Freight Forward: Tooth and Nail

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.

The rhetoric ticked up a notch as contract negotiations began last week between the International Longshoremen's Association (ILA) and the Pacific Maritime Association (PMA).

ILA President Harold Daggett said the union, representing port labor on the East and Gulf coasts, will "fight tooth and nail" against further marine terminal automation in the United States.

Daggett said port employers have an obligation to consider the impacts that new technology has on jobs and people's livelihoods, adding any attempts to implement automation will be vigorously fought.

"Automation does two things: it makes the companies rich and the longshore workers unemployed," he said. "Automation doesn't improve productivity. It destroys lives and livelihoods, and we will stand with the ILWU to fight it tooth and nail."

Daggett said it was not automation that delivered essential goods to homebound Americans during the COVID-19, adding that 30 ILA members have died of the virus during the pandemic. He also reiterated the ILA's opposition to handling any automated ships that call the East and Gulf coasts.

(Check out an earlier JOC story on a study sponsored by PMA on automation impacts on the US West Coast ports).

Meanwhile, while contract negotiations began, shippers scratched their heads and wondered when Shanghai would fully open. The uncertainties are making it difficult for shippers and non-vessel-operating common carriers (NVOs) to plan their supply chains for the rest of the year.

Among the commentary:

• "I've never seen so many mixed signals," said Jon Monroe, who serves as an adviser to NVOs. "How long will it take [for Shanghai to come back]? Maybe four to eight weeks. Possibly 12 weeks."
• "It's definitely slowed down, but freight hasn't stopped," Jack Chang, managing director of the forwarder JUSDA said. "The right way to look at this is vertically. You have to break it down by [product sector]."
• "In general, we're seeing some slowing relative to what we've seen in the past," said the transportation manager of a home furnishings retailer. He added, however, "There is no change in behavior on our part. We're not cutting back on purchase orders or speed to market."
• "Will there be a big surge? There's no sense of urgency right now," said Christian Sur, executive vice president of ocean freight and contract logistics at forwarder Unique Logistics International. "There's still a lot of inventory in the warehouses from the last peak season."

Hopefully, good news as of this morning (May 16, 2022) - Shanghai announced that it would begin to fully reopen beginning on June 1, according to Reuters .

What to potentially expect:

• "It's interesting there are so many different perspectives on this," said Lawrence Burns, president of Lawrence Burns Consulting and a former senior vice president of trade and sales at carrier HMM. "I think there is only one perspective. There's a tremendous amount of pent-up demand. I see a surge."
• An NVO source said he envisions rolling waves of import volumes through the end of the year — a surge when Shanghai reopens, a softening of imports in mid-summer, and the normal peak season increase in imports this fall followed by another softening at the end of the year.

The uncertainties due to contract negotiations, lock-downs in Asia, and the economy is resulting in retailers moving shipments forward this year. Global Port Tracker (GPT) forecasts that US imports in the first half of 2022 will increase 5.1% year over year. That is double the 2.5% increase forecasted in the April GPT and highlights the urgency retailers feel in getting merchandise into the US.

"Consumer spending is growing faster than income growth, perhaps as shoppers buy ahead of expected rising prices," said Ben Hackett, founder of Hackett Associates. "Importers are doing much the same as they continue to replenish inventories." The GPT is published monthly by the NRF and Hackett Associates.

GPT is forecasting that imports in May will decline 1.4% from May 2021. Still, the new forecast for May is less than the 5.3% drop GPT projected in the April report. And the projected May imports would be the third-highest monthly volume of US imports on record. GPT forecasts that US imports in June will increase 6.6% year on year.

Oh Canada

While much of the focus on Freight Forward has centered on the US, our friends to the North are also tightly woven into many US supply chains. Last week, Mark Szakonyi, Executive Editor for JOC, moderated an afternoon-long webinar on Canada trade and shipping outlook (A replay of the webinar is available for interested folks).

Key takeaways:

• Vancouver railcar is improving, but there's still a backlog to work through before the early peak.
• Western ports have very limited ability to handle US West Coast diversions.
• Ottawa is more aware of supply chain importance, but action is still needed.
• Is Canada balancing the need to build freight infrastructure for economic development with environmental concerns?

Ocean diversions to the US East Coast from the congested West Coast is causing a "red-hot" air cargo market on the North America trans-Atlantic lane according to the head of DSV's air charter network. Mads Ravn told JOC.com Monday. "We see more ocean to air conversions as a result of long delays and already longer transit times coming out of Asia to the North American East Coast."

Thomas Mack, global head of air freight at DHL Global Forwarding, said passenger capacity was increasing as airlines brought back capacity to meet increasing demand for business and private travel. "However, air freight capacity remains tight, and we still see a shortage of main deck capacity on the trans-Pacific and North Atlantic trade lanes," he told JOC.com.

The great debate in trucking continues over whether we're in a freight recession, heading towards one or the good times will keep on going.

For me, personally, this is becoming a tiresome subject. Regardless of the situation, shippers and carriers need to always remain vigilant in monitoring the market and focused on balancing capacity and costs with demand.

US domestic freight volumes in April fell 2.6% from March and were down 0.5% year over year, as rising inflation, higher fuel costs, and the threat of higher interest rates shook consumer confidence, Cass Information Systems said in its latest freight index report.

"After a nearly two-year cycle of surging freight volumes, the freight cycle has downshifted with a thud," wrote Tim Denoyer, vice president and senior analyst at ACT Research and author of the Cass Freight Index. Truckload contract rate deflation hasn't started yet, Cass said, but it is on the horizon.

Still, others say Cass's thud is barely audible outside the spot market. "Demand is not accelerating like it was last year, but demand is slightly up," Ben Cubitt, senior vice president of procurement and engineering at third-party logistics provider Transplace, said in an interview last Friday.

"The number of shipments across our managed transportation network is still strong. It's slightly above prior year," Cubitt said. "If we're entering a freight recession, how do I explain the fact that we're still booming? The freight recession hype is overdone; a light switch hasn't been turned off."

"Rising trucking rates, along with expanding manufacturing output, run counter to the freight recession narrative," Jason Miller, associate professor of logistics at Michigan State University, said in an interview Thursday. "I don't think we can read too much into a 0.5% drop in the Cass index."

As for less-than-truckload (LTL), "LTL is different from truckload," Adam Satterfield, CFO at ODFL, told Wall Street analysts on Apr. 27. That may seem obvious, but many questions asked by those analysts focused on the potential for a recession or downturn in freight demand, a concern fueled by the recent plunge in truckload spot rates. Satterfield and other LTL executives say they are well-insulated from truckload pricing swings.

"We’re not seeing the same type of pressures,” said Satterfield. LTL carriers differentiate themselves not only by service, but also by the type of freight they haul, and right now they are not hauling substantial amounts of truckload freight. “I think freight demand has been so solid with the influx of freight into the LTL world that many carriers, and certainly us, are just focused on long-term LTL freight,” he said.

LTL capacity is expected to increase 1% to 2% this year, but LTL tonnage is forecast to rise 3%, according to Steve Raetz, director of research and market intelligence at C.H. Robinson Worldwide. A higher rate of US industrial production, retail inventory growth, and a fresh wave of imports expected to hit US ports will keep upward pressure on LTL rates that already rose by double-digit percentages in 2021.

Meanwhile, according to Jason Hilsenbeck, founder of Loadmatch and Drayage.com , there are signs that drivers are returning to large trucking fleets and that many more will return in the next two months. One of those signs is the recent addition of five new dispatcher-agents to Hilsenbeck’s directory. Agents are aligned with large companies and feed container business to drivers. The emergence of new agents means small owner-operators are struggling to source loads on their own from importers and need the help of agents in finding containers to haul.

The big question, in terms of Amazon, has always been when they will begin to compete against UPS and FedEx in terms of last mile delivery. Well, it looks the competition will be further upstream of the supply chain and with other trucking firms instead. Last week, it was announced that Amazon’s truckload brokerage division, Amazon Freight , will partner with transportation management system (TMS) provider MercuryGate to channel shipper volume from the TMS into Amazon’s network of capacity. The partnership will see Amazon Freight’s more than 40,000 owned trailers and its listing of third-party carriers integrated with MercuryGate as an option for spot rates for MercuryGate’s shipper customers. It’s the first such partnership for Amazon Freight.

However, Amazon does continue to expand its last-mile capabilities via its delivery service program and other means to shorten delivery times and maintain its Prime promise of same-day and next-day delivery. According to an online publication, Recode , Amazon is partnering with small mom & pop stores in rural locations within the US in an experimental delivery program. Amazon is paying participating small businesses a per-package fee to deliver Amazon orders within a 10-mile radius to their neighbors’ homes in states like Nebraska, Mississippi, and Alabama. The only requirement is a commitment to deliver Amazon packages seven days a week, around 360 days a year, and a physical location to receive parcels each morning.

Rural deliveries are expensive for last-mile providers. Many, including Amazon, tend to partner with the US Postal Service for final deliveries. However, FedEx, for example, has insourced most of what they outsourced to the USPS and UPS has also insourced some volumes where it makes sense as well but still leans on USPS for Sunday deliveries.

Economic Outlook

• April US retail sales will be published on Tuesday. March retail sales were disappointing to many, up only 0.8% while non-store sales declined. April retail sales are expected to improve from March, forecasted at 1.1% growth rate.
• April industrial production index will also be published on Tuesday. MarketWatch expects a slight decline from 0.9% in March to 0.5% in April.
• April building permits and housing starts will be published on Wednesday by the US Census. Expectations are a slight decline for each from March.

More shippers including Walmart and Target will report quarterly earnings this week. Keep an eye on my Twitter account (@cmroberson06) for bits and pieces from some of the earnings announcements.

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