Freight for Thought: East Coast Port Strike Looming

The following insights are provided by Sunset Transportation’s Strategic Account Management team for September 2024.

Trends and discussions range from seasonal manufacturing and agriculture trends that affect available capacity to general insight into outside factors affecting freight volumes.

MARITIME

• Two new maritime carrier alliances have formed and will begin operating in early 2025.  Gemini Corporation (Maersk and Hapag-Lloyd) and Premier Alliance (Mediterranean, Ocean Network Express, HMM, and Yang Ming) have created vessel-sharing agreements to “better service the maritime industry”. The new network designs should present shippers with quite an element of choice, and in turn ensure strong competitive pressure among the carriers. MSC plans to remain a standalone carrier.
• With the ILA strike now active at East Coast ports, a front-loading of shipments has triggered intensified rate pressures over the past month.  This has caused Asian container spot rates to the East Coast to plunge faster than usual (-38.8% MoM).  Import quantity to the East Coast, however, continue their recent strengthening with +9% TEU  YoY.
• The decarbonization of global shipping is moving too slowly to meet the 5% zero-emission fuel target by 2030, a critical benchmark toward 2050 net-zero goals. It is becoming increasingly clear these emissions goals will be challenging to reach due to the Red Sea Crisis, the forfeiture of the FlagshipONE project, and the cost and speed of production of alternatively-fueled vessels.
• Despite record import volumes at the ports of Los Angeles and Long Beach, YoY average dwell time has dropped 40% overall , with a 71% decrease on dwell times over 9 days.  This is due to warehouses throughout Southern California having plenty of space and therefore processing freight through their facilities at near record speed.  With the labor issues on the East Coast, however, we expect dwell times to rise sharply as freight is shifted to the West Coast.
• Union Pacific Railroad will be instituting a $300 surcharge per container in Northern California beginning September 30 for aggregate shippers.  Aggregate shippers are those without enough volume annually to qualify for a BCO-Specific contract.

INLAND

• The indications of the Trucking For-Hire index and the Trucking Ton-Mile index have a history of predicting changes in the transportation industry and overall economy.  As these two indices show a recent pacing toward growth (+2.4% Q2 v Q1), increases in demand and rates are likely to take effect in 2025.
• In the last year, the weight of consumer spending has shifted toward more services and less goods, however, the amount of spending on goods has continued to slowly grow due to inflation (+3.8%).  With inflation rates dropping and the pressure on businesses to cease price hikes, we do expect consumer spending on goods to drop in 2025.
• There is a strong movement of inventory growth in the U.S., being driven by stock finally dipping below normal levels since 2022, current port congestion, timing of the holiday shopping season, and proactive frontloading of imports due to labor issues on the East and Gulf coasts.
• Fedex Freight is accelerating its plan to shrink LTL network.  The shipping giant has closed 7 LTL terminals in the last quarter and 29 in the past year.  More adjustments are likely as Fedex shifts focus away from LTL and onto air and parcel.
• As cargo from Southern California ports moves further inland, demand for trucks and intermodal rail capacity is surging in the region, driving up prices across all modes of surface transportation.  Rates out of SoCal increased $.06/mi in August, while the rest of the country saw a decrease of the same amount.  Shipments out of the area are up 20% YoY.
• The owner of unionized auto hauler Jack Cooper Transport is in talks to buy Standard Forwarding, a unionized midwestern regional LTL carrier owned by DHL Freight citing ‘saving Teamster Jobs’ as the reason for the proposed acquisition.

Labor Disputes

• The first strike at East Coast ports in nearly half a century is now active, with a start date of October 1.  The International Longshoremen’s Association (ILA) cite salary issues, the use of automated vehicles and robots, and worsening workplace conditions as their primary concerns.  Early in negotiations, the ports were willing to make concessions regarding salary and automation, but not enough to for the two parties to reach an agreement. This week, ports began to issue contingency plans and carriers have begun working overtime to move as many containers as possible prior to the deadline. 
• The decision for the government to get involved in this negotiation is looking unlikely. Complications with union voters could arise from taking government action to thwart a strike. The still-strengthening U.S. Economy may not be able to handle a large strike of this nature, which could have massive negative implications on the economy. 

• The Teamsters and Canadian National Railway are still in government assisted arbitration.  There has been little to no information released regarding the progress of the negotiations in the past month.  After serving Canadian National Railway (CN) with a 72-hour strike notice last month, the Canada Industrial Relations Board (CIRB) intervened, imposed binding arbitration between the two railroads and the union, and ordered that no further labor stoppage can occur during this time.

KEY LOGISTICS INDICATORS

Emergency Weather Alerts

Tropical Storm Helene is intensifying and is forecast to make landfall into Florida’s Gulf Coast as a major hurricane on Thursday.  Expect a life-threatening storm surge, damaging winds, and heavy rain.

The impacts from Helene won’t stop at the coast; strong winds, flooding rain and some tornadoes will also spread into parts of the Southeast later this week. Please expect delays in transit for shipments going through the below listed affected areas.

Industry data is pulled and summarized weekly from key proprietors and industry experts using multiple publications and sources. Sources include, but not limited to: FreightWaves, U.S. Energy Information Administration (EIA), DAT, Journal of Commerce (JOC), Reuters, PYMNTS, NRF, Bloomberg. The information is discussed with Sunset Directors and validated prior to publication of summary data in this posting.