure at the Port of Vancouver, told JOC’s Canada Trade and Shipping Outlook conference.

Vancouver, Canada’s largest port, and Prince Rupert, 500 miles to the north, have intermodal rail service throughout Canada and to the US Midwest via Chicago. Devastating fires in British Columbia last summer, followed by rains and flooding in the fall and sub-freezing temperatures this winter, crippled the rail infrastructure in the province, and the ports have yet to fully recover from the freight disruption that resulted.

As uncertainties continue to swirl and freight shifts from one port to the next, the International Association of Ports and Harbors (IAPH) met in Vancouver to discuss port concerns and performance.

JOC’s Senior Editor of Technology, Eric Johnson, and Executive Editor, Mark Szakonyi participated in the conference.

Key takeaways from the conference (Thank you, Eric!):

• Ports can no longer take a passive role in attracting, serving, and retaining cargo owners. They have to actively develop physical and digital infrastructure that supports increasingly fragile supply chains.
• The overall theme of the conference was about narrowing the gaps between ports, creating a more level environment that even well-resourced ports can benefit from - the idea being even the best ports benefit if the lowest-performing ports become more efficient, can provide better data.
• Lori Fellmer, a shipper who spoke on day one about what cargo owners need from ports, suggested that ports nominate a data "ombudsman" to make it clear to shippers who is ultimately responsible for the numerous data elements a shipper can use to get clarity about when cargo arrives, when it is available, etc.
• The conference provided background on the forthcoming Port Performance Index put together by S&P Global and the World Bank, which will be unveiled on May 25 during a free webcast.
• Probably the biggest single source of discussion was around sustainability. A huge number of sessions were devoted to alternative fuels, onshore power, and other decarbonization-related actions a port could either undertake themselves or encourage local users to undertake.

Sustainability is a big source of discussion among all supply chain partners. JOC Associate Editor, Michael Angell, wrote on a collaboration between the Houston port and FSX LLC in which a feasibility study is underway regarding the use of an electric rail system to transport containers up to 500 miles inland without the use of trucks or traditional railcars.

Last week, Kuehne Nagel introduced an electric truck service to shuttle air cargo between the Los Angels International Airport and Kuehne Nagel’s airport warehouse Torrance facility.

“Today Kuehne Nagel customers ship their products with sustainable fuel globally. Aimed at accelerating the transition to a low-carbon future, last year we launched the first carbon-neutral lane between North America and Europe fully powered by sustainable aviation fuel. This new electric truck service, now in operation at LAX, has extended that sustainable service corridor further. This is a tremendous step forward for our clients and Kuehne Nagel who have a shared sustainability focus,” says Greg Martin, Senior Vice President Air Logistics, North America.?

In a move to create efficiencies in service but perhaps exacerbate the ongoing chassis shortage, JOC’s Senior Editor, Ari Ashe reported that Norfolk Southern Railway plans to reduce or eliminate service on 120 international intermodal lanes that interchange to US West Coast ports from June 27 to simplify its network and make terminal operations more efficient.

“It will create some chassis issues in these markets, even more so than we have today,” said one NVO executive, who asked not to be identified. “We just have to make our shippers aware that if something loads on a Monday, it may not go out on a train until Thursday or Friday. We already tell our customers in Dallas moving containers to Oakland that they can load cargo Monday through Friday, but it’s not going to go out until Saturday no matter what.”

Switching over to the ocean container carriers, ?online publication Splash 24/7 reports this morning that based on estimates from research firm Drewry, by the end of 2022, the container shipping industry will have earned an unprecedented half a trillion dollars of operating profit from two years of supply chain pain and record freight rates.

Ok, let’s all raise an eyebrow to this news…..however, let’s all also remember our economics 101 class – demand increases, price increases.

But still, a half a trillion dollars of operating profit! ??

CMA CGM is putting some of its profits to use by investing in air freight. Last week, it entered a 10-year strategic partnership with Air France-KLM, combining the freighter capacity and cargo networks of both groups into one service offering.

JOC’s Senior Editor, Greg Knowler writes that Air France-KLM and CMA CGM will join forces to operate the freighter aircraft capacity that currently consists of 10 all-cargo aircraft with an additional 12 planes on order. CMA CGM Air Cargo currently operates four freighters with orders for an additional eight all-cargo aircraft, while Air France-KLM operates six freighters from its two hubs at Paris-Charles de Gaulle airport and Amsterdam Airport Schiphol and has orders for another four.

The carrier’s first foray into asset-based air cargo came in September 2020, when CMA CGM bought a 30% stake in Groupe Dubreuil Aéro, a French passenger airline operating an air freight division covering French overseas territories.

That was followed by the acquisition of four Airbus 330-200 freighters and the launch of the CMA CGM Air Cargo division in February 2021. Since then, the carrier placed orders for two Boeing 777 freighters in September, with the planes due to join the fleet in spring this year and ordered four Airbus 350 new generation freighter aircraft that will start coming online from 2025.

As international capacity returns to the air freight market, an online publication, Air Cargo News, reported that Air Canada operated its final cargo in the cabin preighter flight and will return its temporarily converted fleet of B777s and A330s to passenger service. In April, the European Union Aviation Safety Agency (EASA) said it would put a stop to cargo-in-the-cabin flights beyond July 31. The US Federal Aviation Administration (FAA) extended the exemption for air carriers to carry cargo in the main cabin and on passenger seats when no passengers are being transported, until December 31, 2021.

Parcels/Last Mile

An interesting tidbit from retailer Target’s earnings announcement from last week, the company now has six sortation centers in operation with three more to come on board by end of this year. Once items are fulfilled, they are sent to these facilities to be sorted by carrier and location for faster delivery. During the first quarter, Target’s sortation centers handled 4.5 million packages. In addition, the company is working with its subsidiary, Shipt, to offer a lower-cost last-mile delivery service, Target Last Mile.

This tidbit is important because retailers are taking on more of their last-mile operations, often connecting the middle mile with the last-mile for faster delivery service, better customer experience and lower shipping costs. Last year, retailer American Eagle acquired Quiet Logistics and AirTerra for these reasons. The two largest last-mile carriers, UPS and FedEx have increased shipping rates and focused more on profitable volumes which has resulted in many shippers diversifying their last-mile carriers and building out their own capabilities.

Meanwhile, over the weekend, Bloomberg reported that Amazon is turning to its contracted Flex drivers to deliver packages from mall-based retailers, allowing sellers to ship products from their own stores using the e-commerce giant’s delivery service Under the new initiative, drivers stop at shopping centers instead of Amazon delivery stations.

Economic Outlook

Remember all those retailers that chartered ships last year in order to move their inventories to the US quicker and retailers that were building up inventories ‘just-in-case’ there were delays? It seemed for some, those strategies may have backfired a bit. A number of retailers including Target, Kohl’s, and Walmart reported increased inventories during the first quarter.?As JOC senior editor, Bill Cassidy reported, retailers have been pulling more inventory into the US earlier than usual this year to close gaps that led to stockouts last year. ?Cassidy notes that this implies retail inventories will continue to rise, despite inflation, fueling greater transportation demand well into the summer. The US retail inventory-to-sales ratio remains historically low, but it varies by subsectors. For example, building materials and garden equipment, furniture, and department stores show inventory-to-sales ratios returning to pre-pandemic levels as consumers return to traditional purchasing patterns.

Indeed, in April US retail sales and industrial production increased which indicated that freight demand will remain positive for the time being. Retail sales rose 0.9% in April after seasonal adjustment, while total industrial production rose 1.1%, according to the latest data from the US Census Bureau and Federal Reserve Board.

Total retail sales, unadjusted for seasonality, were 11.3% higher year over year in the first four months of 2022, while unadjusted retail sales were up 8.7% in April.

Americans may have been buying more goods than anyone realized, especially online. The Census revised its sales data in April, and post-revision results show an unexpected jump in non-store retail sales, which includes e-commerce.

Non-retail sales were $100 billion higher in 2021 than previously estimated, according to an analysis by Jason Miller, associate professor of logistics at Michigan State University. “That speaks volumes as to how strong e-commerce growth really was, and that helps explain why capacity was so brutally tight last year,” Miller said in an interview with JOC.com.

What’s on for this week:

• US Durable goods orders for April. Durable goods orders increased 0.8% in March. MarketWatch expects the April figure to come in below March but still positive, 0.6%.
• Consumer Sentiment survey from the University of Michigan is expected to remain the same from March.

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

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