Freight Report: Wielding Power

Reporter's Notebook: March 24, 2023

Welcome Please Haul My Freight: Edition 40. Here are some items in my notebook this week:

LET’S MAKE A DEAL: Knight-Swift Transportation becomes one of the top commercial transportation companies in the United States with the acquisition of U.S. Xpress Enterprises. I was sort of surprised at the transaction because I thought KNX was more interested in less-than-truckload carriers to complete their national network. I am interested in knowing what this means for Swift Intermodal.

And what does it mean for shippers?

GLASS HALF EMPTY: Optimism is fading by the day that the freight markets will rebound in the second half of the year, according to the Wall Street Journal.

Nike Inc. said on an earnings call that it’s still not in a good inventory position yet. Our intrepid analyst and blogger Cathy Morrow Roberson grabbed these quotes:

“One of the biggest learnings we had was after our factories closed in the fall or in the late summer and early fall of last year, we decided to continue to carry forward with making the late product because there was so much constraint in the marketplace. And I think in hindsight, that was -- we would take a do-over on that one and focus on getting the seasonally right product in front of the consumer.” — Nike CFO Matthew Friend

From Mark Will, CFO and COO of J. Jill on an earnings call:

“The purchasing mindset, I guess I would call it, is one of caution given the macroeconomic conditions…that includes a very cautious absolute level of inventory investment and that's reflected in the way that we enter the year and the go-forward profile is going to continue to be one of conservative investment in inventory.”

WSJ also pulled this quote from Shelley Simpson of J.B. Hunt at an investor day:

“As we’ve progressed through the quarter, I’m slightly less optimistic than our customers.”

Not everyone is pessimistic: American Trucking Associations economist Bob Costello has a rosier outlook.

CHASSIS CASE: Last week I posted my story about chassis lessors (IEPs) filing an amicus brief before the Federal Maritime Commission in IMCC-OCEMA. The IEPs alleged that the IMCC — a division of American Trucking Associations — has an ulterior motive to benefit a group called the North American Chassis Pool Cooperative (NACPC), not the importers and exporters.

The owners of NACPC are also members of IMCC and ATA.

Mark George, chairman of NACPC, reacted to the allegation on my LinkedIn wall:

“When a user is denied ‘CHOICE’, that’s not a free market and will disadvantage provisioning models going forward. It’s that simple!

Mike O’Malley, DCLI’s senior vice president of government relations, responded:

“Real CHOICE comes from competition, not a government-imposed, outdated pool model that benefits one party at the expense of all others.”

Prompting this reply from Mark George:

“Someone needs to explain to DCLI and O'Malley what ‘CHOICE’ really means. It's simple—users want to choose their chassis providers and not be forced to pay usage rates that unfairly disadvantage meaningful stakeholders. There are plenty of examples in our nation's largest ports/rails where users are denied CHOICE and forced to use a specific IEP.… Lack of CHOICE is a major roadblock in allowing the chassis provisioning models to mature into a vibrant and competitive industry to meet the true needs of the international supply chain.”

Then O’Malley:

“So the answer is to have the government force privately-owned assets into a pool run by someone else where NACPC can ‘choose’ to pay yourselves for use of our chassis? Hardly feels like a free market with competition to me. And what about the 50% of moves that happen on trucker-controlled chassis - do those get forced into these gray pools too?”

I WANT IT: Former CN and UP veteran Jim Vena told Credit Suisse analyst Ariel Rosa on March 23 that he would take the top job with Union Pacific Railroad. An activist investor who called for current CEO Lance Fritz to step down has urged the Board of Directors to hire Jim Vena.

“Yes, I'm interested in the job…when [the activist investors] asked me whether I would take a call from the board, I said, ‘Yes, I would.’ And that would mean that if they were looking for a person with my experience and my background and thought that I was the right person to drive that company forward, then I would be more than willing to engage. Yes, I have been contacted. And we'll go through the process and see what happens. But yes, I've been contacted. And yes, I would be interested in that position.”

He also expressed support for the CPKC transaction, an interesting note if he becomes the next UP CEO:

“The CP-KCS combination will help customers and will help competition. There is absolutely nothing wrong with great competition because it drives every company to be better. UP is going to look at the car combination and say, ‘how do we win? How do we make sure that we stay relevant in some of those flows of business as CP and KCS combined are going to be able to give customers a broader longer reach than they have before.’ So I think it's great for the industry. I think there is nothing wrong was good competition.”

He also commented on the intermodal shakeup between Schneider-UP-BNSF:

“There is enough [intermodal] business for both BN and UP. The winner should be the railroad that operates the best, that has the best service, and has the best cost structure. If I’m at the UP, then I wish BN luck and I will do everything I can to beat them in the key metrics.”

UP DALLAS: Union Pacific Railroad will begin construction in April to expand its terminal in Mesquite, Texas, east of Dallas. There will be no impact on operations in Mesquite, but UP will also offer supplemental domestic intermodal service between ICTF in Long Beach and Dallas Intermodal Terminal. Good news for shippers!

The bad news: In the Journal of Commerce Intermodal Service Scorecards, IMCs report problems getting containers into the UP terminals in Chicago. The data explains why: While North American domestic intermodal volume was down 4.2% year over year through February, it’s up 3.5% from the Midwest to the Southwest, according to the Intermodal Association of North America.

MAKING THE GRADE: Speaking of our Intermodal Service Scorecards, here are early results. A majority of IMCs are very or somewhat dissatisfied with the railroads, but they also admit service is better than three months ago:

Intermodal shippers gave better grades: a majority are somewhat or very satisfied with intermodal providers. That’s good news for Hub Group, J.B. Hunt, Schneider National, STG Logistics, Swift Intermodal, and all other IMCs.

Are you an IMC? Or are you a shipper who uses domestic intermodal? If so, click on the photo below or the button at the bottom to participate. Individual responses remain anonymous!

The average time to complete the survey to date: nine minutes.

CSX VISION: Joe Hinrichs, CEO of CSX, told Bloomberg News in an interview that he wants to improve the relationships with workers and customers and provide more reliable service. Hinrichs said he wants to find ways to motivate employees tired of layoffs, onerous work rules, and acrimonious labor negotiations. Hinrichs said he won’t be as quick to furlough workers in a downturn to ensure the resources are available to maintain service, echoing what Norfolk Southern CEO Alan Shaw said last fall.

INTERMODAL PRICES: Intermodal contracts continue to fall out of Los Angeles. Everything I’m seeing in the data and hearing from my sources is that it’s a race to the bottom on any freight out of Southern California. Non-asset IMCs can’t compete with the large asset intermodal providers out of Los Angeles. From Los Angeles to Chicago, for example, large shippers are seeing their contracts at least $600 to $800 lower than a year ago, according to the Journal of Commerce Intermodal Savings Index.

CPKC: The Mexican government will invest about $322 million in the Lázaro Cárdenas port through 2026. If the investments improve operations, that’s a net positive for CPKC marketing Lázaro Cárdenas as an alternative for Los Angeles and Long Beach. While I remain skeptical that intermodal will be the growth engine of CPKC’s success, I hope I am wrong. CP has an excellent intermodal group, so if anyone comes up with ideas to drum up intermodal business, it’s them.

LEATHERMAN: A federal appeals court will hear arguments in June on the South Carolina State Port Authority appeal over the Leatherman Terminal. The International Longshoremen’s Association sued ocean carriers calling Leatherman and thus it’s gone virtually unused in recent months. More on the dispute from my fellow reporters Mark Szakonyi, Michael Angell, and Teri Errico Griffis.

NORFOLK: The Port of Virginia has hit its halfway mark on the Norfolk International Terminal Central Rail Yard project due to be completed in late 2024. The $83 million NIT rail yard project is part of the port’s $1.4 billion capital construction program that also includes the NIT North expansion and deepening the port’s channels to 55 feet. Norfolk Southern Railway is the primary user of NIT’s rail yard.

DETENTION AND DEMURRAGE: The Federal Maritime Commission is checking with ocean carriers and marine terminal operators that it’s complying with the TCW v. Evergreen case in which the board ruled that per-diem cannot be charged when a port is closed and thus empty equipment cannot be returned. The case revolved around three days of detention charged on containers that were unable to be returned on a Saturday through Monday on Memorial Day Weekend 2020 because the Port of Savannah was closed all three days.

Commissioner Carl Bentzel wrote in a dissent that it was OK to charge detention when the port closure is a known, pre-scheduled closure, and it’s up to the cargo owner to plan around the hours of the port. He argued detention is inappropriate when the port is closed for unscheduled reasons, such as a weather emergency.

IN AND OUT QUICKLY: ITS Logistics released its monthly US Port/Rail Ramp Freight Index. As you can imagine, conditions at most terminals are fluid. Read more by clicking here. That matches what we are hearing through our channel checks.

From a trucker in Memphis:

“We don't really have any major underlying issues. Everything's pretty much running the way it should be. No congestion, and chassis are available. Hope I didn’t jinx it.”

From an NVOCC source on Chicago:

“It's just dead. You can always tell when it's super, super slow because the drivers don't move. It's not like somebody's busy and somebody isn't. There's just nothing going on right now. I do see a ton of chassis stacked up.”

From a trucker about the Port of Savannah:

“Heard the other day that Savannah is down to like 60% utilization of chassis, so a pretty dramatic decrease in that market.”

GREEN SPENDING: Another good article from Paul Berger of the Wall Street Journal. Paul writes that even though many shippers talk about their commitment to the environment and that “E” in ESG is important. few shippers are willing to pay the costs associated with achieving “E” on a large scale.

The trucking industry also announced this week a new group called the “Clean Freight Coalition” to educate policymakers on the progress the trucking industry has made in reducing emissions and advocate for policies that transition toward a zero-emission future while ensuring affordable and reliable freight transportation.

Any opinions in this blog represent the author’s views, not the Journal of Commerce or S&P Global. Any rumors in this notebook are just that: rumors. Unconfirmed. Not news stories.

Do you have an opinion or a subject you’d like me to cover? Email me ari.ashe@spglobal.com to send your thoughts.

You may also request the data behind JOC’s Intermodal Savings Index and JOC’s Shipper Truckload Spot Rate Index, available to people with a JOC Gold-Tier subscription.

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