Freight Forward - Slow downs but opportunities increase

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.

JOC’s Bill Mongelluzzo writes that US imports from Asia dropped 31.1% year over year in February to 1.09 million TEU, the lowest level since March 2020. February marked the sixth consecutive month of year-over-year declines in Asian imports that began in September.

The drop in imports is not helping carriers that are negotiating with shippers. In particular, according to Mongelluzzo, mid-sized US retailers are benefiting from lower spot rates that continue to decline. A mid-size retailer said he was targeting a rate slightly higher than $1,600 per FEU to the West Coast, but indicated he’s in no rush to sign because he believes the market may sink further. “I’m just going to slow down,” the source said. “Carriers are pleading with us to help them fill their ships.”

Good news for both carriers and shippers, though, JOC’s Ari Ashe writes that most of the 2022 chassis orders have been fulfilled, and enough units should be available to supply the needs of shippers by June, if not beforehand, according to chassis lessors.

While imports from Asia slow, US imports by truck from Mexico continue to expand despite slower US economic growth, according to US Bureau of Transportation Statistics (BTS) data. Bill Cassidy notes that the number of trucks entering the US from Mexico increased 4.5% in 2022, rising to 7.3 million — the first time northbound trucks from Mexico exceeded 7 million units in a year.

The combined CP-KCS network could divert 64,018 trailers or containers per year from truck to intermodal service, according to research by S&P Global transportation consultant Bengt Mutén cited by the STB in its decision. The diversion of freight from tractor-trailers to intermodal rail would reduce long-haul truck miles in the US by 86.2 million a year, according to Mutén’s research. And still the number of trucks, trains, and intermodal containers crossing from Mexico to the US will grow.

Indeed, JOC’s Ari Ashe write that US regulators approved the acquisition of Kansas City Southern (KCS) by Canadian Pacific Railway (CP), saying the single-line rail service between Mexico and the US Midwest will increase competition by providing new options for shippers to route their cargo. 

STB Chairman Martin Oberman said the competition from the CPKC routes will put pressure on US ports and railroads to do a better job handling import surges in the future.  “It's not exactly like during the pandemic the US ports were functioning well, so every US citizen could have benefited from better movement of goods from the ports,” he said. “Hopefully, this will cause the US railroads to up their games at our US ports.” 

Express

FedEx reported its FY23 Q3 earnings (period ending Feb 28) on March 16. As I noted in my Air Cargo Next column, revenue, profits, and volumes fell across all divisions except Freight. Still, the company was upbeat and noted some positives, including lower expenses from layoffs and furloughs, parking more airplanes, selling a FedEx Freight Facility, and utilizing its data. It identified additional costs in its Express division and plans to discuss its progress on April 5.

Bill Cassidy writes today on FedEx's earnings from the Freight side, noting that it is shrinking its physical footprint to match lower demand for less-than-truckload (LTL) freight. At this point, “FedEx Freight is the biggest story of all three operating companies” within FedEx, said Satish Jindel, president of research firm SJ Consulting Group. “They're bringing pricing discipline and cost accuracy to the market, and the LTL industry shouldn’t miss this opportunity to follow this lead.” 

Overall, FedEx’s use of data to drive efficiencies, in particular, will be worth the watch. For example, it utilized dynamic pricing during the peak holiday season to adjust residential surcharges based on individual customers’ weekly peaking factor by delivering $150 million in profit, according to Executive Vice President and Chief Customer Officer Brie Carere. It plans to expand its use of dynamic pricing further this year.

Legislation & Regulations

US draft legislation is underway that would update some aspects of the Ocean Shipping Reform Act of 2022 (OSRA-22), according to JOC’s Teri Griffis. Among the updates:

• Heighten transparency into regulatory penalties levied against ocean carriers and marine terminal operators (MTOs) by ordering all sanctions to be publicly posted online.
• Call more attention to all complaints made against carriers and terminals by shippers, drayage providers, and consignees and the course of action taken by regulators.
• Creation of a National Seaport Advisory Committee appointed by the FMC that would consist of 16 port authority representatives and eight marine terminal operators.
• Ban all US port authorities from receiving federal funding if they use the China-sponsored National Transportation Logistics Public Information Platform (LOGINK).
• Reiterate the need to add ocean common carriers that are owned by the Chinese government to the FMC’s list of “controlled” carriers, which are held to a higher standard for rate reviews.

Meanwhile, JOC’s Janet Nodar and Special Correspondent, Keith Wallis write that new environmental regulations will cause issues in the project and breakbulk shipping market, with the potential to affect commercial relationships and operations, reduce available tonnage, and drive freight rates higher, according to industry executives. 

Tech

After acquiring two North American landside logistics technology providers, WiseTech Global CEO Richard White hinted to JOC’s Eric Johnson that the company’s next target could be a US domestic transportation play. “If you look at all the market opportunities across the world, you’ve got to be practically everything, and that’s not a short-term vision,” he said. “So we’ve broken it into steps. One of those steps was customs, and another was landside logistics.” More broadly, the goal is to make the handoffs between international, intermodal, and domestic legs more efficient, an area where the Blume acquisition, in particular, helps. 

“Storage charges, truck wait times, detention for containers not returned on time, empty legs, the truck, the chassis, the rail car, they can all be optimizable better than they are now,” White said. “It’s definitely a new group of customers for us. Blume gives us rail, which you can’t get access to easily. Incumbency in these industries is very sticky. An analyst asked me how long it would take to build something like Blume, and I said 20 years and $1 billion, and even then, there’s no guarantee.” 

Economic Outlook

Friday, March 24 - S&P Global flash U.S. manufacturing PMI – Expectations are for further contraction.

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