Freight Forward - A Sigh of Relief While Waiting Continues

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.

A big sigh of relief was heard across the country as US freight railroads and unions reached a tentative contract last Thursday. President Joe Biden, in a statement, called the tentative deal “an important win for our economy.”

“These rail workers will get better pay, improved working conditions, and peace of mind around their health care costs: all hard-earned,” Biden said. “The agreement is also a victory for railway companies who will be able to retain and recruit more workers for an industry that will continue to be part of the backbone of the American economy for decades to come.”

The country’s two largest rail unions, the Brotherhood of Locomotive Engineers and Trainmen (BLET) and Sheet Metal Air, Rail, and Transportation Workers (SMART-TD), said in a statement last Thursday that they will submit the tentative agreement to their rank and file for a vote. No specific timeline was provided, though a spokesperson for SMART-TD told JOC.com it will be “a matter of weeks.”

“This contract will not become final until our members have an opportunity to review its terms and approve it through a ratification vote,” the unions said in their statement.

In another possible sigh of relief, security guard ILWU local at LA-LB has a deal according to numerous JOC sources.

Members of the security guard union, International Longshore and Warehouse Union (ILWU) Local 26, work at the majority of marine terminals at the LA-Long Beach complex and have been negotiating a new contract for three years. In late August, it had authorized a strike sources close to the matter told JOC.com.

Meanwhile, negotiations between West Coast port workers and the PMA continue. It’s been four months since negotiations began. No solution has yet emerged after weeks of the discussion centered on Seattle and other broader related issues. The jurisdictional issue that originated in 2018 at Seattle’s Terminal 5 (T5) has become a coastwide contract issue. The longer the give-and-take over T5 drags on without progress, the greater the likelihood that an actual impasse could be declared, possibly as soon as today, Sept. 19, sources say.

JOC’s Peter Tirschwell writes that the talks could drag on beyond the midterm elections and possibly even into 2023 due to the fact that economic issues, specifically wages, have not even been discussed in detail yet, according to JOC sources. That is leading to growing doubts that a new contract can be agreed upon in advance of the midterm elections on Nov. 8. At the same time, some sources close to the negotiations are not ruling out the possibility of a quick resolution given the inherent unpredictability of the process.

As talks continue, most trans-Pacific carriers and their customers are waiting until late this year or early next year for market clarity needed to begin serious discussions on the 2023–24 service.

Executives at three separate ocean carriers told JOC.com they plan to follow a similar playbook to last year: get contracts with their largest customers signed earlier and then determine which customers, and at what price, fit the rest of their networks. The executives say demand has been falling in recent weeks and that some carriers have already cut rates to keep some ships full.

An executive at a separate large trans-Pacific container carrier said beneficial cargo owners (BCOs) “are in a state of turmoil right now because their forecasts for 2022 were wrong.”

As spot rates decline and cargo volumes expected to fall from record highs, importers, especially big-box retailers, are analyzing their anticipated cargo volumes for the coming year. Because a large proportion of their imports are redundant from year to year, they should be ready to begin their first round of contract discussions with carriers in late fall, according to an industry consultant who once served as a retailer logistics executive.

However, expectations of cargo volumes falling have not yet materialized. Asian imports in August totaled 1.72 million TEU, up 3.5% from July and 8.3% higher than August 2021, according to PIERS, a JOC.com sister product within S&P Global.

The West Coast share of US imports from Asia this year through August declined to 58.2%, down from 61.2%in the first eight months of 2021. The East Coast share of Asian imports rose to 34.7% from 32.8%, while the Gulf Coast share was 6.8%, up from 5.6%, according to PIERS.

Upheavals in supply chains are garnering investments in technology. Freight rate benchmarking platform Xeneta, for example, announced an $80 million funding round to build a broader presence in providing indexes and analytics tools to ocean and air freight capacity buyers.

“While global trade tries to get back on its feet after a couple of years of uncertainty, it’s clear that the overall logistics industry requires a re-think of how freight is bought and sold,” Xeneta CEO and co-founder Patrik Berglund said in a statement. “This new funding will help us accelerate the development of our platform and add even more data sets to enrich our expert industry analyses to further drive transparency in the market.”

In addition, ocean freight contracting technology provider NYSHEX received a $25 million investment to expand the reach of its tools intended to support mutually enforceable contracts between shippers and their container lines and non-vessel-operating common carrier (NVO) capacity providers.

Less-than-truckload (LTL) technology provider MyCarrier recently received $22 million in funding. MyCarrier currently partners with 15 LTL carriers to provide automated integrations via an application programming interface (API) to their pricing systems, allowing shippers to get quotes and track freight more easily. The second tier of integrations to more than 70 other LTL carriers provides access to non-automated tools.

MyCarrier is expecting to process more than $1 billion in freight spend across more than 5,000 shippers, Chief Marketing Officer Marc Brown told JOC.com. Customers include Lucas Oil, IPC Global, U-Haul, and Malouf Home, while its 15 carrier automation partners include Saia, Old Dominion Freight Line (ODFL), Estes, and Averitt.

MyCarrier is expecting to handle more than 2 million shipments in 2022, 52% growth year over year. The company’s annual run rate, a projected measure of annual revenue based on monthly sales, reached $9.4 million in August, the company said.

As technology providers receive funding, demand for supply chain services appears to be normalizing. The US producer price indexes (PPIs) for long-distance trucking declined in August from July, with the less-than-truckload (LTL) index now dropping for two straight months and the truckload index for three months in a row.

The LTL PPI is 8.4% lower than its peak reading in June, an indication that LTL costs are coming under pressure likely due to declining fuel surcharges. The average US retail diesel price on which LTL fuel surcharges are based has dropped 13.4% since peaking at $5.81 per gallon in mid-June.

Year over year, the truckload PPI is still up 22%, while the LTL PPI is 14.1% higher than it was in August 2021. In a two-year comparison, the LTL PPI is up 24.8%, while the truckload PPI is 47.7% higher than in August 2020.

A similar situation with Couriers & Messengers. The August PPI declined 1% from July and down 1.7% from its peak in May due likely to fuel surcharges. However, little relief from rates as year over year, PPI is up 21.8% and up 20.2% since August 2020. ?

Couriers & Messengers' PPI will likely remain high for the rest of the year as peak holiday season surcharges go into effect. While most peak holiday season surcharges will go into effect in October from such carriers and providers as FedEx, UPS, USPS, OnTrac/Lasership, and DHL e-Commerce, FedEx peak surcharges for Additional Handling and Large Packages have already gone into on Sept 5 and will increase once more in October.

Speaking of FedEx…the company will report its fiscal Q1 (period ending August 30) earnings this Thursday. However, the company issued preliminary earnings last week which took the market by surprise.

According to FedEx’s press release, first quarter results were adversely impacted by global volume softness that accelerated in the final weeks of the quarter. FedEx Express results were particularly impacted by macroeconomic weakness in Asia and service challenges in Europe, leading to a revenue shortfall in this segment of approximately $500 million relative to company forecasts. FedEx Ground's revenue was approximately $300 million below company forecasts. (Note that there was no mention of FedEx Freight.)

“Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S. We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first quarter results are below our expectations,” said Raj Subramaniam, FedEx Corporation president, and chief executive officer.

FedEx and UPS have noted declines in domestic and international volumes over the past few quarters but have adjusted their networks and surcharges to address the situation.

(For more on FedEx's preliminary earnings announcement, check out my Air Cargo World column from Friday - Reality hits FedEx as it announces disappointing Q1 results)

I’m also hearing rumblings that UPS and FedEx have become more open to negotiating with shippers in order to increase volume levels.

We’ll see how UPS performed during its third quarter (period ending Sept 30) when it reports later in October.

Economic Outlook

Tuesday, Sept 20 - Building permits for August – are expected to decline.

Tuesday, Sept 20 – Building starts for August – expected to increase.

Friday, Sept 23 – S&P US manufacturing PMI (Flash) for September – is expected to decline.

Friday, Sept 23 – S&P US services PMI (Flash) for September – is expected to increase.

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. (Next week!)

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