Freight Forward - Slowdowns

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, 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.

Breakbulk and project logistics providers are experiencing close to record demand these days but there is a struggle to protect profit margins due to worsening schedule reliability. JOC’s senior editor, Janet Nodar writes that although on-time performance for multipurpose vessels (MPVs) is still better than that of container ships, port congestion is disrupting breakbulk and project schedules.

In addition, breakbulk shippers are struggling to find warehouse space and equipment and have been hit hard by surging detention and demurrage charges.

According to Kai von Taube, head of global chartering with project forwarder deugro, detention for in-demand MPV ships has jumped from a relatively modest $8,000 to $12,000 per day before the COVID-19 pandemic to $30,000 to $50,000 per day now. In other words, a two-week delay due to congestion could conceivably cost a project shipper $420,000 to $700,000 in detention, in addition to already elevated freight rates, von Taube told JOC.com.

Meanwhile, lack of capacity on container ships and high spot rates are driving shippers to roll-on/roll-off (ro/ro) carriers to transport containers and noncontainerized goods. “A lot of this is being driven by the fact that the shippers are not getting their containers that they normally have been allocated in the past, and they’re just trying to find a way to get their product over,” Alberto Cabrera, director of ro/ro at the Port of Jacksonville, one of the nation’s top vehicle-handling ports, told JOC.com.

US ports have handled 13,929 TEU of containerized imports coming off ro/ro ships in the first five months of 2022, up 46.4 percent from the same period last year and 92.7 percent from pre-pandemic 2019, according to JOC.com sister product PIERS.

For ports such as Jacksonville, loading and unloading non-traditional cargo on ro/ro ships affects the labor and equipment needed, Cabrera explained. In addition to vehicle drivers, the port needs more hostlers, more flatbeds, and a new storage strategy for these nontraditional items.

Shipping by ro/ro also limits where and when cargo can go, with far fewer ro/ro ports and ships than the containerized sector. Pulling cargo out of containers also increases the risk of damage in transit.

As July 1 draws closer and shippers keep a close eye on any potential work slowdowns at US West Coast ports, strike concerns are also of concern at European ports of Hamburg, Bremerhaven, and Lower Saxony. Talks between the Central Association of German Seaport Companies (ZDS) and trade union ver.di recently ended after the trade union rejected an offer.

Meanwhile, Belgian trade unions embarked on a national 24-hour strike impacting the container handling operations at the port of Antwerp-Bruges yesterday (June 20). Belgium unions are demanding better pay, better social dialogue, and increased investment in the public sector, with growing discontent across Europe and the UK as workers face an increased cost of living crisis.

“A strike further complicates the current difficult situation,” a Hapag-Lloyd spokesman told JOC.com. “We very much hope that an agreement can be reached quickly so that the already strained supply chain is not further impacted for the long term.”

Any strike action will exacerbate the already heavily disrupted logistics chains across North Europe writes JOC senior editor, Greg Knowler. The congested northern hubs can expect little relief through the summer as volume freed up from the lifting of Shanghai’s two-month lockdown meets the peak season.

A key contributing factor to the port congestion is poor schedule reliability. On-time vessel performance in the Asia–North Europe trade was just 19.2 percent in April, the latest data available, according to Sea-Intelligence Maritime Analysis. By comparison, Asia–Europe on-time performance averaged 82.9 percent in pre-pandemic 2019.

The poor schedule reliability is spilling over into the trans- Atlantic. As such, Shippers can expect the record-low schedule reliability recorded on the trans-Atlantic through April to continue for the rest of the year as US imports from Europe show strong gains.

“We do not expect an improvement in schedule disruptions through the end of the year,” Matthew Hill, head of the North America import market for Maersk, told JOC.com. “The primary issue will be the continued erosion around schedule reliability and general operational limitations we see across the supply chain on both sides of the ocean.”

Hill said Maersk was expecting US demand out of Europe to remain stable in the coming months, but the ocean supply chain was so disrupted that the volume would continue to erode schedule reliability.

“This will be potentially exacerbated by terminal dwell in the US caused by the growing inventory problems, closures related to the Atlantic hurricane season, and the slower winter crossing associated with the colder months as we head towards the end of the year,” he said.

US East Coast import volumes from Europe in May were up 42 percent year over year at 167,961 TEU, according to data from PIERS, a sister product of JOC.com within S&P Global.

Markus Panhauser, senior vice president for ocean freight in Europe at DHL Global Forwarding, said volume would be very strong on the trans-Atlantic until the end of the year, accompanied by elevated rate levels.

“Although freight rates are high, the trans-Atlantic volumes are very robust and continue to surge,” he told JOC.com. “There will be the traditional volume drop in August as some factories will close in the second half of July and the first half of August.”

CMA CGM Air Cargo will tap into its parent company’s extensive ocean forwarding relationships, using the wider global network to drive business across the huge range of destinations acquired through its recently signed 10-year strategic partnership with Air France-KLM.

France’s newest airline — CMA CGM Air Cargo only received its “air operator” certificate on June 1 — is positioning itself for a rapid global expansion after the formal partnership agreement is reached with Air France-KLM in the next few months, with the joint venture expected to get underway in early 2023.

“Many forwarders are already existing customers of Air France-KLM or CMA CGM Air Cargo, but we will clearly have a much greater ability to leverage our shipping relationship with a much wider network,” Olivier Casanova, CEO of CMA CGM Air Cargo, told JOC.com in an interview this week.

Casanova said the creation of CMA CGM Air Cargo was a natural extension of the ocean carrier’s business toward providing end-to-end logistics services, a strategy the carrier has been aggressively pursuing during the past few years. “We see responsiveness from customers wanting to deal with suppliers of services that can be strategic partners and allow them to build relationships across many different products and services,” he told JOC.com.

“In some cases, those might be end-to-end; in other cases, they are choosing services independently,” he added. “The more services we provide, and the more we understand the complexities of the different supply chains, the more we can provide the right response to a particular customer's need.”

Casanova noted that CEVA Logistics was only one of a wide range of forwarders that will be used by the airline across the world, adding that "it is important that we maintain that diversity of access.”

Rail containers continue to be an issue on the US West Coast as the number of rail containers at the Port of Los Angeles jumped 20 percent over the past month and long-dwelling boxes are up 71 percent as railroads place the blame squarely on shippers failing to retrieve their containers quickly enough from rail ramps in Chicago and other inland locations.

Union Pacific and BNSF Railway say that lack of movement is a major reason they have been unable to return trains from inland hubs to Southern California fast enough to relieve congestion on the docks in Los Angeles, the nation’s largest port.

In Long Beach, there’s been minimal progress in reducing the backlog. There were 17,948 rail containers sitting on the docks as of June 8, of which 7,677 were long-dwelling. That’s down from 18,359 containers (8,289 long-dwell containers) on May 9, according to a port spokesperson.

Railroads say they are devoting more assets to the ports of Los Angeles and Long Beach to whittle down the number of containers sitting on the terminals.

“We’re focused on turning inventory in Chicago to get cars back to Southern California as quickly as possible,” said a BNSF spokesperson. “As we move into June, our efforts are beginning to yield positive results with greater velocity and productivity levels.”

Despite a drop in truckload spot rates, shippers are paying more for trucking and transportation services according to the US Bureau of Labor Statistics (BLS). The US producer price indexes (PPI) for trucking in May showed month-to-month increases, with the long-distance truckload PPI rising 4.1 percent and the long-distance less-than-truckload (LTL) PPI increasing 3.8 percent from April. Revisions to BLS data for April did show that price hikes in both long-distance trucking sectors were more muted than first thought, before accelerating again in May.

Overall, BLS data show the cost of transportation and warehousing, not just trucking, continues to rise. A 2.9 percent month-to-month increase in prices for transportation and warehousing services accounted for more than half of a 0.4 percent advance in the PPI for final demand services in May.

The PPI indexes reflect non-seasonally adjusted revenue from “selling prices,” including fuel surcharges and other accessorial charges. The BLS collects pricing data monthly from thousands of companies.

S&P Global pricing forecasts have the overall PPI for truck transportation rising another 14.5 percent from the first quarter of this year through the first quarter of 2023, then declining moderately.

“I’ve been getting a lot of push-back from clients about trucking and ocean shipping who think prices are coming down and our forecasts should reflect that, but they don’t,” said Tal Dickstein, a senior economist at S&P Global, the parent company of JOC.com.

“We still have supply chain disruption that hasn’t been resolved,” Dickstein said, adding that fuel prices, labor costs, and other inputs remain high.

Last-mile delivery costs also noted a strong month-to-month jump. The couriers & messenger group recorded a 5.3 percent from April and up 16.5 percent compared to May 2021. The rise in fuel prices is a major contributor to the jump. FedEx and UPS announced revised fuel surcharge tables in April. In March, UPS reduced its two-week lag-time in implementing fuel surcharges to one week to match FedEx.

Economic Outlook

• Existing home sales data for May comes out on June 21. Expectations are a decline from April.
• New home sales for May will be published on June 24. The forecast is higher than in April.

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