The following is an archived collection of our weekly insights through the month of December. Those who had signed up to our Interlog Insights newsletter received each week’s update to their inbox on the original release date. If you like what you see below, please feel free to sign up yourself to get these updates right as they come!
This month's insights
Week 4 - Originally released December 23
Insight: Shippers Call Out Railroads on Poor Service
“There’s no negotiation…here’s your number and you’ll get the service that [railroads] give you.”
This was a statement from a transport executive directed to the Surface Transportation Board (STB) at a hearing hosted by the U.S. railroad regulatory body on December 13.
Earlier in the month, and as reported in Interlog Insights, the focus on rail was zeroed in on its thousands of workers, representative labor unions, and the freight railroads forcibly accepting a new labor contract.
With the nearly three-year saga of negotiations put to an end, the uncertainty around an outcome to this dispute was not the only concern shippers have had with the rail industry.
Enter the hearing presided over by the STB, a federal board that presides over transportation disputes with powers to limit or omit certain regulations.
The prevailing qualm of shippers with rail has been how only a few railroads occupy the market. Many shippers have urged the STB to create more competition in the industry.
Like the above statement, shippers were afforded a public platform to vent their grievances about an industry that they believe prioritizes profit and wields superpowers to boost prices at its own whim. As a result, they also claim service quality has declined thanks to railroads going unchecked.
Aside from venting, shippers are also calling on solutions to incentivize Class I railroads to expand and optimize their systems, operations, and services. In their eyes, railroads currently have no pressure to improve on any flaws since their customers (shippers) have no other choice but to use their services. In shippers’ words, this has become a “ransom”.
Insight: Some Holiday Cheer
Shippers hold every right to criticize railroads via public forum. Rail is no doubt a critical mode for moving a healthy chunk of America’s inbound, outbound, and domestic goods. Calls to improve it should be embraced by every corner in the industry.
And, while some shippers believe railroads should get coal this holiday season, we mustn’t ignore the good deeds they do as well.
Take for instance, Canadian Pacific’s Holiday Train program. Since 1999, the program has raised more than $21 million and received over five million pounds of food for food banks across North America.
For a closer look at this program, please check out our blog.
RECAP: Chinese New Year
Throughout December’s issue (please refer below), we’ve discussed Chinese New Year in-depth. Here’s a quick recap!
January 1-6: Factories begin to slowly stop production.
January 6-21: Workers trickle out and leave factories to return home.
January 21-27: Chinese New Year begins!
February 5: Workers return to the factories and operations resume normal.
What Are We Expecting?
Ocean freight rates should not increase that much before CNY, while air freight rates will stay level. It’s possible air does see rate increases in mid-January in the days leading up to CNY.
It’s a given that factories will be closed. Please communicate with logistics providers to ensure there’s a strategy to ship cargo out before the Chinese holiday. Factories need to load containers before January 20.
China’s current COVID-19 protocols have been relaxed – very different circumstances from last year’s CNY. We expect trucking will have more freedom of movement at airports and terminals than recent years before.
However, any sudden rise in COVID-19 infections ahead of CNY, could possibly result in a tightening of protocols in China. We will continue to monitor any developments closely.
For a closer look at our CNY coverage, please continue scrolling through December’s issue of Interlog Insights!
Week 3 - Originally released December 16
Insight: Transpacific Trade is Correcting Itself to a New Normal
With shipper demand low for transpacific eastbound (TPEB) trade, many are anticipating a hard landing punctuated by declining freight volumes and plummeting rates on the open market. While it’s evident that these trends have dominated this trade over the last few months, we were shocked to hear that some forecasts don’t foresee a recovery until peak season (August through October) in 2023.
Whoa! That’s far down the road.
Sure, volumes are down. Rates are flirting near pre-pandemic levels. But, we see this more as the market beginning to normalize, or in our eyes, new normalize.
In other words, all of this strangeness, like pre-pandemic spot rates and low demand, is the shipping industry right now in a sort of corrective whiplash.
This hasn’t been an easy transition. It’s been a full 360 from how the industry was just a year ago. Carriers are now reporting overcapacities and have upped their scheduling of blank sailings to balance out whatever state the TPEB trade is morphing into.
And, this state is currently in limbo thanks to uncertainty over when retailers will shed their surplus of inventories that were stockpiled in early 2022.
While, it may seem like this is the onset of another saga of woes for the industry. This time around, low shipper demand paired with excessive carrier capacities (the opposite of 2021), let’s take a step back for a minute. Maybe, the industry is just stabilizing to its new normal.
Consumer purchasing has actually been quite healthy, at least for a country with recession concerns.
In our estimation, retailers’ bloated inventories should steadily be plucked away by consumers. But, please put an emphasis on steady.
We aren’t predicting some massive import boom from a bizarre surge in consumer demand again. It’ll be steadier this time around. More reasonable and normal.
Maybe, that’s where some forecasts slip up with their outlook on this trade’s recovery. They are speculating through the past lens of an eventful two years and rationalizing that only an outstanding surge to demand will defibrillate the industry from the thralls of declining volumes.
When in reality, we are departing the two-year chaos and taking our first steps into the new normal. What do we mean by that?
The new normal we envision isn’t some post-apocalyptic or doomsday future for international shipping. Rather, we think of it more as a logistics renaissance.
Shippers ought to feel more empowered now. They are aware of just how complex supply chains are. They are aware of how many parties it takes to coordinate just one shipment. And, most importantly, they are aware of their options more than ever before.
We could be wrong. There could be unexpected demand surges, a resurgence of supply chain bottlenecks, or other impacts, but what we can predict with confidence is that shippers now possess invaluable experience to steward steady decision-making.
Instead of waiting around with everyone else until peak season to ship their products and ready their inventories, they will be more receptive to planning ahead with their partners and breaking up their orders throughout the year to avoid any potential bottlenecks.
A side note on us labeling U.S. consumer demand as healthy. As a whole, the economy can be described quite the opposite – unhealthy. Necessities, like gas, rent, and groceries, have seen insane price hikes. However, less necessary items, like televisions, air fryers, and computers, are cheaper than ever before. This has led consumers who can take on additional expenditures to buy these less necessary items given their low prices.
Insight: Chinese New Year Outlook
Rates: With air freight, we believe it’s possible for rates to remain at the level they are at now and then rise sharply the week of January 16 through 20 – possibly $1.00 per kg or more – as shippers strategize to get cargo out of warehouses before they shut down.
While for ocean freight, rates continue to drop. We speculate that they will flatten temporarily in January and not increase all that much before Chinese New Year.
Current Conditions in China/Conditions During CNY: As said before, factories will be closed during CNY. This year is different from last in the sense of Covid-related protocols being relaxed in China. Trucking operations, at terminals and airports, will have more freedom of movement this time around.
That said, Covid cases are reportedly rising and infection spread remains a concern for China. We cannot fully rule out a tightening of protocols in China should there be a sudden rise in cases.
Additional Thoughts: Importers expecting to ship cargo out before CNY should be communicating with their forwarders now in order to secure bookings. At the latest, factories are loading containers until January 20.
Insight: South Korean Truckers End Strike
After a 16-day work stoppage, thousands of South Korea truckers voted last Friday to return to work.
What this means for truckers going forward
One of the keys demands the truckers wanted was to make a temporary government program, that would guarantee minimum freight rates for drivers, to be made permanent.
The program was set to expire on December 31, but the government will extend it for an additional three years.
Q1 2023: With Chinese New Year early this year (January 21), we are predicting rates will increase early January.
“The global transportation of the fourth quarter of 2022 was the most stable of the past three years, providing assurance to international shippers about their predictions for 2023. Global inflation and interest rate increases were not uniform. This will impact trade balances and vessel allocation on shipping routes, especially between the U.S. and Southeast Asia, Europe, and South America. While transpacific eastbound ocean freight prices returned to ‘pre-Covid’ levels during this traditional peak season, the cost to import containers from Europe remains high and northbound containerships are booked far in advance…General demand for air freight decreased, as the number of flights (capacity) rose to meet the increasing passenger traffic.”
– Benjamin Schwengel, International Operations Director at InterlogUSA
Week 2 – Originally released December 9
Insight: Rail's New Deal - After Three-Years at the Bargaining Table, Differences Remain Unresolved
Last Friday, President Biden signed legislation to prevent any likelihood of a nationwide strike by railroad workers. With the 46th president’s signature inked, all parties were ordered to implement the labor contract (the terms from September’s tentative deal) that four (of the 12) rail unions rejected.
The Railway Labor Act endows the government these powerful grounds to override the unions’ and railroads’ dispute under the grounds of protecting the American economy.
Some have crowned this as the “last step” in resolving a long-running dispute between rail workers (represented by 12 unions) and the seven Class I freight railroads.
But, as we asked last week’s edition, what does this forced ending say about the relationship between unions and railroads going forward? Without the government being involved, would rail service ever get on the right track?
It’s worth considering. These labor talks started in January. January of 2020.
Flash forward nearly three years later and we were on the precipice of a nationwide strike or rail lockout. By any measure, the cooldown date (December 8) would’ve passed over had the government not intervened in the twilight hours.
Of course, forging an agreement in any industry would prove difficult in a Covid-era climate, but we can’t solely chock up a three-year dispute to that alone. There’s more here.
There seems to be an immovable difference with these two sides.
On one hand, rail workers were pushing for sick leave. It’s what essentially kept four unions at the table. On the other hand, the railroads swore by the tentative contract which provided a healthy PTO package (with no sick leave), competitive with virtually all other industries.
Why wouldn’t (most) rail workers accept 35 days of PTO?
While’s that a full containerload of PTO days, there’s no sick leave in the proposal. The fear from workers is that they can’t immediately take time off in the case of a personal or family emergency.
In their eyes, they’re not complaining about the generous PTO offer, but rather the purposeful refrain of railroads to include sick leave benefits. Some workers are concerned that strict attendance policies railroads reportedly have will make it near impossible to take a sudden leave of absence without some sort of repercussion.
The desired sick leave benefits would ensure workers that they are approved to take time off in the event of an emergency.
Why wouldn’t the railroads give in to sick leave benefits?
At the surface, sick leave benefits seem a lot more reasonable to include in any already friendly time off package. What if in lieu of ten days of PTO, railroads could swap in a few sick days?
Well, it’s not that simple. In recent years, a system known as Precision Scheduled Railroading (PSR) was introduced.
PSR is controversial in the sense that it delivers faster and more consistent rail services, but the system is also criticized for its poor service quality and demanding workload it places on workers. A byproduct of PSR has been stricter attendance policies.
For example, if a worker calls in on short notice due to an emergency, the railroad will have to scramble and find an alternative to replace the absentee. The demands of the PSR model effectively need “all hands on deck”. A predicament like this is costly and difficult for railroads to work around.
So, rather than compromising on paid sick leave, the railroads agreed to raise pay and proffer an extensive PTO package – that, of course, does not include sick benefits.
Insight: More Chinese New Year
Chinese New Year – also known as Lunar New Year or Spring Festival – is a holiday that signifies the start of the spring season. It also kickstarts the Year of the Rabbit on the Chinese Zodiac Calendar.
So, what should you know as preparations for CNY start to begin?
Be aware of factory closures. Typically, factory closures start a month or so before the national holiday. Why might you ask? This allows factory workers, who may have family in faraway parts of the country, to spend extra time with their families.
It’s important to note that because of the factory closures, goods will not be delivered from those factories to ports during this time. We strongly recommend placing any orders in advance.
However, Chinese ports will continue to operate through CNY, but typically at a slower pace than normal. Container delays may also occur due to ports operating in this sort of fashion during the holiday.
Also, it’s possible that capacity for ocean freight may tighten, especially leading up to January, as shippers try to book their movements in advance.
Additionally, as production is temporarily stopped, you can expect a slowdown beforehand in mid to late December. Operations will start to pick up normally on February 5.
Insight: Truckers Remain on Strike in South Korea
Last week, we discussed how truckers at South Korean ports went on strike.
Here are some updates regarding the matter:
The South Korea government has issued continual back-to-work orders for over 2,000 drivers who operate cement trucks. This group is just one among many other trucking sectors participating in the walkouts. The government says this is to help decrease the impact of the strike.
Additionally, the government mobilized around 200 military vehicles – such as container and fuel trucks – to help remove any type of delays involving industrial shipments.
South Korea’s president has suggested issuing stricter steps, including potential “work start” orders to other groups of truckers.
The impact of the strike (so far) seems to be hitting domestic industries and there has been no signs of significant disruption in major export businesses.
Furthermore, container traffic at South Korea’s major ports, like Busan, are basically back to normal.
The strikes are asking the government to make a minimum freight rate system (set to expire at the end of 2022) permanent.
Week 1 – Originally released December 2
Insight: Senate Passes Legislation to Avert a Nationwide Rail Strike, President Biden is Set to Sign
Yesterday, the Senate passed legislation to avert a national rail strike that threatened to pose a major economic disruption.
President Joe Biden is expected to sign it soon into law after he urged Congress to take up the bill in the first place.
The Senate vote came days before the crucial December 9 deadline. This date would have permitted rail union members to strike and railroads to take corrective action should agreements not have been met between the two sides.
While the Senate did pass legislation thwarting the potential for strikes, a separate measure – seven days of paid sick leave for union members – was rejected. The decision to omit this measure is at the ire of some of the rail unions and its many members.
What has kept the remaining unions at the bargaining table?
Disapproval of sick leave benefits in September’s tentative agreement prolonged the negotiations between the railroads and the four remaining unions whom rejected it.
The unions staying at the table are demanding an additional seven paid days of sick leave on top of the three weeks of vacation and 14 days of paid-time-off (PTO) proposed in the original agreement.
If we were to add the three weeks (21 days) to the 14 days of PTO, it would equate to 35 days. Referring to the chart above, this amount would be 12 days higher than the national average of private industry PTO for employees with at least…20 years of service.
We can see why eight of the 12 unions have already ratified September’s original deal.
That said, we are not trying to discount what the union and their rail-worker members are requesting for their labor contract. But, we want to illustrate to you what exactly these remaining unions are demanding, and, in our eyes, their desire to further addon to an original PTO package that already exceeds most private industries.
And, all while negotiations have stalled, the U.S. government has had to step in. It’s never ideal when two parties engaged in active talks are thrusted into compliance by the entrance of a more powerful third party.
It’s one thing to broker an agreement (like the Biden Administration did in September), but it’s completely different when they have to invoke legislation to prevent this contract dispute from spilling over into nationwide strikes or lockouts.
In other words, what does this all say about the relationship between unions and railroads going forward? Without the government being involved, would these two have gotten on the same tracks?
Insight: Chinese New Year
Even though Chinese New Year does not officially begin until January 22, it is never too early to be prepared as operations in factories start to slow and workers begin to leave for the holidays.
Chinese New Year 2023 Timeline
The CNY holiday begins Sunday, January 22 through February 5.
January 1-6: Factories will begin to stop production.
January 6-21: Workers will leave the factories to go on holiday.
January 21-27: The CNY holiday begins with week-long celebrations.
February 5: Workers return to factories and operations will start to being normal again.
Insight: South Korean Truckers Go on Strike
- Truckers continue to protest and are sitting at Busan port gates – no in and no out, no time limitation, per our partners.
- The strike has been occurring for a week and, as of now, remains active. This is the second strike at Busan in the last six months.
- Monday morning, reports shown container movement was at a quarter of normal levels at South Korea’s largest port.
- As of November 28, both sides report no progress towards reaching an agreement. However, talks continued Wednesday, November 30.
- The main issues the truckers have expressed are minimum wages and working conditions.
Insight: Cross-Border Trade Would Suffer a Blow if a Rail Strike Occurred
Whether you’re comfortable with Uncle Sam stepping in or not on labor negotiations, we all can agree that a nationwide rail strike would cause a “Magnitude 10” tremor for trade.
In 2021, rail was responsible for hauling $186 billion worth of freight cross-border between the U.S, Canada, and Mexico. And while, trucking dwarfs that number (trucks carried $830 billion), rail is no less a crucial mode for shippers, especially with certain commodities.
From finished vehicles and auto parts to grains, chocolates, and, yes, beer, the three North American countries rely on rail to import and export these sought after goods.
Take beer for example. 56 percent of beer imports to the U.S. comes through Eagle Pass, Texas. This unassuming hamlet happens to be the closest border crossing to the world’s largest brewery in Mexico. Virtually, every drop of the good stuff from popular Mexican brands, like Dos Equis and Corona, goes across this border by rail.