Freight Forward - Shifting Gears

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.

Hello from Las Vegas! After participating in a fantastic Manifest conference last week, this week, I'll be at the Reverse Logistics Association's conference (RLA) and will be providing daily updates on RLA's LinkedIn page .

And now for this week's update...

Bill Mongelluzza writes that US retailers are replacing the “China plus one” sourcing model with a global sourcing strategy that includes a shift of production to Southeast and South Asia, near-sourcing in Latin America, and a return of some production to the US, according to trade experts.?

That diversification of product sourcing is needed because the size of China’s workforce is declining, its labor costs are increasing, and other countries such as Vietnam and India are investing in manufacturing and logistics infrastructure, Paul Bingham, director of transportation consulting for S&P Global Market Intelligence, told a Journal of Commerce webcast last week.?

A global sourcing strategy will be needed because no one country has the capacity to immediately step in and replace the production capacity and transportation infrastructure that China methodically built over the years, said Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation.???

Indeed, China, including Hong Kong, still dominates the sourcing landscape , supplying 40.7% of US imports last year. But that was down from 42.4% in 2021 and nearly as low as in 2006, when the share was just 0.1% higher, according to data from PIERS, a sister product of the Journal of Commerce within S&P Global.

In terms of containerized ocean trade, Mark Szakonyi writes that the decline in sourcing out of China has most favored Vietnam, followed by South Korea and India.?

However, much of the volume does not move by container ship, anecdotal evidence, coupled with strong reported trade growth, suggests Mexico has also benefited from increased sourcing of US goods and components.?

“We’ve spoken a lot about balancing between China sourcing and the rest of the world sourcing, including in the Americas and especially, Mexico, which leads to near-shoring for the US and Canadian market and even the Latin American markets,” Julien Miniberg, CEO of Helen of Troy, said during the company’s fiscal third-quarter earnings call in early January.?

In another story from Bill Mongelluzza, the spread between ocean spot rates to the East and West coasts in the eastbound trans-Pacific has narrowed to its pre-pandemic level of about $1,200 per FEU amid declining import volumes and stagnant freight rates.??

Industry sources expect spot rates to both coasts to remain in a tight range during the post-Lunar New Year cargo lull that will last into March.?

Jon Monroe, an industry consultant who advises non-vessel-operating common carriers (NVOs), said the current spread he sees among NVOs is about $1,250 per FEU. He expects little change for the coming month or so until factories in Asia fully reopen and freight rates begin to climb again as spring and summer merchandise enters the US.??

“In March-April the rates will go back up,” Monroe said in an interview. “How much? I don’t know.”??

Intermodal shippers saved nearly 27% under annual contracts in the fourth quarter, according to Ari Ashe 's analysis in the latest Journal of Commerce Intermodal Savings Index (ISI) which down from savings of more than 30% between January 2021 and June 2022 as dwindling volume caused truckload carriers to offer highly competitive rates on more US lanes.?

Shippers will find that truck rates deliver the strongest competition to intermodal rail on lanes less than 1,200 miles. Of the 33 indexed lanes with truck competitive rates going into bid season, all are considered local routes that stay within one railroad rather than cross-country interline traffic exchanged between two providers.?

However, on long lengths of haul, trucking is not the competition. Shippers have told the Journal of Commerce that large intermodal providers such as Hub Group, J.B. Hunt Transport Services, and Schneider National are aggressively cutting rates, jockeying for market share.??

According to Ari Ashe , US Class I railroads are moving to address quality-of-life issues raised by unions during tense negotiations late last year, including pilot programs to reduce the number of on-call jobs and reducing furloughs of front-line employees during economic downturns.?

Railroads struggled to bring back and hire employees after furloughing thousands during the early days of the COVID-19 pandemic. Martin Obermann, chairman of the US Surface Transportation Board, which regulates railroads, has said staffing shortages were largely responsible for subpar rail service in 2021 and 2022.?

CSX and NS talked about how furloughs are not necessarily the best option during an economic downturn.??

“We've seen what has taken place in the industry with furloughs. We have not seen [workers] come back,” Paul Duncan, NS’s chief operating officer, said on a Jan. 25 earnings call. “We don’t see that as a lever that we want to pull. We want to ensure if there is a volume downturn, we are in a position as that volume comes back to handle it and handle it well.”?

NS has proposed to cross-train workers in different jobs and locations across the US, providing additional options to retain employees in an economic downturn. CSX said its “workforce is not a workforce that we would look at furloughing as we move forward.”?

Earnings Quotes

C.H. Robinson

“We believe as we think about customers and what they need and what they want that we can bring a full complement of services that they really need, where they can get stuff from Asia, from central China, to the central US with us,” Mike Zechmeister, CFO, said during the company’s fourth-quarter earnings call Wednesday.

“I'm a believer that global supply chains are getting more complex, and partners that can solve problems can create tremendous value for multiple players, including Robinson,” interim CEO Scott Anderson said.

DSV

“The outlook is significantly lower than our results for this year,” CFO Michael Ebbe told analysts. “It is a more uncertain market than what we have been used to. We expect the negative development in freight volumes to continue in the first part of 2023 and that markets will gradually recover in the second half of the year.”?

Old Dominion Freight Line

“Our January volumes were slightly positive versus December,” CFO Adam Satterfield told Wall Street analysts during the company’s fourth-quarter earnings call. “We anticipate volume will return to us in the spring.”?

TPM Tech/TPM

For more on intermodal, Peter Tirschwell will chat with DCLI CEO Bill Shea and discuss chassis, the market, and more at TPM.

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