Interlog Insights

November
2022

The following is an archived collection of our weekly insights through the month of November. 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!

Coming soon to December’s issue is our new Magic Freight Ball segment. This will be a dedicated space for our experts to lay out their predictions of the freight market.

This month's insights

Week 3 - Originally released November 18

Insight: Imports from China Fell at a Larger Clip than Other Countries: Is this a sign that Transpacific Trade is Diversifying?

The U.S. and China are intimate partners in trade. China is our top trading partner and more than a third of all American containerized imports arrive from the world’s most populated country.

But, you likely already know this. If you have a stake in international shipping, especially as an American importer, China’s role in our commerce is apparent. We are familiar with its many regions and cities thanks to all of its bustling seaports importers typically route cargo from.

So, it came as a surprise when we learned import volumes from China have fallen in recent months. Sure, imports volumes have fallen from the transpacific across the board. What’s so special about this?

Well, import volumes from China have fallen farther than the total number of imports coming in.

Descartes Datamyne reported American containerized imports in October essentially leveled out (up 0.2 percent) month over month from September.

In that same period, imports from China fell 5.5 percent, or a slashing of 45,071 TEUs. And with this considerable drop comes a considerable gain from somewhere else to offset the total. In return, the fellow Asian counties of Thailand, South Korea, and Japan all reaped bumps to their U.S.-bound volumes over this period.

What does this mean?

While American imports from most countries have fallen the last several weeks, the plunge from China stands out. Of course, China’s stringent zero-Covid policies and lockdown measures have spurred on volatility for this trade, but even at the peak in May (Shanghai’s highly publicized lockdown), a healthy flow of goods still came out of China.

There has to be something else in play. But, what could that be?

If you can recall an earlier issue of Interlog Insights, we covered India and its trade with the U.S. Among our coverage, we noted the gradual shift over the last few years (even before the pandemic) of shippers—including retail giants like Amazon—allocating large orders from China to India.

India, and other Asian counties, are no doubt divvying up the U.S. market share from China.

Thanks to data compiled by FreightWaves, 2022 is the first year where import volumes from the rest of Asia surpassed by six percent the volumes alone from China.

For reference, up until 2019, China was essentially running laps around the rest of Asia with the distance it had from them in volumes.

China will not be dethroned, but the market is diversifying

But please be careful when jumping to conclusions. There won’t be a new sheriff in town for U.S. trade. At least not yet.

This data pitted China—one country—against the rest of the Asian continent. For one country alone, its volumes hold up pretty well.

Descartes revealed China claims a 35 percent share of U.S. imports. Clearly it still possesses the lion’s share. We don’t foresee China losing its status as America’s premier trading partner anytime soon.

What we do see however are gradual reductions to its share over time as other countries, especially in Asia, compete for a bigger slice of American imports. In fact, Descartes also found China’s market share was 40 percent in August. That means a 5 percent dip occurred within two months alone.

In any case, we will continue to pay special attention as transpacific trade continues to evolve and adapt over time.

Insight: Another Rail Union Has Rejected the Current Labor Agreement

The International Brotherhood of Boilermakers (IBB) rejected the current labor agreement, making it the third rail union to do so.

The union represents around 300 workers and they have agreed to hold a “cooling-off” period until December 9th. Which prevents them from engaging in work stoppages or self-help measures, per law.

As we mentioned in last week’s newsletter, BMWED extended their “cooling-off” period to December 4th, to align with the cooling-off periods of the other rail unions who either need to vote on the labor agreement, or to revote on whether to ratify their labor agreement.

One other thing to be aware of is the two largest rail unions will have their members’ votes counted this coming Monday, on November 21st.

Insight: Canadian Railroads Urging Importers to Retrieve Containers to ease Congestion

For the last couple of weeks, we discussed how Canadian railroads are dealing with congestion.

As a recap, ramps in Toronto and Montreal have continued to experience overflow of containers. With these challenges persisting, drayage truck drivers in those areas are continuing to avoid the congested rail ramps, until they do not have to wait hours to retrieve and drop off containers.

The main frustration is some containers have been forced to be stacked due to congestion at the intermodal terminals, which has created less space for truckers to get through the facilities.

Week 2 – Originally released November 11

Insight: It’s Too Early to Bank on a Familiar Pre-Pandemic Market. Be Flexible in Case of Market Shifts

The last two and a half years pushed our market to newfound heights of volatility. We’ve all read about. We’ve all heard about. And most importantly, we’ve all felt it. So, to save you some time, and recollection of bad memories, we are not going to recap it.

What we will recap though are recent trends, like fallen (almost pre-pandemic) ocean freight rates and softened capacity, that have grabbed all our attention and hopes.

In the face of this, shippers are beginning to yearn of the “good ol’ days” before any Covid calamity where logistics seemed effervescently easy. Some shippers are even dreaming in their sleep of returning to their annual RFPs, a once tried-and-true bringer of real cost savings.

It’s Too Early to Bank on a Familiar Pre-Pandemic Market

Well, it’s a bit premature for shippers to embrace old-school decision-making processes, like yearly RFPs, even though it seems like we are jaunting back to market stability.

Take a step back. For every action, there’s a whole lot of reaction that follows. And, in some cases, overreaction.

Yes, we are seeing improvements to our market but, none of us can know for certain if these trends will hold.

In fact, these low rates and capacity openings are in large part a product of importer’s overreacting in the first place, as we mentioned before.

Be Flexible and Open in Case of Market Shifts

Annual RFPs are an expedient way to manage your logistics. It’s convenient. It may appear practical. But, amid market volatility the past couple of years, almost everyone and their grandmother took a step back and rethought this typical process.

Shorter bid cycles became key. And, in our eyes, is still key.

Briefer and more relevant bid cycles can cut back on getting locked out of capacity or locked in with carriers providing rates they cannot cover over time.

Sure, will an importer get locked out of capacity right now? Probably not. Are carriers and 3PLs offering low and competitive rates to importers? They most likely are.

But, what about two weeks from now? Two months from now?

Over the past two years, there’s been a market shift seemingly every month.

What’s new this time around that would make someone believe this will not be the case again?

If. Pardon – when the market shifts again, shippers deferring to an annual surrendering of their freight with a select provider may keep them in the dark with no visibility to conditions as they change. All the provider really has to do is shrug its shoulders.

Shorter contracts allow flexibility for the shipper. Whether rates go up or down. Whether capacity softens or tightens. This shorter time frame between bids allows for the shipper to plan around these market changes.

It puts the onus onto carriers, forwarders, or other involved parties to be transparent and accountable for addressing when sudden changes occur in the market and how it impacts a shipper’s freight.

The New Normal

When we speak of volatility going forward, we don’t mean the type of market shift where a container will cost $3,000 one month and $12,000 the next month. Volatility is the unexpected that occurs in our industry. The silver lining of the last two years is how much more prepared we are altogether.

We unlocked the foresight to put in processes, like shorter bid cycles, to adapt with market shifts.

So whether the next shift is big or small, maintaining control and flexibility to manage these ebbs and flows is crucial.

At Interlog, we believe logistics is in a new normal. This isn’t some post-apocalyptic new normal where chaos is always present, but rather a new normal where our industry is more receptive and proactive to inevitable changes in the market.

Insight: Wild West Coast: Rail Union Extends Cooling-Off Period till Early December

The Brotherhood of Maintenance of Way – Employees Division (BMWED) have extended their cooling-off period to align with the cooling-off periods of the three other unions who have yet to vote or revote on whether to ratify their labor agreements.

During the cooling-off period, both the unions and the railroads are NOT allowed to engage in any work stoppages or self-help measures, as required by federal law.

As of now, the cooling-off periods for the rail unions BLET and SMART-TD will be in place till December 9th, just a little after midnight. BMWED’s cooling-off period will end at that time as well. Previously their cooling-off period would end after November 19th.

Now, for the rail union BRS, their cooling-off period is set to end on December 4th – however, there is a clause that it could slide back to December 9th, pending on if ratification failed for one of the operating crafts, the Association of American Railroads reported.

As of now, Norfolk Southern stated they have no plans to halt service in the coming days. With Union Pacific echoing that statement, that they do not plan to make service adjustments due to the cooling off period extension. However, UP did not that they are prepared to take steps to minimize threats to safety and security, as well as potential loss and damage to customer cargo IF the threat of a rail strike returns – reporting from Supply Chain Dive shows.

Insight: Canada is Rethinking its Port System

Many forwarders and other industry stakeholders have urged Canada to increase funds towards federal action, in an effort to relieve western port congestion.

In 2018, Canada launched the “Ports Modernization Review” which will lead the way for federal legislation to be introduced by the end of the year. To hopefully find efficient ways to relieve port congestion, among other things.

If you remember last year in November, flooding and heavy rains struck Vancouver. That disastrous weather caused Vancouver to be temporarily cut off from highway and rail access. While it is hard to be completely prepared for severe weather, Canada (and other countries) should find ways to adapt their supply chains from severe weather disruptions.

Let’s compare the Canadian port system to the U.S. for a moment. Currently, the U.S. is investing more than $11.8 billion into ports, as part of their $1 trillion infrastructure bill that was signed into law this time last year. The U.S. also has the U.S. Federal Maritime Commission, a type of maritime regulatory agency that Canada is lacking.

The Canadian Port authorities also would like a more streamlined process for getting port projects permitted.

Week 1 – Originally released November 4

Insight: Did importers overreact? Will demand rebound?

As November arrives so does another installment of Interlog Insights. Whether it’s your first time checking in or you’ve been along since the newsletter’s start in August, we appreciate your readership.

For those who have been following for last couple of months, remember September’s coverage of peak season?

Spoiler alert. It never materialized. Despite August and September traditionally being the time of year when importer demand is at its highest (hence peak season), 2022 decided, “I’m not like other years”, and flipped the script.

Yesteryear’s typical flood of transpacific imports through the nation’s freight hubs was bizarrely tame. This past September, rates were (and still are) flirting at near pre-pandemic levels. Capacity, despite carriers cutting back, remained loose and space was available for the taking.

After scratching our heads for a few minutes, we thought back to earlier in the year. Through the spring and early summer, importers were determined to get their cargo in early out of fears to last year’s congestion and heightened consumer demand during September and October.

Clearly, peak season for 2022 shifted and happened a lot earlier in the year than it ever has before.

And now, importers are stuck with excess inventory. Did they overreact?

Well, Rolf Habben Jansen, CEO of ocean liner Hapag-Lloyd, thinks so. Courtesy of FreightWaves, Jansen states overreaction from everyone is happening “all the time”.

With importers fearing the worst, they placed holiday and typically end-of-year orders to earlier parts of 2022 expecting high demand. The next thing you know, this strategy to avoid peak season became peak season.

Inventories and warehouses are now filled to the brim all while congestion and consumer demand is no where near as pronounced as was imagined earlier in the year. Of course with all this extra product, importers have refrained from being as aggressive with ordering.

So yes, it does seem that there was an overreaction from importers. But, to be fair, hindsight is always 20/20. It was not at all irrational to ship product and stock inventories in advance. More of the issue was how much was bought, not necessarily the timing.

A thought going forward is how it can be managed even better for years ahead. We consider this one of many silver linings in the industry that has emerged from Covid-era logistics. Are there ways importers can parcel off orders throughout the year to avoid a conventional peak season bustle?

Jansen went on to say that after this overreaction settles, underlying consumer demand should reveal itself as relatively healthy. Over time inventories will clear up as consumers steadily buy and, in return, a bounce-back in import volumes should be in store.

It’ll likely be a manageable rebound. But, we have also seen rapid spikes before as well the past two years.

Insight: Disruption at the Port of Oakland

Some marine clerks from the International Longshore & Warehouse Union (ILWU) picketed at the Port of Oakland.
Some are saying the reason is over a travel pay issue for dockworkers who come into the port from out of city locations. While others say the walkout happened because workers have not been paid on time.
Regardless, this forced three out of the four container terminals at the Port to halt operations during the first shift on Wednesday, November 2nd.
The domestic terminal remained open, and operations resumed yesterday evening at the international marine terminals, with normal shipping operations continuing.
You can read more, here

Insight: Canadian Railroads Encourage Importers to Retrieve Containers Promptly to Decongest Inland Rail Ramps:

Currently, ramps in Toronto and Montreal are experiencing an overflow of containers because warehouses in those regions are full – a large reason being the labor shortages in Canada’s supply chain.
These iss
Last Friday rail container dwell times were about 5 days or longer. Back in September, those averages were around 3.9 days.
ues at inland rail ramps from CN and CP railroads have cause rail container dwell times to increase in Vancouver – even after seeing a decent amount of improvement in September.