Freight Forward - Normalizing

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.

Thankfully we said goodbye to daylight savings time this weekend which usually means for me that I sleep much better; However, a bit too much I'm afraid...so apologies for getting this latest edition of Freight Forward out late today!

Supply chains are slowly returning to normal for some while problems persist for others. In the latest JOC Intermodal Index, Ari Ashe writes that US shippers saved more than 30% on intermodal contracts in Q3 but sagging truck rates have created intense competition on the spot market and caused shorter hauls to shift to the highways.

The JOC Spot ISI is down from the same period a year ago but up from Q2. The spot index recovered in late August and September after US railroads and asset-based intermodal marketing companies significantly slashed spot rates in reaction to the truckload market.

The JOC indexes measure how much money a shipper should save on 117 modally competitive US lanes. There are two indexes: one for the spot market and one for the contract market.

“Our transcon west business has really outgrown our local east because of the stickiness that’s associated with it and the rate gap it has versus truck, so we don’t see it flip nearly as much between intermodal providers or flip back and forth between trucking and intermodal,” Phil Yeager, president of Hub Group, said on an Oct. 27 earnings call.

He added that truck prices on the shorter hauls in the eastern US fell faster than intermodal providers had anticipated, causing highway options to become highly competitive to rail.

Hub Group reported local west volume rose 1% year over year in the third quarter, transcontinental volume fell 1%, and local eastern US volume fell 18%.

(The data behind the JOC Contract ISI and Spot ISI is available to JOC subscribers with the proper subscription.)

BNSF Railway has cleared more than 80% of the ocean containers that had been stacked at its Dallas-area terminal and believes normal operating conditions could resume there within weeks. That comes just two months after congestion inside the Alliance terminal reached critical levels.

Tom Williams, group vice president of consumer products for BNSF, overseeing intermodal, said a combination of lower volume at the ports of Los Angeles and Long Beach and more chassis being returned have helped clear the logjam outside Dallas-Ft. Worth.

“We are at an inflection point where eastbound pressure coming out of the ports is clearly slowing down, while demand is increasing westbound to flow back into the West Coast,” Williams told JOC.com. “If that trend line continues, then it would just be a few more weeks away from having everything normalized. That’s based on the expectation that eastbound flow is going to be a bit softer and the westbound for exports and empties will be heavier, generating the chassis to handle the remaining stack.”

Meanwhile, drayage truck drivers in Toronto and Montreal are avoiding congested rail ramps in Canada’s two largest markets and will continue to do so until they no longer have to wait hours to retrieve and drop off containers, trucking and freight forwarder sources say.

The ramps in Toronto and Montreal are overflowing with containers because distribution warehouses in those regions are filled to capacity due in large part to labor shortages throughout Canada’s supply chain.

As a result of the problems experienced by the Canadian National and Canadian Pacific railroads at the rail ramps in the interior, rail container dwell times in Vancouver, which had shown significant improvement in September, are rising again. According to the port’s website, rail container dwell times on Friday were mostly five days or longer, compared with an average of 3.9 days in September. In an operational report to its customers on Oct. 24, Hapag-Lloyd said rail container dwell times can be as high as 10 days.

In their Q3 earnings calls, C.H. Robinson Worldwide and Werner Enterprises noted they are focused on controlling costs amid growing concern about the US economy.

Werner Enterprises CEO Derek Leathers said small trucking companies relying on the spot truckload market are starting to go out of business. In 19 out of the last 24 weeks, more truckers have surrendered their US Department of Transportation registration than have sought registration, he said.

“I'd say over the last four weeks we've seen a very sudden and noticeable increase in the quantity of those deactivations, especially at the truck count level,” Leathers said on Wednesday’s call. “You're seeing 3,500 to 4,000 trucks a week net coming out of the market.”

C.H. Robinson CEO Bob Biesterfield said the company will sacrifice margins to keep business. The non-asset logistics provider said about 65% of its shippers operate under annual contracts.

“We'll re-price around 60% of our truckload business between the fourth quarter and the first quarter,” he said. “And we know that in order to drive growth, we’re going to have to be aggressive in those truckload pricing events.”

As C.H. Robinson and Werner focus on costs, LTL carrier, XPO said it will expand spending on capacity on multiple levels. The company is targeting 900 net new doors by the end of 2023. XPO plans to add a third production line at its trailer manufacturing plant in Searcy, Arkansas, during this quarter.

• In other trucking news...FedEx Freight is looking to simplify pricing and is testing dimension-based pricing for select LTL customers. The pilot, which FedEx calls “space and pace” pricing, simplifies the FedEx Freight pricing structure by removing the need for complex freight classifications under the National Motor Freight Classification pricing system, which is based on factors including density and stowability, according to FedEx.
• Ryder acquired Dotcom Distribution, a provider of omnichannel fulfillment and distribution services for high-growth retail and e-commerce brands specializing in health, beauty and cosmetics, and fashion and apparel. With the acquisition, Ryder continues to expand its e-fulfillment network with the opportunity to add an impressive roster of consumer brand names and increase its national footprint with the addition of a 400,000-square-foot multiclient fulfillment facility in Edison, New Jersey. Earlier this year, Ryder announced the acquisition of another e-commerce and omnichannel fulfillment provider, Whiplash. The company had established itself as a leading national provider of scalable solutions to more than 250 digitally native brands and omnichannel retailers, backed by a proven e-commerce technology and operating platform.

Parcels and Last Mile

Pitney Bowes announced its Q3 earnings. Some tidbits from the earnings call:

• The strength in the U.S. dollar and macro weakness, especially in Europe, continued to put pressure on international eCommerce activity - Ana Maria Chadwick, Executive Vice President, and CFO
• Our Domestic Parcel network is well positioned to handle peak volumes this year as well as an expected increase in the run rate parcel volumes driven by recent new client wins. Since the beginning of Q3, 32 new Domestic Parcel clients have gone live ahead of peak. New clients are expected to account for roughly 20% of Q4 parcel volumes. - Ana Maria Chadwick, Executive Vice President, and CFO
• In Q3 we began the quarter at 2.8 million parcels per week and finished the quarter at 2.9 million parcels per week, so a slight improvement, but basically holding steady. Through the first three weeks of the fourth quarter, we are running at approximately 3.6 million parcels per week, so you can clearly see the impact of our improved service levels driving volume to our network - Marc Lautenbach, President, and CEO

Strong investments in energy and aerospace projects, combined with a capacity crunch caused by the Russia-Ukraine war, are fueling strong demand in the heavy lift and oversized air cargo market.

The bright environment has led heavy lift and project cargo freight rates to jump, bucking the trend in the general air freight market where overcapacity and lack of demand have led rates to plunge, Vadym Budzynskyi, director of Ukrainian heavy-lift air carrier Antonov Airlines, and Andriy Blagovisniy, former commercial director at Antonov, told JOC.com.

“Up until Feb. 23, project cargo volumes were continuing to increase from the sharp decline since 2020 due to the coronavirus pandemic,” Blagovisniy, who is now a project cargo consultant, said. “This increase was seen especially from the aerospace and oil and gas industries. Since Feb. 24 ... the availability of air cargo capacity has decreased significantly even as oversized and heavy lift demand continued to increase.”

US Gulf Coast ports have benefited from importers diverting shipments away from ports on the West Coast during ongoing longshore labor talks that began in May. But even if those negotiations end soon, Gulf Coast port officials say shippers are making some of those diversions permanent.

Importers for the past several years have been bringing a larger portion of their goods through the US Gulf, and that shift has accelerated in 2022.. Through September, Gulf Coast ports handled 7.1% of US imports from Asia, up from 5.7% in the first nine months of last year and 4.8% in the same period during pre-pandemic 2019, according to PIERS, a sister product of JOC.com within IHS Markit, part of S&P Global.

Even more telling, the Gulf Coast’s share of imports from Asia has risen in each consecutive month since the official start of the ILWU talks, from 6.1% in May to 9.2% in September.

Shifts in imports may have a more powerful impact as volumes decline. While Maersk remains on track for its best-ever full year, CEO Søren Skou indicated the period of the shipping industry’s highly elevated earnings was nearing its end.

“It is clear that freight rates have peaked and started to normalize during the quarter, driven by both decreasing demand and easing of supply chain congestion,” Skou said in a statement, adding that earnings in ocean will decline “in the coming periods.”

While maintaining Maersk’s full-year guidance of $37 billion in EBITDA and $31 billion in EBIT, Skou said the deteriorating outlook had led the carrier to cut its outlook for global container demand growth for the full year from between 1 and minus 1 percent to minus 2 to minus 4 percent.

“With the war in Ukraine, an energy crisis in Europe, high inflation, and a looming global recession there are plenty of dark clouds on the horizon,” he said. “This weighs on consumer purchasing power which in turn impacts global transportation and logistics demand.”

Container shipping volume will continue to decline through the first quarter of 2023, accompanied by falling spot rate levels as economic conditions weaken before the market “moves closer to equilibrium,” Jeremy Nixon, CEO of Ocean Network Express (ONE), said during the company's Q3 earnings call.

Indeed, new orders placed at container production factories in October slowed to their lowest level in three years, Textainer CEO Olivier Ghesquiere said during the company’s Q3 earnings call. New container inventory sits at 1 million TEU, he added, which historically takes about four quarters to be absorbed, especially when orders are dropping significantly.

“If history is any guide, previous downturns in new container supply have lasted between four to six quarters, and we expect that this cycle will be no different,” Ghesquiere said. “If anything, a possible economic stimulus plan in China could provide impetus for earlier activity pickup in the intra-Asia trades.”

Economic Outlook

• Thursday, Nov 10 – CPI for October – MarketWatch expects a monthly increase of 0.6% compared to September’s 0.4%.

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

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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