I've Got a Sinking Feeling
Reporter's Notebook: September 8, 2022
Welcome Please Haul My Freight: Edition 29. Here are items in my notebook this week:
SPOT TRUCKLOAD: There is no sign that truckload spot market rates have reached the bottom yet. Rates are down 26% year over year on the DAT Daily Top 50, and down more than 10% compared with two years ago.
The bubble has burst, but I wouldn’t call it a cliff, a bloodbath, or any other such terms. Beware of “Chicken Little: The Sky is Falling! The Sky is Falling!”
Here is our JOC Shipper Truckload Spot Rate Index through August. The DAT Top 50 are wholesale rates excluding fuel, while our index is retail rates including fuel.
TRUCKLOAD CONTRACTS: I spoke with a shipper recently who was able to secure a 12% rate reduction year over year in his truckload contract. The shipper noted that Knight-Swift Transportation reported a 78.9% OR and Heartland Express reported an 85% OR in the second quarter:
“I think it’s reasonable to get some of that margin back. We’re grateful for the capacity they gave us last year, but we also paid them very nicely in 2021, so it's not like we owe them.”
This shipper also agreed with Dave Jackson’s comments in “Escalator Clauses” that some of the rate reductions are special project, pop-up cargo taken back under the umbrella of an annual contract:
“In late 2020 and 2021, we did anything we could to get product moved and we paid huge premiums for pop-up trucks. Three quarters of that freight was miscellaneous stuff — not contract and not spot. But miscellaneous stuff is all but dried up this year. So now carriers are asking ‘how can we get more normal contracted volume?’”
Here’s a second shipper:
“Some carriers are proactively coming back and saying, ‘Can I give you a rate reduction.’ So as we're coming into the peak season, saying, ‘Yes we've got your price. But if you want a larger piece of this pie how about you reduce your rate?’ We're using that as an opportunity.
But where things are not broken, we're not looking to fix things either.”
DISORGANIZED: I recently spoke to another shipper to get a sense of why distribution centers are so backed up. He agreed the BCOs have to take some responsibility for what’s happening:
“Distribution centers focus on two things: storage and flow. That is the place that you arbitrage the product that needs to go now and later. It's one of the best and only places you can make real decisions at a pallet level. And so when you bring in a container, particularly one with mixed product on it, you're segregating, what am I going to park in a pallet rack? And what am I going to flow out?
But when you fill the distribution center up with storage, you lose the ability to separate what product flows into stores. It just all sits in the yard jumbled up and mixed. You've lost your segregation at a pallet unit level, so it backs up into your yard and ties up trailers, and ties up containers and the chassis underneath because I can't even sift. That in turn backs up the railheads and the ports.”
To the idea that the BCO has to accept some blame for the situation at rail ramps:
“Everyone is both a victim and a criminal in this scenario, right? No one is purely the victim. The port — it comes down to dollars and cents — are the affected party by downstream challenges at my distribution centers, but they have the ability to control upstream action and don't because there’s a financial disincentive. They struggle to keep boxes flowing, but choose continue the lifts because that's money for them. So, yes, they're a victim of the circumstance. But they're not pumping the brakes upstream to help alleviate it.”
RAIL STRIKE: Interesting details out of the negotiations to avert a crippling rail strike that could happen as soon as Sept. 17. US Labor Secretary Marty Walsh met with both sides Sept. 7. More from Railway Age:
“Walsh’s message, although not made public, was blunt according to some of those present: Don’t mess with the nation’s fragile economy weeks ahead of mid-term congressional elections as neither Congress nor the Biden Administration will like it….
Walsh, according to one source present at the Sept. 7 mediation session, warned that neither side should expect Congress to intervene to prevent a work stoppage, such as by crafting a pre-work-stoppage settlement or extending negotiations. There is also concern that Congress may fail to act quickly to end a work stoppage should one occur.”
DANGER WILL ROBINSON: As I’ve written about in previous notebooks, truckload spot rates have fallen enough that it’s challenging intermodal. There are a growing number of lanes in which truck is cheaper than train. But it’s starting to look like the railroads are noticing and reacting:
Spot intermodal rates fell 13 cents month over month in August, while spot truckload rates fell 9 cents. It’s the first time in 2022 that intermodal rates have fallen more than truck rates in a calendar month.
We’re still in danger territory with dwindling intermodal savings amid subpar service. We’ll talk about domestic intermodal at the JOC Inland Distribution Conference Sept. 26-28 in Chicago. Click below for a special Please Haul My Freight discount.
NORFOLK SOUTHERN: The eastern US railroad has struggled with international intermodal in Kansas City and Memphis. NS has opened auxiliary lots in both cities to handle the overflow volume. The culprit is import volume is up, but so is dwell times on terminal. Put those two together and it’s a major challenge to find room for boxes.
Watch the Port of New York and New Jersey as a major feeder into Kansas City, and Savannah into Memphis.Also watch for changes next year to NS’s international intermodal operations, converting their wheeled terminals into grounded terminals starting in Atlanta (NS Austell). Domestic intermodal will remain wheeled.
DALLAS: Maersk is no longer accepting import bookings into Ft. Worth as per a customer advisory last week. While Maersk didn’t name the railroad, it partners with BNSF Railway in the west. According to a source, BNSF has nearly 3,600 import containers in the stack in BNSF Alliance in Haslet, Texas, up from about 2,000 boxes earlier this summer.
MEMPHIS: Lots of things happening in Memphis. I have the item above on Norfolk Southern, then there’s this from Union Pacific Railroad:
Effective Friday, September 2, we will begin rejecting all truckers at the gate that attempt to ingate ISO containers to our Marion, AR (Memphis) terminal on a non-pool chassis. We will continue to flip at the terminal for ingates on specialized chassis. We are sending this information to you and are also pushing an electronic message to the local Memphis drayage community making them aware as well. Please circulate to your internal teams as well as any merchant haulage customers you feel appropriate.
Guess what? We will be hosting four roundtable discussions in Chicago at the JOC Inland Distribution Conference. The topics: Chicago, Dallas, Memphis, Kansas City. Perfect timing and we’d love to see you come out and share your insights.
OCEAN PICTURE: I’m not going to deny the Asia to US West Coast ocean freight rates have steeply declined this year. What was $9,000 is now costing $3,500-$4,000. But I warn against “Chicken Little: The Sky is Falling! The Sky is Falling!”
Then this from Global Port Tracker:
Ports have not yet reported August’s numbers, but Global Port Tracker projected the month at 2.17 million TEU, down 4.3 percent year over year. September is forecast at 2.1 million TEU, down 1.8 percent; October also at 2.1 million TEU, down 4.8 percent; November at 2.04 million TEU, down 3.3 percent, and December at 2.01 million TEU, down 4 percent.
The first half of the year totaled 13.5 million TEU, a 5.5 percent increase year over year. The forecast for the remainder of the year would bring the second half to 12.6 million TEU, down 3.1 percent year over year. For the full year, 2022 is expected to total 26.1 million TEU, up 1.2 percent from last year’s annual record of 25.8 million TEU.
So why do I warn against Chicken Little? Because import volume would have to drop 25% YoY in 4Q to return to pre-pandemic levels, much steeper than 3.1%. A decline of 3.1% is not a “import cliff'“ with volume returning to pre-pandemic levels.
Beware of Chicken Little.
Could rates fall to $2,000 before Dec. 31? I doubt it, but no one can predict the future.
WEST COAST PORT STRIKE: As our Peter Tirschwell wrote, a union representing security guards at the ports of Los Angeles and Long Beach authorized a strike last week, according to sources. No date for a strike has been set, but it’s unlikely that dockworkers would cross the picket line.
More on this in an earlier op-ed in the Wall Street Journal.
PORT OF BALTIMORE: If I’m reading this message correctly, it sounds like the Port of Baltimore is starting a mandatory appointment system starting next month:
AMAZON: E-retail giant Amazon is shedding or scrapping plans for more distribution centers. From Bloomberg News:
MWPVL International Inc., which tracks Amazon’s real-estate footprint, estimates the company has either shuttered or killed plans to open 42 facilities totaling almost 25 million square feet of usable space. The company has delayed opening an additional 21 locations, totaling nearly 28 million square feet, according to MWPVL.
WHAT A WASTE: The National Waste & Recycling Association wrote a letter last week to the US Surface Transportation Board complaining about CSX service in the Northeast. Here is part of the letter:
[Our] preference is to seek commercial solutions between individual rail customers and their rail carriers. However, the service issues that our member companies are raising indicate that the problem is a network problem affecting the entire northeast region of the country. For example, in Boston, NWRA members are unable to load rail cars due to ongoing service issues involving the delivery of rail cars. In the meantime, railcars loaded with waste are waiting to be moved out by the railroad.
YUMMY: On the lighter side, a truck crashed in Tennessee last week, spilling alfredo sauce over the highway. No one was hurt. The spill was cleaned. Only damage is to the receiver who didn’t get his sauce. Probably an Italian restaurant!
JOC INLAND: If you enjoy Please Haul My Freight, please attend the JOC Inland Distribution Conference from Sept. 26 to Sept. 28 at The Westin Chicago River North.
Click the image for a special discount:
Any opinions in this blog represent the author’s views, not the Journal of Commerce, IHS Markit, 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.
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