Freight Forward - Will we see a peak season?

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.

The highly elevated spot rates on the major ocean trade lanes have passed their peak, but shippers should expect short-term prices to settle at higher pre-pandemic levels for the foreseeable future. “There will be a peak season,” Kuehne + Nagel CEO Detlef Trefzger told analysts during the company’s first-half 2022 earnings call. “We don’t see a turn in the disruption at the moment. We don’t see an escalation, but we don’t see a turn either. There is no major change ... we are where we were a quarter ago regarding disruption.”

Expectations of a strong peak season are doubtful. The 2023 back-to-school merchandise is already on store shelves, and much of the fall and holiday merchandise has shipped from Asia.

US import booking demand, as tracked by E2open, has eased in the last 30 days. The average weekly volume booked was down approximately 13% in July compared with the weekly average year to date.

“It’s a relatively muted market, and rates reflect that,” said Jon Monroe, a consultant to NVOs.

“The peak is over,” said Michael Braun, vice president of customer solutions at the ocean shipping index Xeneta.

However, don’t tell the US ports that peak season is muted or even over. There is growing frustration among truckers at the Port of New York and New Jersey who are trying to get rid of the high number of empty containers sitting across the port region. Maersk subsidiary APM’s Elizabeth terminal and the Global Container Terminal facility in Bayonne require appointments. APM requires appointments all day, while GCT’s appointment system is only up to 1 pm, after which none is required.

Some motor carriers in New Jersey are starting to charge shippers a fee for booking appointments at marine terminals, according to a July newsletter from the Association Bi-State Motor Carriers. The fee is “to offset the added expense and manpower that has become necessary to effectively secure and manage appointments at the terminals that require them.”

An executive at one of the marine terminals that has an appointment system, who asked not to be identified, told JOC.com that while the number of empty return appointments available each day fluctuates depending on what carriers are coming and their on-dock box inventories, the terminals might only be able to provide about one-third of the appointments that truckers are seeking.

He said an appointment system means better planning for how to allocate longshore workers and allows certain terminals to avoid backlogs of ships at anchor. As of July 25, two of the 21 ships at anchor off New York-New Jersey were scheduled for berths at APM, and another two at GCT Bayonne.

Further south, the Georgia Ports Authority (GPA) announced that it will increase truck gate hours by one hour each weekday from Aug. 1 to help handle the volumes. Almost 265,000 containers are on the water destined for Savannah and a record 40 vessels are already anchored outside the port.

Truck gates will run from 4:00 am to 9:00 pm during the week for a total of 17 hours per day. The current schedule is 16 hours per weekday — from 6:00 am to 6:00 pm and a 7:00 pm to 11:00 pm shift that was added last fall.

Shippers aren’t doing their part to keep containers moving from ports and returning chassis quick enough according to BNSF and Union Pacific Railroad. As such, the two railroads are metering how many ocean containers they haul from the ports of Los Angeles and Long Beach.

BNSF is metering from Southern California to its BNSF Alliance terminal outside Dallas and BNSF Logistics Park Chicago in Joliet because there are more than 1,000 stacked containers at each facility. BNSF said it must coordinate how many containers are loaded on trains in Southern California with the available terminal space in Dallas and Chicago. BNSF is also repositioning cranes to make more containers accessible in Alliance on Aug. 1 and is tapping ITS Conglobal yards in Dallas and Chicago to provide additional storage capacity. ITS Conglobal manages intermodal terminals and owns depots throughout the US.

UP has begun “limited metering” into Memphis but declined to provide numbers.

Both railroads have said cargo owners must stop using containers, chassis, and rail terminals as mobile warehousing. Some shippers have acknowledged warehousing constraints as slowing retail sales keep inventory sitting longer than anticipated.

In the second quarter, Prologis’ occupancy rate was 97.6%; a year ago, it was 96%. Looking forward, “little space remains available to lease in our portfolio,” Prologis CFO Tim Arndt said in an earnings call last month. He said 71% of leases expiring in the next 12 months are either “pre-leased or in negotiations.”

The truckload capacity crunch caused by the COVID-19 pandemic is over . However, new capacity hasn’t flooded the highways, and available capacity remains tight outside the spot market.

“Capacity is clearly under pressure,” David Jackson, CEO of Knight-Swift Transportation Holdings, told Wall Street analysts during a July 20 earnings call. “We expect a contraction in supply and are already seeing it and expect that to continue as the year proceeds.”

But it’s not clear whether capacity is leaving the industry or flowing to different sectors within trucking, such as the larger truckload carriers owned by Knight-Swift. Capacity is growing in the truckload spot market, but tighter outside that sector, and still tight in the less-than-truckload (LTL) market.

“We are seeing signs of drivers looking for new opportunities,” Jackson said. That means more drivers leaving small firms or parking their own trucks to take jobs with larger truckload carriers to escape depressed spot rates, higher fuel prices, rising equipment costs, and higher insurance rates.

There’s no doubt the loss of smaller carriers Jackson cites is taking place. But new trucking companies continue to apply for authority, too, with about 8,000 in June, according to FTR Transportation Intelligence. What’s more, business applications in the transportation and warehousing sector remain higher than in 2019.

Parcel Corner

The last mile of supply chains continues to evolve as UPS once again proved the success of its strategy – “Better, not Bigger”. For the second quarter, consolidated revenue increased 5.7% while operating profit was up 8.5% and up 9.3% on an adjusted basis.

Revenue management was the key to the company’s growth as average daily volumes declined across the board. Part of the decline in the US was due to the company shipping fewer packages from Amazon, its largest single customer by revenue. The change in the approach, UPS said, frees it up to focus on gaining new and more profitable customers, including small- and medium-sized shippers, and those in healthcare.

As UPS focuses on revenue management and investments in operational efficiencies , regional parcel carriers LaserShip and OnTrac , which merged together in 2021, announced a transcontinental service delivering packages between their respective coverage areas on the East Coast and West Coast. For now, the service will reach 74% of the U.S. population across 30 states and Washington, D.C. with transit times from three to five days.

With plans to expand into Texas, the LaserShip/OnTrac organization could be an alternative solution for shippers looking for additional capacity and perhaps lower rates for the holiday peak season.

One last share is from The New York Times , most folks know that the “last mile” is really not the “last mile” in supply chains. The rise in returns has been much discussed but perhaps one area of reverse logistics that is often overlooked is the liquidation market.

In addition to returns, the high levels of inventories that go unsold are sparking increased demand for liquidation services from specialized third-party reverse logistics providers such as Liquidity Services.

Liquidators say they offer a more environmentally responsible option by finding new buyers and markets for unwanted products, both those that were returned and those that were never bought in the first place.

“We are reducing the carbon footprint,” said Tony Sciarrotta, executive director of the Reverse Logistics Association. “But there is still too much going to landfills.”

Economic Outlook

• Monday - S&P US PMI for July is expected to decline from June.
• Wednesday - Factory Orders for June are expected to decline from May. The advanced report was published on July 27 and showed a 1.9% increase in new orders and increases in unfilled orders and inventories.
• Friday – US unemployment rate is forecasted to remain the same at 3.6%

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 .

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